Election years are stressful in every way, and your personal finances are not spared. The prospect of a new administration and potential policy changes can unleash a whirlwind of speculation and lead to market volatility that can unsettle even experienced investors. To maintain financial stability and make informed investment decisions, it is critical to understand the dynamics and develop strategies to navigate this turbulent time.
Why election years lead to financial stress
Election years always mean two things: the promise of change and the uncertainty of that change. Each candidate or party proposes different economic policies, tax plans and regulatory approaches; until we get answers, it is natural to react with concern. “The combination of the potential for change and the uncertainty of the impact creates a recipe for fear,” says Julie GuntripHead of Financial Wellness at Jenius Bank. If you can’t predict or influence the economic outcomes of different candidates, Guntrip says, “you may want to ask yourself whether the changes will negatively affect your progress toward your financial goals, such as the performance of your retirement savings in the markets or the value of your home or investment property.”
How election years affect personal finances
How exactly do macroeconomic trends like elections affect your wallet? Guntrip provides some examples:
-
Retirement accounts: Stock market volatility can cause fluctuations in 401(k) plans and other retirement accounts, raising concerns about long-term financial security.
-
Job security: Economic uncertainty may lead to hiring freezes or layoffs in some sectors.
-
Consumer confidence: Uncertainty about the future can affect spending habits and important financial decisions, such as buying a home or starting a business.
-
Investment decisions: The temptation to make hasty investment decisions based on short-term market movements or predicted election results can be great.
Elections are, of course, cyclical events, and markets have historically shown a long-term uptrend regardless of which party is in power. Let’s take a look at some strategies to keep a long-term perspective.
Tips for dealing with financial stress in election years
To help you stay clear-headed and avoid investing missteps, Guntrip has three key pieces of advice for you: stick to your plan, diversify your portfolio and have an emergency fund.
-
Stick to your plan. A well-thought-out investment plan serves as a roadmap for your financial future and adapts to your long-term goals, risk tolerance and overall financial situation.
-
Diversify your portfolio. Diversification, the golden rule of investing, can help protect your portfolio against the impact of a single underperforming investment by spreading your investments across different assets, industries and regions.
Build your emergency fundThis financial safety net is crucial because it could help you avoid liquidating your investments during a market downturn to cover unexpected expenses.
The conclusion
While election years can indeed lead to increased financial stress, it is important to remember that this is a normal part of the economic and political cycle. By maintaining a long-term perspective, diversifying, and focusing on personal financial goals, investors can navigate these times of uncertainty with greater confidence.
Remember that hasty reactions to short-term market fluctuations often lead to less than optimal investment decisions. While it’s important to stay informed, constantly dealing with election news and market commentary can increase anxiety. Set limits on your media consumption.
Instead, use this time as an opportunity to review and reaffirm your financial strategy and make sure it aligns with your long-term goals—regardless of the election outcome. In the meantime, focus on what you can control, like checking your voter registration status three times a week.
