Investment Fears in a Presidential Election Year

As a presidential election year begins, we will soon hear a lot of noise through political ads flooding social media and the airwaves.

During this time, it can feel like we're living in completely different worlds.

Pollsters will try to predict the winner, and TV commentators will disagree with each other.

Polarized media outlets will paint conflicting pictures.

The noise confuses us, making it seem like we are either in the best of times or the worst of times.

For clients trying to make decisions on their future financial plans, this situation can feel overwhelming and unsettling and cause quick and sometimes emotional reactions.

So, how do clients and financial professionals cut through the noise to invest with confidence?

One way is to look at history to help understand what typically happens to the stock market during an election year. While history doesn't always repeat itself, it can reveal key patterns.

Although: It's also important to note that past results don't predict future performance.

A closer look

According to a Capital Group analysis of over 90 years of investment data across 23 election cycles, they found:

No matter which party won the presidential election, U.S. stocks have trended up.
Primary season tends to be more volatile for the markets, yet it's generally short-lived. Markets have typically returned to an upward trajectory once the primary elections conclude.
Since 1932, U.S. stocks have seen an average gain of 11.3% in the 12 months after the primaries (compared to a 5.8% average gain for similar periods in non-election years).
2000 and 2008 were the only two of the last 20 election years where the S&P 500 Index experienced negative returns, and those were associated with asset price bubbles.

Potential impacts on financial planning

What does this mean for clients as they create and adjust their financial plans?

In general, positive market results occur during presidential election years, but this isn't guaranteed.

There have been times when the market performed poorly during a presidential election year.

However, it's generally individual actions that determine long-term success from a financial planning standpoint — not who wins or loses an election.

The general idea is if clients continue to save early, often, and over a long period, their financial strategy may have more opportunities to be successful.

It's important to show your clients how trusting their long-term process can help them find success.

We want to help clients avoid making emotional decisions based on the political environment and to focus on their long-term plans.

If clients are concerned with market volatility, a long-term approach to minimizing volatility could help strengthen their strategy:

Consider if dollar-cost averaging might be a good option. It allows a client to slowly ease their way into the market without the fear of putting all their money in at once, only to see the market take a downturn.
Consider annuities to manage risk and to protect money from market downsides.
Consider diversification of money managers and asset classes.

Politics can be entertaining, frustrating, and downright confusing.

This is nothing new.

But as a financial professional, you can help clients focus on their long-term goals and avoid listening to the political noise when making financial decisions in 2024.

Tyler De Haan is director of advanced sales at Sammons Institutional Group.