Election Year Worries? Why Staying Invested Is the Best Move For Your Money
With the 2024 presidential election one month away, it’s normal for people to feel uneasy about how the results might affect the stock market and their retirement accounts. You might be wondering if the person who wins could impact your investments or long-term goals. However, history shows that no matter who ends up in the White House, one of the best things you can do is stay invested and avoid making rash decisions.
Here’s why sticking with your investment plan is a smart move:
- The Stock Market Keeps Growing Over Time
If we look at the past, the stock market has done well over the long run, no matter which party or president is in charge. Whether a Democrat or a Republican takes office, the market has continued to grow.
For example, the S&P 500 (an index that tracks the performance of 500 large companies) has posted gains in 17 of the last 19 election years. This shows that staying invested has paid off in the long run, even if things feel uncertain at the moment.
To really drive this point home, take a look at the chart below from Dimensional Funds. It shows the stock market’s performance during each U.S. president’s time in office over the past few decades. As you can see, the market has continued to rise over time, regardless of whether a Democrat or Republican was in charge.
Key Takeaways:
- Long-Term Growth: Even with changes in leadership, the stock market has continued to grow in the long run.
- Politics Doesn’t Dictate Success: The market cares more about how businesses are doing then who’s running the country.
- Market Ups and Downs are Normal
It’s not unusual for the stock market to experience some ups and downs during an election year. This is normal and often caused by people feeling uncertain about the future. However, it’s important to remember that these bumps are usually short-term. Trying to predict or “time” the market based on election outcomes often leads to missed opportunities. Investors who stay put and ride out the noise usually come out ahead.
- Presidents Don’t Drive the Market, Businesses Do
Stock prices are driven by how well companies are doing, not by who’s sitting in the Oval Office. Things like how much money companies are making, what interest rates are, and new technologies play a much bigger role in market performance than political changes.
If you look at past events like the 2008 financial crisis or the 2020 COVID-19 pandemic, you’ll see that the stock market bounced back despite the challenges. Companies keep growing and adapting, regardless of who’s in charge, and the stock market’s growth over time reflects this.
- Timing the Market Rarely Works
One of the biggest mistakes investors make is trying to pull out of the market before an election and then jumping back in afterward. The problem is, if you miss just a few of the best-performing days in the market, it can cost you big time. Staying invested throughout the ups and downs helps make sure you don’t miss those key growth days that can make a real difference in your portfolio.
To illustrate this, the chart below from Lincoln Financial shows what happens when you try to time the market and miss the best days. The chart tracks what would have happened if you had invested $10,000 in the S&P 500 between January 1, 2004, and December 31, 2023, and missed the best-performing days:
Key Insights:
- Missing the Best Days Hurts: If you had stayed invested the entire time, your $10,000 would have grown to $42,898. But if you missed just the 10 best days, your returns would have been cut by more than half, leaving you with only $19,674.
- The Worst Days Often Lead to the Best: 6 of the best 10 days in the market happened within 10 trading days of one of the worst days. This makes timing the market nearly impossible, and getting out could mean missing a big recovery.
- Diversifying Your Investments Helps
While staying invested is important, it’s also smart to have your money spread out across different types of investments, like stocks, bonds, real estate, and alternatives. This way, if one part of the market goes through a rough patch, the other investments can help balance things out.
- Focus on Your Own Goals, Not Politics
It’s easy to get caught up in the drama of an election year, but the truth is, your long-term financial goals are what really matter. Whether you're saving for retirement, a home, or your kids’ education, those goals should be the guiding force behind your investment strategy. Staying invested through elections helps keep you on track to reach those goals, no matter what happens in Washington.
In Closing
While the 2024 election may bring some uncertainty, history tells us that political changes don’t affect the stock market’s long-term growth. One of the best ways to weather the election seasons is to stay invested and keep your eyes on your long-term goals.
If you’re feeling unsure or have any questions about your investment plan, we’re here to help. Reach out to us anytime, and we can review your strategy together to make sure you’re on the right track.
***Data and analysis does not represent the expected future performance of any investment product or strategy. . References to specific portfolios should not be considered a recommendation. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.