The upcoming election is, of course, big news. But there’s more than one way to look at it. As a citizen and voter, you have your own preferences about the issues and the candidates. But as an investor, should you be rooting for any particular outcome?
You might be surprised at how a major event can have such a minor impact on your long-term investment success.To understand why, consider the following four factors:
Election results don’t determine the market’s success. A few different configurations can result from an election. One party could win the presidency, while the other could gain both chambers of Congress. Or one party could take the White House, but the two parties could split Congress, with one controlling the House of Representatives and the other gaining the Senate. Or one party could win it all. But here’s the key point: In the past, under all these scenarios, the financial markets have done well at some times and not so well at others. In short, there’s no one “right” political configuration that spells success or failure for investors.
Different policies won’t change our basic investment landscape. Of course, each presidential administration will push for its own policies, and the same is true for every new Congress. And some legislation will indeed affect investors in some ways. For example, tax rates on capital gains and dividends have changed many times in the past, and they may well change again. If they do, adjustments to your investment strategy may be appropriate. But in the bigger picture, we live in a democratic system that mostly limits the power of one administration or political party to radically overhaul the economy, which is primarily made up of consumer spending and business investment. For investors, this means the rules of the game, so to speak, will probably remain consistent no matter who’s in charge in Washington.
Market fundamentals are “non-partisan.” Obviously, the pandemic has wreaked havoc on normalcy in many areas, including the economy. But, eventually, we will get past COVID-19, and when we do, the same fundamental factors that have always driven the economy and the markets – corporate profits, interest rates, consumer spending, innovation, productivity and so on – will do so again. And these fundamentals are non-partisan – they maintain their strength no matter what party controls the presidency or Congress.
You’re in control of your own investment choices. We may well experience some volatility in the markets before and after the election. But, in the long run you, rather than any external forces or election results, control your investment success. And that means you need to follow proven investment principles, such as owning investments that reflect your goals and risk tolerance, staying invested no matter which direction the markets are moving, and avoiding bad habits such as chasing after “hot” stocks that may not be suitable for your needs.
A presidential election is important for a number of reasons – but it probably won’t greatly affect your investment success. Ultimately, staying on track to achieve what’s most important to you means being aware of the factors that affect the financial markets, putting them in perspective and then making appropriate decisions that are aligned with your longer-term goals.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.