A new year, a fresh start, and another U.S. Presidential election! As the calendar flips to another election year, you may find yourself worrying about the impact political change may have on your investment portfolio and financial plan. If so, you’re not alone! As the 2024 U.S. Presidential election nears, many investors report worrying about the potential impact of this year’s election on their financial portfolio. Add to this concern, a daily bombardment of fears by the media regarding war in the middle east, recession, and inflation, and it’s often hard to decipher what’s truly cause for concern and what’s just plain noise. To help put your mind at ease, let’s look at the market’s historical reaction during election years, and ways to help you navigate this perceived turbulent time.
Past Performance Isn’t a Predictor of Future Returns… But It May Provide Investors with Comfort
History has shown us that market performance in election years could be encouraging for concerned investors. Since 1928, the S&P 500 Index recorded positive returns in 83% of the 24 election years. Further, the average return for those election years was 11.6%, well above the S&P 500 average return of 9.8% for all years since 1928. This begs the question: Is investor worry during election years much ado about nothing?
Three Timeless Truths for Financial Well-being During Election Years and Beyond
As we forge ahead into an election year that’s bound to be an emotional roller coaster ride for our sense of financial well-being, it’s critical to remember three timeless truths in the search for financial peace of mind in 2024 and beyond.
1. Drown out the noise:
While it’s essential to stay informed about how potential economic and political policy changes might impact your investment portfolio and financial plan this year, you should avoid making impulsive decisions based on short-term political developments, and fear-inducing media headlines. Remember that the media is in the entertainment and advertising business; they’re not in the business of making us better investors, and sometimes the best action is to intentionally step away from the noise to gain perspective.
2. Stay the course:
Like in life, financial decisions shouldn’t be made when emotions run high. Allowing fear and worry to be the catalyst for change opens the door for regret. For example, at one point during 2023, the stock market was down over 20% from its 2022 high on nerve-racking headlines of rising interest rates, bank failures, and war (see #1 above), and yet the market ended the year near record highs. Investors who strayed from their well-intended plans and pulled out of the market, because their emotions were overrun with fear and worry, didn’t get the outcome for which they were hoping. That’s why it’s important to not let your emotions get in the way of sound financial planning and to remember the value of staying the course, because time in the market is more important than timing the market.
3. Focus on your plan, not someone else’s:
This year’s election is bound to bring with it more talk, among family, friends, and colleagues, about the market and investments. As plan-driven and goal-focused investors, we must remember that our investment plan is unique to us, and no other person has the same goals, cash needs, or risk tolerance. Comparing our investment holdings or returns to somebody else’s will bring us little value, and instead is likely to cause anxiety, as we fear we may be missing out or falling behind (see #2 above). Because each investor is different, there will always be times when one investor is achieving greater returns than another, and times when that same investor is underachieving another. This occurs not because one investor’s portfolio is better than the others, but simply because they’re different.
Election years bring a mix of anticipation and uncertainty, but it shouldn’t derail sound financial planning. The true measure of success is whether you’re accomplishing the financial goals you and your experienced wealth advisor have established. If you outperform another investor or generic index, but don’t accomplish your goals, that’s not success. However, if you have a solid financial plan in place, commit to drowning out the noise, and stay the course when things get scary, you’ll be well on your way toward financial peace of mind.
Data Source: Factset, Investopedia.com (Investors’ Election Year Worries Could Be Overblown, Experts Say, by Naomi Buchanan, published on 12/31/23), and First Trust. This blog was written with the assistance of Artificial Intelligence, specifically Chat GPT. Photo courtesy of Adobe Stock.
LS Investment Advisors, LLC (dba LSIA) is a registered investment adviser. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. We believe the information in this material is reliable, but we cannot guarantee its accuracy. Opinions expressed reflect subjective judgments and will evolve as future events unfold. Views regarding the economy, securities markets, or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. Stock market performance (cited above) is representative of the S&P 500 Index. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. It’s not possible to invest directly in an index. Refer to the following website for further information: us.spindices.com.