This is the time of year that the media ramps up election coverage and reminds us how “important” the results will be for us. When it comes to investing, is that really the case?
Fact: the party of the sitting president historically loses seats in midterms. It happened with Obama in 2010 and 2014 (democrats lost 76 congressional seats). I happened with George W. Bush were his party lost 30 seats. AND with Clinton, Bush the elder, Reagan and Carter, to name a few.
Whatever the outcome of the elections, we need to remember that the initial knee jerk reaction is usually just that. It usually doesn’t translate into a long-term trend. Case in point? Two years ago when Trump won the election unexpectedly and the market dropped off significantly – for a few hours. That downturn was very short lived and ended up being a very costly decision for those who sold out before the election and allowed their emotions to rule.
Historically, mid-term elections don’t influence the market. It is the economy that drives long term returns in the market much more than politics.
How is the economy doing? Growing – at a steady pace.
How’s inflation? Around 2%, as monitored by the Federal Reserve.
Are companies making money? Earning season is going on right now and it’s looking pretty great.
Are people working and spending money. Unemployment is at a low and consumer spending is up.
Of course we have worries: Trade Wars, what happens when we don’t have enough workers to do the jobs we need, our national deficit and debt, interest rate on the rise etc., etc.
We are human beings, thus we are emotional beings for the most part. When we think about election results affecting us, few are able to ignore it. We become concerned and worried. Being concerned/worried is a natural and expected response. BUT, it’s not good for us and not good for our decision-making ability. We know we are better off when we stick to our plan. .
PS Don't forget to vote on November 6th!
Content originally written by Jay Mooreland, The Behavior Finance Network. Used with permission and provided by our office 2018
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