Election years in America are often marked with uncertainty and trepidation. This is especially true in 2024, as changing rhetoric and narratives — especially regarding the economy — have driven much of the season. With all the volatility, it’s fair for American investors to question whether their financial plans are solid.
While it’s easy to get rattled by the news and the discourse, managing your finances in an election year only requires a sense of clarity and a little vigilance. Here are some principles about handling money in the wake of the 2024 elections and some strategies for improving your investments.
Election Year Effects on the Economy
Financial experts have noticed some correlation between the stock market and the presidential election cycle. In general, they found the stock market is a little slower in the 12 months leading up to the November elections in both the stock and equity markets.
In the year following the presidential elections, the market usually recovers and can even overperform.
This pattern is somewhat party-agnostic, regardless of Democratic or Republican policies. However, if the presidential party changes, the stock market returns an average of 5%. If the incumbent party keeps the presidency, the average return is around 6.5%.
While nothing is guaranteed, it’s fair to say that the effects presidential elections may have on the stock market are primarily short-term. No presidential election has directly caused a recession, even if it resulted in fiscal policy changes.
One practical piece of advice is to stay focused on traditional, more reliable economic indicators during election years. Market fundamentals, economic cycles, earnings, interest rate changes, and other external events are much more likely to affect the stock market and your finances.
Avoid Reactionary and Emotional Decisions
This principle is one of the most common pieces of financial advice every year. Overreactions to news events often result in hasty choices, such as panicked selloffs from fear or hurried buy-ins from fear of missing out. While it’s fair to have educated hunches, solely relying on emotions is the enemy of financial success.
These feelings can get amplified during election season by the 24-hour news cycle. Remember to stay focused on rational, researched analysis and metrics when it comes to investment decisions.
Make Sensible Adjustments to Your Investments
Some of the most common investment strategies are still effective, even in times of anxiety or uncertainty. Diversifying one’s holdings over several types of commodities and allocating assets to keep portfolio balance are two approaches that apply across all years.
Another approach that can alleviate the anxiety and volatility of election season is to invest in defensive stocks. Utilities, healthcare, consumer staples, and telecommunication stocks are fairly unaffected by changes in the political climate and pending elections. They can be your lifeboats in times of geopolitical stress.
Consider Future Tax Strategies
While there may be no urgency to make changes to your stock portfolio in an election year, it’s worth thinking about long-term taxes. It’s one of the topics that arises every election, and this year, it’s a little more pertinent because of forthcoming changes to the tax code.
The Tax Cuts and Job Act of 2017 created the current, more favorable tax brackets. However, the TCJA is slated to expire at the end of 2025 unless legislators intervene — something not expected to happen.
The expiration will revert Americans to higher taxes. In 2025, investors would do well to try to reduce their taxable income, such as by converting to tax-deferred vehicles like Roth IRAs.
Prepare for Post-Election Market Movements
There have been a few historical examples of market movements that have come on the heels of a presidential election. The 2008 election of Barack Obama caused some anxiety because of uncertainty about emerging from the recession.
Conversely, Donald Trump’s 2016 election resulted in market optimism over potential deregulation and lower taxes. In both cases, the market eventually returned to “normal.”
It’s impossible to predict what will happen after a very contentious and volatile 2024 campaign. It’s also important to remain level-headed and analytical about your financial decisions. However, it may be worth taking a long view after the election finally ends. It’s good to think rationally about how your portfolio might be affected over time.
Navigate the Financial Landscape With Good Life
Whomever the nation finally picks in November, you can depend on Good Life to offer solid financial guidance. We focus on each client’s unique situation and priorities to find strategies that will help you and your family long into the future. Contact us today to set up a discovery meeting.