The Short Answer: How To Handle Your Portfolio During The Election
October 23, 2024
With the impending election, the question we’re hearing almost daily from clients is,
“Should I change my investment strategy based on who takes office?”
We may sound like a broken record, but our job is to provide wise guidance, so without further ado, here is our advice for how to handle your investments during this election season and beyond.
The best investment strategy
The short answer to the above question is: no.
The most prudent, proven, long-term investment strategy is to stay the course.
While some presidents have had better returns than others, the consistent outcome over time is a gradual uptick in the market.
In fact, if you were to try and time your investments based on which political party is in office, you’d likely miss out on incredible growth opportunities. Just look at the chart below:
So, staying invested when your opposing political party is in office isn’t likely to hurt your portfolio performance—but backing out based on volatility or fear could.
“But the market feels formidably unstable…”
Let’s address market volatility for a moment.
As you watch the market fluctuate, it may feel like “this time is different,” and everything will come crashing down in a few short months. Yet, if you look at the VIX (volatility index) for previous election years, the volatility we’re experiencing now is right on target.
This pre-election volatility is standard procedure for our economy. Investors spurn uncertainty, and election seasons are wrought with it. Add to that the fact that people can now bet on elections, and you have the perfect recipe for market chaos.
But the chaos itself is normal and predictable. And once investors know what they’re dealing with (roughly two months after the election), things tend to level out.
Take a look at the last two elections:
You can see that, on average, the day after an election, yes—the market is slightly down (and these averages are slightly skewed by the 2008 financial crisis), but historically, in the two months after election day, portfolios are up a couple percentage points, which is in line with normal market behavior.
“But who’s in office has some impact on the market, right?”
Again, the short answer: not really.
What impacts the market more is the makeup of Congress. When Congress is divided, we experience political gridlock, which means the status quo is maintained. And while that’s frustrating for policy makers, it is beneficial from an investing standpoint. That’s because markets favor certainty, so whether you agree with current policies or not, they are knowable, which your portfolio will appreciate.
And in case you’re wondering, this year’s Congress is projected to be fairly divided, so we will likely experience more of the same.
“So… what should I do?”
Our final short answer is this: nothing.
If you already have a portfolio that’s been balanced according to your personal goals and risk tolerance, don’t change it. Don’t do something rash or silly just because we’re days away from an election. Stay the course.
Our advisors have 61 years of combined experience, dating back to 1979. So we’ve seen—and guided clients through—a lot. If you need some reassurance, we are always here for you. We’re not worried, and we don’t want you to be either.
