Investing During an Election Year

Investing during an election year can cause one a great deal of uncertainty.

Drew Bax, CRPC®
Assistant Vice President
LPL Financial Advisor

Investing during an election year can cause one a great deal of uncertainty. From market volatility to policy uncertainty, investors often wonder how to position themselves. While elections introduce uncertainty, they also present opportunities. Let’s explore some historical returns and strategies that you should consider when you are looking at your portfolio.

1. Market Returns During Election Years

   Although you may face some uncertainty during an election year, history shows that neither the occurrence of an election nor the party elected significantly impacts market returns. According to an article from Investopedia: 
   
   • From 1928 to 2020, the market has been favorable 20 out of 24 election years, which amounts to 83.3% of the time. 
   • The average return during these years has been approximately 11.58%. 

2. Investment Strategies for Election Years

   While the market may be more volatile than normal during an election year, it is important for you to stick to your plan and focus on variables that truly influence markets. Consider the following strategies when you’re going through an election year:
   1. Diversification:
      • Rather than chasing short term trends, it is important to maintain a diversified portfolio. Spread your funds across different asset classes like stocks, bonds, real estate, and commodities. Having a diversified portfolio can help manage volatility, especially when it comes to political risk.
   2. Long-Term Perspective:
      • Remember that elections are just short milestones along your investment journey. They may create short-term volatility, but by keeping a long-term perspective, investors can avoid making emotional reactions that can be detrimental. Individuals need to remember that successful investing is not a sprint, but a marathon.
   3. Rebalancing:
      • During times of market volatility, it is important to periodically rebalance your portfolio. Rebalancing your portfolio ensures that your asset allocation is aligned with your risk tolerance and investment goals. When the market fluctuates, it can cause some assets to become over or underweighted. Rebalancing maintains your desired asset allocation.

By understanding historical patterns and keeping your investment plan intact, you can navigate these times of volatility with confidence.

Category: Investing