Avoid Election Year Myths About Investing
Elections often ignite intense passion for political candidates and their policies, which is understandable given the potential impact. Whether at the federal or state level, the policies of presidents, members of Congress or senators can significantly affect the unique needs and desires of Americans.
Perceptions about an election’s impact on financial markets can sometimes be misguided or exaggerated, particularly the belief that the president holds significant sway over market outcomes. A recent survey by Nationwide Retirement Institute and Harris Poll found that nearly one in three investors fear a recession within a year if their least preferred political party gains power in the 2024 federal elections.
While various branches of the federal government can influence short-term market conditions through policies and regulations, long-term investment outcomes are predominantly shaped by factors like corporate earnings, innovation, economic indicators and supply-chain dynamics.
Over the longer term, the party affiliation of the president has minimal impact on market returns. From 1946 to 2020, the stock market yielded comparable returns under Democratic and Republican administrations.
Consistent Investment with a Long-Term Outlook is What Matters
Despite the personal and emotional nature of elections, they don’t need to influence your investment approach. A solid investment strategy is the most important factor that can determine how your investments will perform long-term.
1. Align Your Goals
- Everyone has short, intermediate and long-term financial goals. If you can stay invested for longer, then you may be able to tolerate higher risk to earn better returns. Short- or intermediate-term investing goals generally have lower risk tolerance since the money is needed sooner.
2. Consistent Investing
- Making regular contributions of any size helps you capitalize on the benefits of compounded earnings and dividends or interest. These returns can help grow your investments exponentially over time. Consistent investing along with compounding and time can help grow your financial assets.
3. Diversification
- Spanning investments across different companies and industries can help decrease your portfolio’s risk. If one company or industry is struggling, other companies or industries may keep the portfolio resilient.
4. Asset Allocation
- Choosing a range of investment vehicles such as stocks, mutual funds, bonds and high-yield savings instruments can help drive your strategy to reach your financial goals. Your strategy will change depending on your timeline - if you are saving to purchase a home in one year, less risky investments such as a Certificate of Deposit (CD) may be your best alternative to help mitigate risk and make sure the money is there when you are ready. Saving for a long-term goal such as retirement may benefit from stocks and mutual funds, which have generated the highest returns over time.
During election years, emotions can run high, leading to a false perception of increased investment risk. Wealth Management by CommunityAmerica Wealth Advisors can provide objectivity and reduce emotional investment decisions during this election year and any year moving forward.
