With the U.S. Presidential election on the horizon, you might be wondering how different industries could fare depending on who wins. For instance, a shift in policy could benefit certain sectors like renewable energy if Democrats win, or boost defense and oil industries under Republican leadership. This thinking often leads to emotional, short-term investment decisions that can derail long-term financial plans.
While there may be strategic opportunities to buy or sell in response to these potential political changes, it’s crucial not to let political outcomes drive a complete rewrite of your long-term financial plan. At EsqWealth, we help clients avoid such knee-jerk reactions and instead focus on making informed, balanced decisions that align with their long-term goals.
Here are six key points to consider as you approach investing during an election year.
1. The Market’s Impartial Nature
While certain industries may experience short-term gains or losses based on political policies, history shows that overall market performance is driven by broader factors such as technological advances, consumer demand, and global economic trends. For example, after President Obama took office in 2009 amidst the financial crisis, tech companies like Apple and Amazon surged, not because of any specific political policy, but due to innovations and market demand. As an investor, it’s important to keep in mind that the market operates independently of politics in the long run.
2. The Unpredictability of Political Predictions
Campaign promises often paint a rosy or dire picture of what’s to come, but turning promises into policy is a different story. In 2017, many investors expected massive infrastructure spending based on President Trump’s campaign, leading to a short-term spike in construction-related stocks. However, these policies faced delays, and the expected infrastructure boom never materialized at the scale anticipated. Betting your investments on specific political outcomes is risky because of the unpredictability of legislative progress and global events.
3. Emotional Investing: A Risky Endeavor
Emotionally charged decisions, particularly in reaction to election results, often lead to poor outcomes. Take the 2016 election, for example: markets plunged worldwide when Donald Trump was projected to claim victory in the race for the White House and all three major stock indices in the U.S. were down 4 percent or more in pre-market trading, with futures for the Dow Jones industrial average sliding more than 700 points at one point before paring those losses in the minutes before the results were clear. By morning they had regained some ground. The lesson? Elections can stir up short-term volatility, but they shouldn’t dictate your long-term investment strategy.
Investors who panicked and sold after-hours likely missed the subsequent rally. At EsqWealth, we emphasize maintaining composure and sticking to your long-term strategy, rather than making impulsive decisions based on short-term market movements.
4. The Power of Diversification
Diversification remains a core defense against uncertainty, especially in politically volatile times. During the 2008 financial crisis, while U.S. financial stocks were decimated, international investments in emerging markets or sectors like health care helped offset the losses for those who diversified. Relying too heavily on political predictions for sector-specific investments can undermine the stability that diversification provides. A well-balanced portfolio across multiple sectors and geographies can weather political storms more effectively.
5. Embracing a Long-Term Perspective
Elections are just one of many factors that can cause short-term market fluctuations. In the grander scheme of things, they’re fleeting moments in the lifecycle of your investments. For instance, those who maintained their long-term strategy after the dot-com crash in 2000 eventually saw strong gains in the years that followed, despite short-term volatility. Investors who focus on the long game, rather than trying to predict short-term political outcomes, generally see more consistent growth over time.
6. Seeking Professional Guidance
It’s easy to get swept up in election-year uncertainty, but seeking professional advice can help you maintain a clear, objective view. At EsqWealth, we guide clients through politically turbulent times, ensuring that their investment strategies remain aligned with their personal goals and risk tolerance. Consider the situation in 2012, when investors worried about tax hikes and sold off assets in anticipation. Those who sought professional guidance and stuck to their strategy were able to avoid unnecessary tax consequences and emotional decision-making.
Conclusion:
At EsqWealth, we look for buying opportunities based on market trends and forecasts but also believe that your long-term financial strategy should remain steady and not altered significantly by short-term noise in the markets created by elections. Yes, certain industries may react to political shifts, and there may be strategic opportunities to adjust, but overhauling your entire portfolio based on an election is rarely a wise move. By focusing on the bigger picture, seeking professional advice, and maintaining a diversified approach, you can keep your portfolio on track—regardless of who’s in office.
