Elections x Your Money

There’s nothing like election year to get the stock market’s heart palpitations going. Whether it's up or down, elections are like a XL size Red Bull for the markets.

Q: How does an election affect the markets?

One word: Policies.

Candidates enter the presidential race with a platform which always includes their ideas for how to grow the American economy (aka. jobs market and stock market). It always includes some versions of lowering taxes for some (individuals and companies) or increasing taxes on others, and allowing or preventing big firms and industries to do certain things.

Example: Some will predict clean energy industries are worth investing in if the elected candidate is a big supporter of policies that address climate change.

Since candidates are so public about these policies, investors start to trade (sell and buy) based on an increasingly-clear picture of 1) who’s trending up in the polls and 2) how the investor believes the candidate’s policies will affect the market.

FUN FACTS:
Analysts have observed that when…

• … a new party takes the White House, the markets usually gain about 5% (aka. markets go up by 5%)
• … the same party stays in office the markets gained a little more, about 6.5%
• In the leadup to an election the stock market tends to underperform no matter who the candidates are

* source: US Bank

Q: What should I do with my investments over the next few weeks/months?

Short answer: Sit tight.

As investors ourselves we get that’s hard. The important thing to remember is that in the leadup to elections, the markets are reacting to emotional investors. The same way you don’t want to text someone when you/they are emotional, you don’t want to smash that TRADE button when the markets are fueled by emotion.

In the short term (i.e. next few months) there will be some volatility, but, in the long run, the markets will stabilize regardless of who wins. The markets always have bumps of volatility BUT overall have also always gone up (here's a handy chart to show you just that). Good news? You’ve got time on your side to ride out the volatility (perks of being young aren’t limited to fast metabolism). Your investing life will have a LOT of elections in it. Get into a calm mindset.