Brace Yourself: How to Prepare for the Election and Its Impact on the Markets
Regardless of where you stand politically, you’re probably concerned about the upcoming election’s outcome for a number of reasons—including its impact on your accounts and investments. Will the results send stocks soaring to new heights, will it have investors holding on for dear life as we experience new lows, or will it rocket us up and down for months on end as we settle into whatever tomorrow may hold?
Quite simply, it’s hard to say. Data from the past ninety years has shown certain patterns that arise during election years. Gains tend to be more muted in the years leading up to elections: less than 6 percent, compared to around 8.5 percent annually during those times when we aren’t voting for commander in chief. When new parties arrive at the helm, we typically see stock market gains of around 5 percent, while a president’s re-election usually brings with it slightly higher results—with gains around 6.5 percent. Any uncertainty in terms of the winner will likely bring with it added volatility.
Of course, policy changes affecting taxes, spending, and regulations also have an effect on the markets. And the numerous complications of our current global state make it much more challenging to predict what will happen in the coming weeks and in the months and years that follow. While that reality may have you reaching for the antacids, you can take steps to make your way through the melee intact.
Here are a few strategies to keep some of your worries—and reflux—at bay.
Diversify, diversify, diversify. My clients may think I sound like a broken record, but I can’t overstate the importance of diversity when it comes to your portfolio—especially in turbulent times. While that may mean having different types of stocks, a variety of representation across market sectors, and a plethora of bond types, it’s also about acquiring holdings that reflect your unique situation—not just that of the outside world.
Play the long game. It’s easy to get caught up in the volatility of it all, religiously following the market’s peaks and craters, but ultimately, investing is a long game. Panicking about every adjustment only leads to poor decisions in the face of temporary circumstances. That’s why I often counsel my clients that dispassion is one of the most powerful tools out there when it comes to navigating the markets and keeping one’s earnings intact.
Don’t go it alone. Of course, sometimes all of this is easier said than done. It’s hard to make rational choices when it seems your financial future is flashing before your eyes. That’s where a trusted advisor can be a tremendous help. Someone with experience navigating treacherous financial landscapes can provide the guidance you need to make informed choices during the trickiest of times, helping you get to the other side with your funds—and sanity—intact.
First and foremost, your advisor should take the time to understand your individual priorities. After all, their bottom line should be your success, and an election cycle doesn’t change that.
As November 3 nears, keep in mind that so much of managing your wealth is about reconciling the latest news with long-term trends and your individual needs. For additional guidance on what to do in November and beyond, check out my book, You’re Retired… Now What?
Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.