2020 has been a whirlwind, and that excitement isn’t likely to slow down as millions of Americans prepare for the upcoming election. On the state-level, we will be selecting governors, representatives, and senators we believe have our best interest at heart; as a country, we will cast our votes for the next President of the United States.
Of course, with every election comes speculation as to how the political party in power will affect the economy. Uncertainty and anxiety circulate in the media about how policy could affect our lives and our economy. Perhaps you recall the 2016 election. Popular cries insisted the stock market would crash if Trump were elected president.[i] But, in fact, despite Brexit, trade wars, and negative interest rates, the markets reached all time highs[ii] prior to COVID-19. But, it’s only natural to see election years as possible turning points in the economy.
Is it time to worry?
But, just how much should investors worry? Perhaps less than you might think. According to the 2019 Dimensional Funds Matrix Book Report, the market has ended the year with positive investment returns in 19 of the last 23 election years from 1928–2016. Only 17% of election years since 1928 resulted in negative returns.
Of course, if there is one thing we know about investing and the stock market, it’s that past performance doesn’t guarantee future results. And with the year we’ve been having, anxieties may be even higher. We are experiencing a severe contraction in the domestic economy and millions of Americans are still out of work. Congress has mentioned further economic stimulus, but has yet to confirm concrete plans. It may feel as if our economy is already on the rocks, resulting in higher election tensions.
Avoid playing election roulette.
As we approach election season and you begin to hear the buzz of prognostications about what will happen with the economy if a certain party gains power, we encourage you to consult with your financial advisor before making any major money moves. Making investment decisions based on election theories or hype is that there is no guarantee you will get the timing just right—and not just timing when to sell. You also have to decide when to buy again. This jumping in and out of the market imposes far too much risk on your potential portfolio growth. Additionally, there are far too many extant factors that impact market movement to rely on election speculations alone to decide your fate.
Lean on your RiversEdge Team.
It’s only natural to feel anxious about election years and how they could impact the economy without the added bonus of a worldwide pandemic and all that has accompanied that. The best course of action, though, is to “keep calm and consult your financial professional.” We take these uncertainties into account when building your portfolio and continuously monitor and adjust your plans when necessary. If, though, at any point you have concerns about your financial plan, investment decisions, or the impending election, please reach out to us to help guide you through it.
[i] Ben White, “Economists: A Trump win would tank the markets,” Politico, October 21, 2016.