If you’re feeling a little uneasy about what’s going to happen to your investment portfolio when a new president is elected, you’re not alone. Every four years during election season, people’s heads start spinning with all sorts of stock market warnings and predictions based on who will win the White House. And while some of this noise may seem trivial, elections do, in fact, occasionally affect the perception of the U.S. economy and how well it performs.
That’s because so much uncertainty often leads to inaction. Will taxes go up? What will happen with health care? How will new policies affect my investments? With all these questions looming, it can be tempting to make impulsive decisions or the opposite — do nothing at all.
It’s important to remember that how well stocks perform during an election year has more to do with the economic climate than with which candidate wins the election. In fact, data suggests that, historically, all the hysteria is unfounded: Unless there’s a recession to blame, stock market returns are only slightly weaker than normal during an election year.*
The short answer to this question is no. While the party that wins the White House will have a significant impact on many areas, your stock portfolio is probably not one of them. The perception that Republicans are more business-friendly, and therefore better for the stock market, is skewed. On the contrary, since 1900, the Dow Jones industrial average has been up an average of 9 percent annually during a Democratic administration, compared to 6 percent when Republicans were leading the country.**
The most critical piece of advice investors should remember during an election year is to avoid making impulsive moves. Knee-jerk reactions to election year stock predictions won’t do your investment portfolio any good. Unless you have a crystal ball, it’s almost impossible to anticipate the ebb and flow of stock market cycles. Rather than try to guess which candidate will win the upcoming election and how it will affect your portfolio, you’d be better served by focusing on investment strategies that are within your control.
So block out all the election year noise and stay your current course, or make adjustments to your portfolio based on sound investment strategy — not emotions. For help with your investments, contact your Seaside Client Advisor.
* Source: Market Watch.
** Source: Kiplinger.
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