Investing during an election year

We are getting close to elections. One of the more frequent questions we field at Parallel centers around uncertainty in politics and “should I sit this market out for a bit?” 

Investing during an election year can be fraught with uncertainty, but history shows that staying invested is often the best strategy. First, markets have historically rebounded after elections, regardless of the political outcome. While emotions can lead to short-term volatility, the stock market generally trends upward over the long term.

One key reason to remain invested is that economic fundamentals typically drive market performance more than political events. Factors such as corporate earnings, consumer spending, and overall economic growth play a much larger role in determining stock prices than election results. Thus, a focus on these underlying economic conditions can provide a clearer picture of market potential.

Additionally, the Federal Reserve’s monetary policy often exerts a more significant influence on the markets than election outcomes. Interest rate changes and other economic policies can shape market dynamics, making it essential to prioritize these over short-lived political anxieties.

Moreover, attempting to time the market around elections can be risky. Investors who sell their holdings in reaction to political events may miss out on subsequent market gains. Historically, significant market recoveries often occur shortly after elections, which can leave those on the sidelines at a disadvantage.

Finally, markets tend to adapt. Businesses are resilient and can often find ways to thrive despite political changes. Staying invested is the only way to achieve the long-term returns of the financial markets. 

From an historical perspective, our friends at Dimensional Fund Advisors have some interesting statistics surrounding what happens after elections. If you have some time, you can click the link here.

So, what do we believe is more important than worrying about elections and your money? We believe focusing on your personal goals matters. If you haven’t reviewed your goals and investments lately, or if you have money saved with no clearly defined goal, maybe it’s time to reach out to talk with us! Election time volatility is not uncommon, but identifying your goals and marshalling your money to help achieve those goals is a good idea at any time. It’s where we can help manage your money so you can live your life.