Image source: J.P. Morgan
During US elections, investors may try to predict how new laws and policies from candidates could impact different parts of the economy, and therefore, their investments. This speculation often causes investors to move their money into different sectors, believing it will be more protected — but this only makes the market more unpredictable. Possible government projects may also prompt investors to move their money into other industries, like construction, which can further upset the market.
The good news is that this market unpredictability tends to be a short-term effect. Illustrated in the J.P. Morgan graph above, we can see markets tend to recover in the long run.
As an investor, it is crucial to know how to handle these uncertain times. During election years, keep the following in mind:
- Diversify your investments. When your money is spread out across different types of investments and places, it will help lessen the impact on your portfolio if one part of the market goes down.
- Stick to long-term plans. Reacting too quickly to short-term changes can wind up being a devastating impact on your portfolio.
- Confide in your financial advisor. They can help you understand how your money might be affected by politics, and come up with an alternative financial plan that works for you.
By understanding how markets have behaved in the past, spreading out your investments, and working with a professional, it's possible to stay on track with your financial goals.
To ensure you are on the right track with your finances, book your free consultation today.