Amid the election year hoopla, pundits are already theorizing about the impact the candidates will have on the stock market and broader economy. As tempting as it can be to get caught up in this rhetoric, we urge you to tune out the noise and instead stick to your long-term strategy. Making decisions based on political leanings or emotional fervor can seriously threaten your financial well-being.
Consider that cycles of stock market booms and busts tend to happen with surprising regularity—regardless of which political party rules the roost. Also, remember this: no matter who wins the presidential slot, bringing about widespread economic change is highly dependent on myriad factors beyond a candidate's control, including the balance of power in Congress. So much of what he says/she says prior to the election might never come to fruition. Consequently, retooling your investment strategy based on what may or may not happen months down the road is a risky move.
Certainly there are those who will have you believe, like Chicken Little, that the sky is falling, and you need to take cover. Proceed with caution here. Unscrupulous salespeople can use fear-tactics to peddle just about any product, regardless of whether it's in your financial best interest.
Back in February, Barron's ran a cover story noting that U.S. stocks had fallen sharply since Trump and Sanders starting gaining ground in the polls. The article postulated that this could be more than coincidence, but history strongly supports the notion that markets are cyclical. We know from experience that swings and dips are perfectly normal, whereas making quick investment decisions based on unfounded fears and political leanings can do more harm than good to your nest egg.
Think back to 2008. The markets were in turmoil and fears ran high that President Barack Obama's policies were going to obliterate the Dow. And yet, thanks to the passage of a hefty stimulus bill and other measures to help banks contend with their troubled balance sheets, stocks ultimately rallied, putting an end to the unfounded concerns of the Negative Nellies.
As hard as it may be, we urge you to ignore those around you who suggest that you should take into account politics when determining your investment strategy. Sticking to your asset allocation—which takes into account your age, your goals and your tolerance for risk—is a much better recipe for success than stirring up the pot with which candidate is likely to win an election and what may or may not happen to the economy and the stock and bond markets as a result.
Certainly, there are many ingredients that go into a successful investment strategy, but at Align, we feel strongly that politics isn't one of them.