Stock market watchers have long searched for a reliable way to predict how an election will affect their portfolios. We’ve now elected more than 100 Congresses and 44 presidents, and so far it’s still a toss-up. That doesn’t reassure investors much, however. So is there any way to tell if a particular election is going to move your investments one way or the other?
Experienced financial advisors will always counsel their clients against trying to time the market. The reasons are myriad, but two important ones stand out above the others. First of all, churning your buys and sells is only going to help you succeed in racking up expensive fees and possibly losing all the benefits of gradual, long-term investments.
Secondly, almost every successful investment strategy for decades has concentrated on long-term focus and techniques like dollar cost averaging. One need only look to high frequency trading to see the hazards in chasing thinner and thinner returns.
Ultimately, experienced investors know long-term markets react to earnings, balance sheets, sales and value. Buying or selling investments based on what a presidential candidate says prior to being inaugurated is no different than making decisions based on what the weather might be in a week.
Keeping an eye on performance and basic company metrics instead of election results is far more likely to lead to a positive outcome.
Now one thing that should be pointed out in all this is while who wins an election may not have the most profound effect on the market, the reverse seems to be far more likely. If the market underperforms prior to an election, there is a high likelihood the party in power will find itself out of the running. If the market is doing well, then the incumbents usually keep their jobs.
This is understandable, since the performance of broad market indicators in the United States are always national news, and they do have an effect on voters’ moods.
The best investment advice is to avoid trying to time the market and instead concentrate on time “in” the market. The results will be far more lucrative all things being equal.