As November 5 draws near, campaign commercials, news coverage, and heated social media posts may not be the only things stressing you out.
For investors, election years are historically challenging. According to U.S. News & World Report, the S&P 500 has averaged a 7% gain during U.S. presidential election years since 1952, well short of the 17% average S&P 500 gain in the year prior to an election year.
As if that’s not enough, the federal funds interest rate is at its highest level in more than two decades, and the New York Fed’s recession probability model still suggests a 55.8% chance of a recession within the next 12 months.
During this time of uncertainty, making levelheaded financial decisions is more important than ever. Check out these five tips for investing in an election year so you can navigate the volatility with confidence.
1. Don’t Make Financial Decisions When You’re Feeling Emotionally Charged
Did you know that election stress disorder is a real phenomenon that can cause irritability, hypervigilance, clinical anxiety and more?
If you’re feeling particularly stressed out about the election, it’s important to not let these emotions drive your financial decisions.
2. Stay Invested
While market turbulence during volatile political periods can be nerve-racking, remember that changing long-term investment strategies in response to short-term declines could do more harm than good.
Keep in mind that the stock market historically yields a positive result over time, so stay the course and be confident that your well-though-out investment plan can withstand short-term uncertainty.
3. Look at Sectors That Historically Perform Well
Maybe you’re not as risk averse, and you’d like to take advantage of potential opportunities based on historic performance of stocks during election years.
For example, U.S. News & World Report shares that financial services and energy have been top performers during presidential election years since 1973, so you could consider increasing allocation to financial services and energy sector exchange-traded funds (ETFs).
However, this brings us to our next piece of advice…
4. Remember Past Performance Doesn’t Guarantee Future Returns
While it’s helpful to consider past stock market performance, remember that it isn’t wise to make investment decisions based solely on the performance of past election years.
5. Work With a Financial Professional
Investing during an election year can be stressful, but you don’t have to go it alone. By working with a financial professional, you can make decisions with confidence. The right financial professional is an objective expert who has their ear to the ground when it comes to investing, plus the education, professional experience, training and licensing to back up their recommendations.
Want more? Check out our blogs, 6 Tactics to Build Financial Confidence Amid Economic Uncertainty and Prioritizing Investments in the Face of Economic Uncertainty and Inflation.
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