Investors & the Markets: What to Watch Out for in an Election Year

Maureen McShane |
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Smart investing doesn’t happen in a vacuum.

Current events matter, and this year, the 2024 Presidential Elections are taking center stage.

That’s rattling a lot of us, causing more election stress than ever before.1

It’s also raising a lot of questions about investing in election years, how to respond to market uncertainty, and what money moves truly make sense.

Here’s a handful of key factors to keep in mind when you’re investing in an election year.

5 Things That Can Trip Investors Up in Election Years (& How to Handle Them)

Election years, especially ones with presidential candidates on the ballot, can dial up the emotions, anxiety, and general frenzy in American politics and our financial lives.1 Whether or not you’re feeling that this year, don’t let the factors below get in the way of prudent financial choices and your big-picture goals.

1. Political “noise” & bias

Scary news gets views, clicks, and eyeballs, and election years can give rise to all sorts of unsettling headlines and stories.2

That’s one reason why more headlines are focused on fear, anger, and disgust-driven topics these days.2

It’s also why more of us find ourselves doom scrolling and second-guessing the media. 2, 3

And no matter where we go for news in an election year, we can be inundated with alarming information and “what ifs,” which can make us spin out every worst-case scenario.4

With that, we’re more likely to overestimate the risks and impacts of the other party’s policies.5, 6

Pro Tip: Stick to a few trusted media sources for your news. Don’t spend hours reading, watching, or listening to the news. If you need to check headlines every day, set aside just a few minutes. Also, turn off your push notifications for news apps, so you can take in the shocking headlines on your terms and timetable.

2. A short-term outlook

With a presidential election on the horizon, a lot of attention is paid to who’s running, what they’re promising, and what they’ll do if they win. That can shift our mindset to the short-term, making us far more sensitive to the smaller market hiccups that may occur in election years.7

It can also mean we put far too much weight into the results of any given election.

Pro Tip: Remember, the markets don’t actually care about elections and presidents, per se. Policies matter more.7 Plus, regardless of which party takes control of the White House, most election years have brought stock market gains, with more stability after the election is over.8 So, try not to zero in on the 2024 (or any) Presidential Election results as making it or breaking it for your financial life and future.

3. Ignoring the trends (or not taking a moment to learn them)

Election year stock trends can show that the markets may be less volatile than you expect around election time.8 In fact, positive returns have marked most election years over the past century, even during some of the most politically contentious elections in U.S. history. That includes the last three elections in:8, 9

  • 2020 when Joe Biden won, and market returns were 18.4%.
  • 2016 when Donald Trump won, and S&P returns were 11.96%.
  • 2012 when sitting President Barack Obama was reelected, and market returns were 16%.

That macro trend and others can ease our election stress and help us put the drama of politics in its place. And its place should not be the driver’s seat when it comes to our financial decisions.

Pro Tip: Get up to speed with or brush up on general market trends in election years. As you do, it’s crucial to keep this next part in mind.

4. Trying to time the markets

Timing the markets can be a fool’s game. That’s why most pros say time in the markets is far better than timing the markets.

And if your long-term goals and overall circumstances haven’t really changed, wild changes in your investment strategies may not make a whole lot of sense, presidential election year or not.

Pro Tip: Don’t base your financial moves on politics, trending stories, or heat-of-the-moment panics. And, remember, if you’re pulling out of the markets because of an election or who won it, you could be cutting off your nose to spite your face. That’s because you could miss out on the returns and stronger market performance that tend to occur in years three and four of an election cycle.8

5. Not checking in with a financial pro

With major events like elections, uncertainty is natural. None of us know exactly how it’s all going to play out, and that can be nerve-racking from a financial perspective. Trying to balance all of that on your own can be a mistake.

Pro Tip: If you’re considering a major money move before or because of an election, talk it out with a pro first. Connecting with a financial professional, especially during an election year, can offer the insights and advice you may need to make better financial choices in and outside of any election year.

Sources:

  1. https://www.apa.org/news/press/releases/2020/10/election-stress
  2. https://www.vox.com/the-highlight/23596969/bad-news-negativity-bias-media
  3. https://www.pewresearch.org/journalism/2020/01/24/u-s-media-polarization-and-the-2020-election-a-nation-divided/
  4. https://hbr.org/2020/09/what-to-do-when-your-mind-always-dwells-on-the-worst-case-scenario
  5. https://www.commonwealth.com/insights/investing-in-an-election-year
  6. https://www.ussc.edu.au/the-peril-of-modern-democracy-short-term-thinking-in-a-long-term-world
  7. https://www.usbank.com/investing/financial-perspectives/market-news/how-presidential-elections-affect-the-stock-market.html
  8. https://www.visualcapitalist.com/u-s-stock-market-perform-election-years/#google_vignette
  9. https://www.slickcharts.com/sp500/returns

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