The upcoming presidential election between President Joe Biden and former President Donald Trump has left many investors feeling anxious about the potential impact on their finances. A survey conducted by investment company Betterment revealed that 57% of investors are feeling nervous about the election, with 40% expecting to make investment decisions based on the outcome.
Despite the anxiety surrounding the election, financial experts advise against making investment decisions for political reasons. They suggest that market performance is more influenced by economic factors that are outside the control of politicians. Cathy Curtis, a certified financial planner, emphasizes the importance of maintaining a diversified portfolio and saving more instead of making decisions based on political uncertainties.
Despite the political tension surrounding the election, the market has remained stable. The Nasdaq Composite, S&P 500, and Dow Jones Industrial Average have continued to break records in 2024. This stability has led to increased confidence among investors, as demonstrated by the lack of anxious inquiries about market performance.
Some investors have started blending their political opinions with their investment decisions, believing that the winning candidate will have a significant influence on the economy and stock market. This behavior has become more common in recent years, according to Dan Egan of Betterment. However, historical data shows that presidential elections have not had a significant impact on market performance.
Analysis dating back to 1928 shows that the S&P 500 has returned an average of 7.5% in presidential election years, compared to 8% in nonelection years. This data indicates that regardless of the political party in power, the stock market tends to perform well. Egan emphasizes that the checks and balances in place, such as the Federal Reserve, help stabilize the economy regardless of who is in office.
Despite the lack of historical evidence linking election outcomes to market performance, some investors are planning to increase their holdings in savings accounts in anticipation of the election. While having cash reserves can be advantageous in a volatile market, experts caution against keeping too much money out of the market. Curtis recommends taking advantage of high rates on savings accounts but maintaining an appropriate balance between cash reserves and investments.
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