Elections can make us uneasy. There are so many promises, but so few certainties. And if there’s one thing the stock market doesn’t like, it’s uncertainty. That can lead to shaky times and that’s never fun for our retirement portfolios.
A survey from Bankrate released earlier in September found that more than a majority of Americans (61 percent) see the upcoming presidential election as the biggest threat to the U.S. economy over the next six months because of overwhelming uncertainty across the country.
“Neither consumers nor business owners can really figure out what’s going to change, when it’s going to change or by how much it will change. That type of uncertainty breeds nervousness,” says Greg McBride, chief financial analyst at Bankrate.com. And those jitters mean consumers can become hesitant to spend and business owners reluctant to invest, he says.
But we can expect a lot of this to be short-lived.
“Economically nothing is going to change over night and, really, in terms of what drives stock prices, corporate profits aren’t going to change over night, either,” adds McBride. His advice: “Sit back and take a deep breath.”
Along the way, keep these additional tips front and center. [Wine helps, too.]
Elections Come and Go
Elections may come in with a roar and consume all the airwaves, news headlines and water cooler chatter, but it’s just an event in time that usually means very little for our finances. “There’s a lot more that’s going to stay the same than will ever change as a result of an election,” says McBride. On that note, avoid major moves to your retirement portfolio or personal finances. “If you’re freaking out and overhauling your finances every four years based on the election you’re on a road to nowhere.”
For what it’s worth: Since 1928, there have only been four instances where the S&P 500 Index has had a negative return during an election year and it’s worth pointing out that there was a great deal of market and economic damage in those years that were not exactly related to the who was running for President. Those down markets were in 1932 during the Great Depression, 1940 during World War II, 2000 amidst the tech market crash and 2008 at the beginning of the financial recession.
Don’t Read Much Into the Volatility
While elections are cyclical it doesn’t mean the markets will be smooth sailing between now and the election – or even months after. If that worries you, remember that it’s not rational to let our emotions cloud our judgment. It’s better to focus on the bigger picture and avoid knee-jerk reactions of any kind such as moving money around in your 401(k) or IRA just because your least favorite candidate wins. “Focus on investing in the long run. There is evidence that election year returns in any meaningful way have no lasting impact – positive or negative. It’s tenuous at best,” says Mark Zandi, Moody’s Analytics Chief Economist.
Pay More Attention to Interest Rates
Amidst all the election news, there’s a good bit of chatter over the fate of interest rates– and that has more implications on your finances. The expectation is that rates will head further north over the next two years. Ahead of that, consider paying down high-interest rate debt, refinancing variable-rate debt and into fixed-rate loans and be sure your credit score is well and above 700 (out of 850). If you decide to apply for a mortgage or even a credit card next year or further down the road, having a strong credit score will help you bank on the lowest possible interest rates.
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Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.