Election Year Impact On Your Investment Plan
As we approach Election Day and the outcomes that follow, the one message you’re likely not hearing in the heat of candidate advertising and talking head rhetoric is this – cooler heads prevail.
However, when it comes to an election year and your investment plan, that’s precisely the type of mindset one needs to maintain as the seats get shuffled in Washington. With that in mind, I want to share a few perspectives and historical data from JP Morgan, Dimensional Funds, and Schwab, all of which should help put you at ease as the political rhetoric moves into high gear.
Earlier this year, Shawn Snyder, Global Investment Strategist for JPMorgan Private Bank, offered up election year perspectives that are worth sharing. Here are a few highlights from Snyder’s article:
Administrative policy differences could potentially impact markets. Three issues that Snyder is keeping an eye on include views on tariffs, tax cuts, and near-term changes in sector performance. Election outcomes in Congress and the White House will go a long way to determining what the potential impact will be on these specific issues, but it remains purely speculative until the election is behind us.
Perhaps equally important as the issues worth monitoring are three myths about elections and investing that Snyder calls out and debunks:
Myth 1: Stocks don’t do well in election years. Election year stock returns have sometimes underperformed non-election years, but the difference is slight.
Myth 2: Markets will go down if so-and-so wins. Here’s the reality: The economic backdrop at election time tends to matter more than the victor. It’s true that some election years have seen bigger swings than others, but the reasons were largely macroeconomic.
Myth 3: The Federal Reserve (Fed) won’t change policy in election years. Reality: The Fed has not shied away from hiking or cutting rates during election years.
Prior to early voting that went into effect on Oct. 8 in Ohio, Dimensional Funds had this to say in its published article Presidential Elections: What Do They Mean for Markets?
“It’s natural for investors to look for a connection between who wins the White House and which way stocks will go. But shareholders are investing in companies, not a political party. And companies focus on serving their customers and helping their businesses grow, regardless of who is in the White House.
Stocks have rewarded disciplined investors over the long term, through Democratic and Republican presidencies. Making investment decisions based on the outcome of elections, or how investors think they might unfold, is unlikely to result in reliable excess returns. On the contrary, it may lead to costly mistakes. Accordingly, there is a strong case for investors to rely on a consistent approach to asset allocation—making a long-term plan and sticking to it.”
And lastly, Schwab’s Center for Financial Research further underscores the importance of following sound investment principles, such as having and following and long-term investment plan, and staying in the market and weathering volatility according to your plan – regardless of what party prevails.
None of us are immune from the emotional toll that election messaging places upon us, especially as those heated messages hammer away at our personal and financial outlook.
However, this is where cooler heads prevail.
It is also why we sit down with you to develop a personalized investment plan and exercise the discipline to follow it – because it makes all the difference in avoiding emotional, short-term mistakes for the benefit of achieving the long-term goals.
Certainly, our discipline gets tested when unexpected market shifts occur. Yet the reality in an election year is that we can expect to see some undisciplined, kneejerk reactions and shifts. Knowing that going in gives you greater confidence to stay true to your plan, which remains active and intact regardless of the shifting political climate.
As always, if you have any questions or concerns about current market trends and the impact on your personal situation and plan, please contact us and we would be happy to discuss.