As the next presidential election looms, there is rising anxiety about how the outcome is going to impact people’s pocketbooks. And the fear is understandable. No matter where you look (Google News, Facebook, your local station) today or over the coming months, every lead story you see is likely going to be about the upcoming election.
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.
But, what about your financial wellbeing and future? Should you be taking drastic action now to prepare for the worst? Probably not, but elections do have consequences, and it’s always a good idea to have a sound financial plan in place.
Elections Are Contentious by Nature
Elections have always been adversarial, but they seem to have become “louder” in recent years. The accusations of “us versus them” have turned more contentious, and the headlines scream for the attention of readers and viewers.
The political divisiveness that we see today may be new, but fears surrounding elections aren’t unique. There has always been an emotional aspect tied to elections, and this can impact other areas of your life.
Consider the analogy of a fitted sheet on a bed. It’s always annoying to put that bottom sheet on because it’s supposed to be tight, right? It’s always that last corner that gives you the most trouble because, if you pull too hard, the others all come undone! Essentially, stress on one corner is stress on the others as well.
The same idea holds true with the anxiety-laden election process. Those clickbait opinion pieces and contentious headlines stress not just one corner, but all corners of your life. For example, you might get the idea, directly or indirectly from a commentator, that your entire financial plan is at risk. Sure, elections can have an impact, but action in the face of what “might” happen should always be deliberate and informed by evidence instead of driven by emotion. And this is where looking at history helps immensely.
Do Elections Really Impact Your Portfolio?
We now have access to more data than ever about what happens to the economy and financial markets in the wake of a presidential election. So, when we look at the data, what do we find? Well, we find no clear connection between the outcome of an election and the impact on financial markets.
In fact, the reverse may be true. Statistics show that, in nearly 90% of cases going back to the Great Depression, when the market has been up in the three months before the presidential election, the party in power has been re-elected. The reverse has also been the case, where the other party takes over in 90% of cases when the market is down.
What You CAN Control vs. What You CAN’T
Of course, politics might play a role in some decisions, but it can be dangerous to let emotion drive your 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.
In the past, you’d need to make an appointment with your financial advisor to talk things through, which acted as something of a safeguard. Today individuals and business owners alike can get caught in the trap of fixating on things that are beyond their 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 can control what you save, what you spend, and when you transition out of work. You can look at these in terms of what you worry might happen (worst case scenario) as well as where you’d like to be in the short, medium, and long-term. There are plenty of variables that you control, and your financial plan should be your own based on your particular concerns and objectives.
Your vote counts, but you can’t control this nation’s political landscape. So, it’s best to focus on what you can control and not allow yourself to become caught up in the media frenzy that surrounds an election.
Mitigating Political Risk with the Right Plan
You will be in a much better position to weather any changes with the right financial plan in place. And this means planning to address short-term uncertainty. Understanding your financial goals and tolerance for risk, you and your financial advisor can ensure that it meets your short, medium, and long-term goals under a variety of conditions.
Worried about the outcome of the election, the next downturn or impact of any other headlines on your future? Contact us today. We’re here to help!
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.