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Current events always affect economic markets and making smart investment choices requires you to pay attention to what's happening around the world. In an election year, how should you invest while the U.S. is deciding which direction to take? Regardless of which side of the political spectrum you prefer, you may want to keep the following facts in mind as you invest during an election year.
1. Stocks Trend Upward Regardless of Who's in Office
Although stock values go up and down, the stock market always has an overall upward trend, regardless of who's in office. On average, returns from the S&P 500 are 8 to 10% per year.1 To put these numbers into perspective politically, eight Republicans and eight Democrats have called the White House home since the infamous market crash of the Great Depression. In other words, the person in the Oval Office typically doesn't affect overall stock market growth.
2. Markets Tend to Bounce Back After a Volatile Primary Season
During the primary season, stock values tend to be volatile, which can be scary for investors. But you shouldn't necessarily yield to the fear and sell. During the year after a primary season, stocks return an average of 10.1%.2 Although you can never predict returns, the patterns indicate that if you stay the course during a volatile primary season, values are likely to return.
3. Investors Often Cash Out Assets During Election Years
Research indicates that the amount of net assets flowing into money market accounts triples during election years. This trend suggests that many investors get nervous, sell stocks, and put the cash into money market accounts. Staying in the markets while others jump ship may position you for greater rewards down the road.
4. Time, Not Timing Matters the Most
A well-timed investment may be profitable, but in most cases, the time you give your investments can be more important than the timing.
The data shows that pulling out during an election year does not make sense because stocks have had positive returns for 20 of the last 24 election years.3 Two of the four years with negative returns, 2000 and 2008, were largely attributed to the bursting of tech and housing bubbles respectively, rather than election cycles.
5. A Financial Advisor Can Help
When you need extra guidance or have questions about investing during an election year or at any other time, you may want to reach out to a financial advisor. They can help you make informed investment decisions that make sense both in light of your personal goals and in terms of what's happening in the world. They can also share historical data and trends with you so that you can confidently make investment decisions during times of political uncertainty such as election years.
Talk to a Financial Advisor
Financial advisors with BECU Investment Services are here to help. Our team will take the time to get to know you, understand your goals and plan and implement a financial strategy that's appropriate for you. Set up a complimentary consultation or call 206-439-5720.
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Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Past performance is no guarantee of future results.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Sources
- https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
- https://www.usatoday.com/story/money/2019/11/05/election-2020-how-does-stock-market-perform-election-year/4165271002/
- https://www.thebalance.com/presidential-elections-and-stock-market-returns-2388526
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