The presidential election is little more than a month away. Like all elections, this one has generated considerable in- terest, and, as a citizen, you may well be following it closely. But as an investor, how much should you be concerned about the outcome?
Probably not as much as you might think. Historically, the financial markets have done well – and done poorly – under both Democratic and Republican ad- ministrations. Also, many factors affecting investment performance have little or nothing to do with the occupant of the White House. Consequently, no one can claim, with any certainty, that one candi- date is going to be “better for the markets” than another one.
Still, this isn’t to say that any given presidential administration will have no effect at all on investors. For example, a president could propose changes to the laws governing investments, and if Congress passes those laws, investors could be affected.
But in looking at the broader picture, there’s not much evidence that a particular president is going to affect the overall return of your investment portfolio. As men- tioned above, many factors – corporate earnings, interest rates, foreign affairs, even natural disasters – can and will influence the financial markets. But in evaluating a president’s potential effect on your investments, you also need to consider something else: Our political system does not readily accommodate radical restructuring of any kind. So it’s difficult for any president to implement huge policy shifts – and that’s actually good for the financial markets, which, by their nature, dislike uncertainty, chaos and big changes.
The bottom line? From your viewpoint as an investor, don’t worry too much about what happens in November. Instead, follow these investment strategies:
• Stay invested. If you stop investing when the market is down in an effort to cut your losses, you may miss the opportunity to participate in the next rally – and the early stages of a rally are typically when the biggest gains occur.
• Diversify. By spreading your dollars among an array of investments, such as stocks, bonds and other investments, you can help reduce the possibility of your portfolio taking a big hit if a market downturn primarily affected just one type of financial asset. Keep in mind though, that diversification can’t guarantee profits or protect against all losses.
• Stay within your risk tolerance. In- vesting always involves risk, but you’ll probably be more successful (and less stressed out) if you don’t stray beyond your individual risk tolerance. At the same time, if you invest too conservatively, you might not achieve the growth potential you need to reach your goals. So you will need to strike an appropriate balance.
• Forget about chasing “hot” stocks. Many so-called “experts” encourage people to invest in today’s “hot” stocks. But by the time you hear about them, these stocks – if they were ever “hot” to begin with – have probably already cooled off. More importantly, they might not have been suitable for your needs, anyway. In any case, there’s really no “short cut” to investment success.
Elections – and even presidents – come and go. But when you “vote” for solid in- vestment moves, you can help yourself make progress toward your financial goals.