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Election Years & Investing

January 10, 2024

As we find ourselves in another presidential election year, it’s hard not to notice the noise it makes - not just in our daily conversations but also in the financial markets. Let’s dive into what this can mean for the stock market. 

Election years are like the stock market's own brand of roller coaster. Historically, the market has shown a tendency to be cautiously optimistic, with average returns hovering around 7-9% for the S&P 500. 

But it isn’t always up and to the right. There tends to be swings in the day to day and month to month market movement. But why does this happen?

Well, I’ve said it before I will definitely say it again, investors hate uncertainty. And a presidential election brings just that: uncertainty about policies, leadership styles, and potential shifts in the country's direction. This uncertainty often shows as market volatility.

However, history suggests that while elections influence the market mood, it is just one piece in a much larger economic puzzle.

Economic fundamentals, global events, and corporate performance often have a more lasting impact. Focusing on only the election is like focusing on one single tree and forgetting you're in a forest.

So, how should we respond?

Simply put, stay the course. It is definitely tempting to make big moves based on election forecasts, but a well-diversified portfolio aligned with your long-term goals and risk tolerance is typically your best defense against short-term political winds. 

As we gear up for the upcoming election, it's natural to feel a bit anxious about your investments. But remember, presidential elections, with all their noise and circumstance, are temporary events. The stock market, much like history, is a continuous journey with many chapters.

So have an investment strategy that is built not just for today or this year, but for the long haul and things get a lot less stressful in election years.