As the U.S. presidential election approaches, it’s natural for investors to feel a surge of anxiety about its potential impact on their portfolios. With heightened media attention and the constant drumbeat of predictions, it’s easy to believe that the outcome of the election will dictate market movements. However, history tells a different story.
In reality, while elections bring volatility, they rarely determine long-term market performance. So how should you, as an investor, navigate the political landscape and protect your portfolio from the noise? Here’s what you need to know.
Uncertainty: The market’s greatest challenge
Elections are synonymous with uncertainty, and markets notoriously dislike uncertainty. This year’s race is shaping up to be one of the closest in decades, which could contribute to market volatility in the short term. However, investors should avoid knee-jerk reactions based on political headlines.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Historically, markets have shown remarkable resilience during election years. In fact, data shows that since 1970, the S&P 500 has delivered an average return of 11.6% during election years — outperforming the average annual return of 9% to 11%. This illustrates a critical point: The best course of action in the face of uncertainty is often to stay invested. Trying to time the market during volatile periods rarely pays off. Missing just a few of the best-performing days can significantly reduce long-term gains.
Does the party in power matter?
A common misconception is that the stock market performs better under one political party than the other. However, when we analyze decades of market data, we find no clear correlation between party control and stock market performance. Whether a Democrat or a Republican is in office, the stock market has historically generated positive returns over time.
A cold, calculating market
It’s important to remember that the stock market is not driven by ideology or political promises. At its core, the market is a mechanism for valuing companies based on their future earnings potential. It’s a cold, calculating entity that cares about corporate profits — not policy debates.
When a new president is elected, markets quickly adjust to any anticipated policy changes, factoring in their potential impact on company earnings. Whether the issue is taxes, tariffs or regulations, the market’s primary concern is how those policies affect corporate profitability.
In some cases, policies that seem harmful to certain sectors may already be priced into stock valuations before they are even implemented. Meanwhile, companies have proven time and time again that they can adapt to changing regulations, innovate and find ways to thrive regardless of the political environment.
Focus on the fundamentals
While elections may dominate headlines, they are just one of many factors influencing the market. Global economic trends, interest rate changes, corporate earnings and consumer behavior all play a far more significant role in determining long-term market performance.
Conclusion: Don’t let the election derail your strategy
The U.S. election may add an extra layer of uncertainty to the market, but it’s important not to let it derail your long-term investment strategy. History has shown that markets reward patient investors who stay the course, regardless of political outcomes.
Rather than reacting to political headlines, focus on the fundamentals: a diversified portfolio, a clear financial plan and the discipline to remain invested through volatile periods. By doing so, you’ll be better positioned to achieve your financial goals — no matter who sits in the White House.
Related Content
- Election 2024: Politics and Your Portfolio
- What Investors Should Keep in Mind This Election Season
- Could the Election Impact Interest Rates?
- Should You Still Have Bonds in Your Portfolio?
- In ESG Investing, Money Changes Everything
-
Savings Goal CalculatorTools Want to know how much you need to save each month to reach your financial goals? Our calculator helps you build a realistic savings plan.
-
Cash vs. Mortgage: How to Pay for Your Second HomeShould you buy your second home outright or finance it with a loan? Weigh the pros, cons and tax implications before making the leap.
-
5 Top Tech Disruptors to Watchmultibagger stocks Big change catalyzed by top tech disruptors often leads to big growth.
-
The Seven Best-Paying Side Gigs For RetireesIf you're worried you won't have enough saved for a comfortable retirement, or that life after work will be boring, these well-paid roles could be the answer.
-
$40,000 CD vs. $40,000 High-Yield Savings Account: 3 Things Savers Should Consider NowBoth options offer risk-free methods to grow your savings. Learn how much you can earn with each, how they differ and which one suits you best.
-
Gray Divorce Can Throw Your Retirement a Curveball: What to KnowIf you're entering retirement and going through a divorce at the same time, you've got some work to do to shore up your long-term financial security.
-
I'm a Real Estate Investing Expert: Optional 721 UPREIT DSTs Can Be the Best of Both WorldsBefore investing in any 721 UPREIT exchange, look for one that offers a straightforward, investor-friendly exit.
-
Markets Are Quiet Ahead of Fed Day: Stock Market TodayInvestors, traders and speculators appear to be on hold amid an unusually fraught Fed meeting.
-
5 Multibagger Stocks With Amazing Returns in 2025multibagger stocks As the term suggests, multibagger stocks multiply your money – gains of 1,200%, for example. Here's where to look for that kind of performance this year.
-
Investing Freebies: Perks You Get for Owning These StocksWhile the biggest investing returns come over the long term, these companies offer instant gratification for investors with several freebies and perks.
