Approaching the 2024 presidential election, you may wonder if you should make any financial moves. Our answer, based on data and past precedents, is simple: you shouldn’t. The most important thing to do is keep a level head and avoid making decisions based on your personal beliefs or emotions. The late behavioral economist Daniel Kahneman wrote, “Nothing in life is as important as you think it is while you are thinking about it.”
It’s natural to feel stressed or overwhelmed before such a major election. If you’re worried, you’re not alone. Studies indicate that 35%1 of investors are anxious about the election, and that number jumps to 49%2 for affluent and ultra-high net worth individuals. However, most investors are not planning to change their long-term investment strategies or major financial decisions based on the potential results of the election.
Deciding to do nothing is often the simplest, and best, way to go. Historically, markets have responded much less to political conditions than to economic ones, and long-term diversified investing remains your most reliable path. In the short term, election years should not concern you, either. Despite common perception, markets have grown by an average of 7.5%3 during election years, only half a percentage point lower than the average for non-election years.
If you’re concerned about how the winning president will impact your investments, you should know that the stock market is unlikely to change based on which party occupies the White House. In the past, the market has performed better under Democratic presidents, though the party split of Congress does have an impact. However, the difference based on party prevalence has been small4.
While political outcomes may influence market sentiment, they are not the main drivers of long-term market performance. Investors who remain committed to their long-term goals are more likely to benefit from the market’s overall upward trend, regardless of short-term fluctuations. Presidents are more likely to influence your finances through tax policies, rather than their impact on markets or the Federal Reserve.
Given the heightened emotions and uncertainties surrounding elections, working with a financial advisor at Fairman Financial can be particularly beneficial during this time. Our advisors can provide valuable perspective and guidance, helping you avoid reactive decisions that could derail long-term financial plans. An independent investment advisor can also help tailor an investment strategy that aligns with your risk tolerance and long-term goals, ensuring that you remain on track regardless of the political landscape.
An advisor can help navigate potential market volatility by maintaining a diversified portfolio. Diversification is a key strategy for managing risk, as it spreads investments across various asset classes and capital markets, reducing the impact of any one event on an overall portfolio. This approach can help mitigate the effects of short-term market movements. Our team works diligently to construct durable portfolios that can stand the test of election and economic cycles.
In these times, it’s essential to focus on what you can control – your strategy, your goals, and your actions. The market has weathered elections before, and with a steady approach, your investments can do the same. The markets tend to rise5 slightly after elections conclude because the next four years look more certain.
We recommend sticking to a well-thought-out, long-term, measured investment plan that works for you, whether you’re facing an election year or not. If you’re not sure where to start, seek trustworthy advice from one of our advisors. Politics don’t impact your portfolio as much as you might think, so try not to make drastic financial changes in the weeks leading up to Election Day.
Sources:
1 Retrieved from: https://www.betterment.com/hubfs/PDFs/b4c/2024%20Retail%20Survey_Betterment.pdf
2 Retrieved from: https://cdn.janushenderson.com/webdocs/2023+Investor+Survey+Report_Public.pdf
4 Retrieved from: https://www.schwab.com/learn/story/emotional-rescue-markets-fed-policy-and-elections
5 Retrieved from: https://www.jpmorgan.com/insights/outlook/economic-outlook/a-new-presidential-race-is-on-know-the-potential-investment-implications
About Fairman Financial
Fairman Financial is a fee-only financial planning firm located in Chesterbrook, PA, offering wealth management, investment advisory, tax and personal accounting services to individuals in the greater Philadelphia area since 2002. Investment advisory services are provided by The Fairman Group LLC, a registered investment advisor with the Securities and Exchange Commission.
