Presidential election years can bring heightened market volatility as investors grapple with potential policy shifts. This stems from investor uncertainty surrounding potential policy changes by the incoming administration. However, historical data shows a reassuring trend and a more composed approach.
Market Performance in Election Years
Contrary to popular belief, the stock market has historically exhibited resilience during election years. Despite increased volatility, long-term returns have remained positive. Research from Fidelity underscores this trend, showing an average return of 9.1% for US stocks since 1950 in election years.
Dispelling Common Myths
Several misconceptions about elections and investing persist:
- Myth 1: Stocks underperform during election years. While it’s true that election year stock returns have sometimes been slightly lower than non-election years, historical data shows that this isn’t a consistent trend. In fact, the S&P 500 has historically delivered solid returns in presidential election years.
- Myth 2: The outcome of an election determines market performance. The reality is that the overall economic climate has a much greater influence on the stock market than who wins the election. Factors like economic growth, inflation, and interest rates play a far more significant role in market movements.
- Myth 3: The Federal Reserve avoids making policy changes during election years. Contrary to this belief, the Federal Reserve has a history of adjusting interest rates as needed, regardless of the election cycle. Their primary focus is on maintaining economic stability.
Historical data shows that economic factors and Federal Reserve policies typically have a more significant impact on market movements than election results.
Staying Focused on Your Investment Goals
To navigate election-year turbulence, investors should:
- Maintain a long-term perspective: The market’s upward trajectory over time has prevailed regardless of political leadership.
- Diversify your portfolio: Spreading investments across different asset classes can mitigate risk.
- Stay informed, but avoid knee-jerk reactions: Monitor market trends and economic indicators without letting short-term political noise dictate decisions.
- Consult a financial advisor: Professional guidance can help tailor your investment strategy to your specific goals.
Election years can be filled with uncertainty, but they shouldn’t dictate your investment strategy. By focusing on long-term goals, maintaining a diversified portfolio, and staying informed, you can navigate market fluctuations and position yourself for financial success.
At Kramer Wealth Managers, we believe in empowering you to make informed decisions. Contact us today to schedule a consultation with a financial advisor and discuss your investment plans.
