Headlines, social media, internet ads, 24 hour news – everything seems determined to remind us that there’s a presidential election coming. And most aren’t content to state facts and call it a day (this won’t earn them enough ad dollars). Instead, they’ll spin the stories to let you know how certain outcomes might lead to the next recession or spell the end of democracy as we know it.
So, if you’re more than a little uneasy about how this will affect your pocketbook, you’re not alone. But what should you do? Should you be taking drastic action now to prepare for the worst? We find that the best start is usually a look at what history has to say.
Do elections really impact your portfolio?
We have more access than ever to data about what happens in the stock market in the wake of a presidential election. So what do we find? We find two important points.
- Markets don’t predictably react to elections. We don’t find a clear correlation between the outcome of an election and the impact on financial markets. The market doesn’t seem to care all the much if the incumbent party wins or loses or if parties in the White House and Congress are divided or unified.
- Elections do react to markets. Going back to the Great Depression, if the stock market was up in the three months preceding the election, the incumbent party was reelected nearly 90% of time. If the market was down over those three months, 90% of elections voted the incumbent party out.
So, while the election doesn’t have strong predictive power for the market, the market has quite a lot to tell us about what to expect in an election!
Put what You CAN’T control in terms of what you CAN
Of course, politics might play a role in some decisions, but it’s always dangerous to let emotion drive financial planning and investment choices. We live in an age where a person can impulsively sell everything with the push of a button after reading a polarizing Facebook post or Tweet. It’s easy to get caught in the trap of fixating on things beyond your control, such as inflation rates, the tax code, the ups and downs of the stock market…or those stressful political headlines! So, what can you control? There’s plenty!
You control what you save, what you spend, and when you transition out of work. And, with a comprehensive plan in place, your advising team can talk through concerns and their potential impacts with you and help plan accordingly. This allows you to put the effects of things out of your control back in terms of what you do control!
And, of course, a break from the headlines never hurts.
The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.