Investors are often fearful about election years. They are afraid of volatility, and afraid that the stock market will go down depending on who gets elected.
The reality is that the stock market is rarely affected by elections. The S&P 500 has had a negative return in only four election years out of the 23 presidential elections held since 1928.
The most recent one was during Barack Obama’s first election cycle. At that time—the year was 2008—the worst global recession since the Great Depression was taking place (the Great Recession)—after George W. Bush had already been in office for eight years.
The fact is that election years are filled with fear-based advertising and propaganda, but the data doesn’t support it. No matter what you believe about the opposing party’s candidate, the historical research doesn’t support the fear that they will ruin your investment portfolio. Don’t let negativity affect your returns by doing something rash; it’s best to hold steady to your long-term strategy.
Often the worst thing you can do is vastly alter your investments; for instance, selling everything and going to cash. The principle of dollar-cost averaging says that you should keep investing for the long term regardless of what the market is doing. When the market is up, you will pay a bit more, when the market is down, you will pick up some bargains. Over time, this strategy has historically proven to perform well for most long-term investors.
The goal of dollar-cost averaging is to reduce the overall impact of volatility on the price of the target asset; as the price will likely vary each time one of the periodic investments is made, the investment is not as highly subject to volatility.
Dollar-cost averaging aims to avoid making the mistake of making one lump-sum investment that is poorly timed with regard to asset pricing.
In general, if you have a low tolerance for risk or you are nearing retirement, your portfolio should be designed accordingly. Otherwise, be wary of claims in political advertising that blame (or credit) one president over another for the economy or stock market.
Contact Sylvan Financial Advisors if you would like to review your portfolio; we offer complimentary portfolio reviews, 201-282-5332.