11 Sep 2024 Investing During An Election Year

Late Monday afternoon, during a Beacon team meeting, I realized it was my turn to write the Friday Brief. Normally, I have a few ideas in mind, but this time, I had nothing. I admitted to Ryan, Ellen, Daniel, and Jared that I was stuck. Someone jokingly suggested I write about politics.

It was one of those jokes where the humor lies in its clarity. These days, it’s all too easy to get into trouble by bringing up politics. But as I thought about it, the idea started to make sense. After all, we have a presidential election coming up in November and, at Beacon, we often get questions about investing in such a climate. Sometimes, people are generally anxious about the potential stock market volatility that can accompany any major event. Other times, it’s a more specific concern about one political party gaining or maintaining control of the White House, Senate, or House. The latter is often linked to worries ranging from inconvenient lifestyle disruptions to fears that the country might change in ways they can’t accept. Either way, I understand that people can feel uncertain about their portfolios during an election year, so I decided it was worth addressing.

First things first: a presidential election is an important event with meaningful implications for our country, the economy, our lives, and, at times, the stock market. If you’re feeling anxious about how the upcoming election might affect your portfolio, that’s perfectly normal. But what, if anything, should you do about it?

Much has been written on this topic, so I wanted to point you to three articles about investing during election years. The first is a Friday Brief I wrote before the 2020 election. I believe the evidence and guidance I offered then still hold true. The second is a recent article from the Wall Street Journal. The third is another Friday Brief about how, even if we could predict the election’s outcome, it would still be nearly impossible to act on that information.

I know life is busy, so if you don’t have time to read the articles, here are the key takeaways:

• Historical data shows that equity volatility during election periods is often lower than expected.
• The stock market has performed similarly under both Republican and Democratic administrations.
• Monetary policy from the Federal Reserve typically has a larger impact on markets than the party in power.
• Predictions about market reactions to elections are often wrong, as shown by the unexpected post-2016 election rally.
• Timing the market based on political events is risky, and it’s difficult to know when to re-enter after selling off.

You’re probably not surprised, but assuming you’ve done the work ahead of time to build a well-diversified portfolio aligned with your goals, the best approach is to stay the course. I know this isn’t always easy, so I’ll close with a quote Beacon Wealthcare’s founder, Sam, frequently shared around the office. Hopefully, it will help in the coming months:

“The danger of focusing on the stock market as a singular entity is to lose sight of the fact that it actually represents thousands of companies run by many more thousands of smart people, innovating, creating, and producing goods and services to generate profits. Whatever the circumstances—whether pandemic, elections, recessions, or hurricanes—they find new ways to profit. Your money isn’t invested in a faceless, breathless stock market; rather, you’re invested in the creative, productive energy of people and companies around the world.”

Please let us know if you’d like to talk. We’ll be here before, during, and after the election!

The content above is for informational and educational purposes only. The links and graphs are being provided as a convenience; they do not constitute an endorsement or an approval by Beacon Wealthcare, nor does Beacon guarantee the accuracy of the information.