Submitted by Edward Jones Financial Advisor Kirk Doyle
It's election season again. Over the next few months, you're sure to hear a number of promises from candidates and speculation from experts about what those promises, if enacted, could mean for the country. But how might these possible outcomes affect your financial future?
When considering this question, keep the following points in mind:
Election promises are not always kept. Presidential candidates often announce that they want to make big changes to tax or spending policies, or both. However, the reality is that our political system is generally resistant to major changes, which can be beneficial for investors because financial markets do not like the uncertainties that accompany such changes.
Economic progress does not always depend on Washington. Even when political leaders manage to enact laws and regulations, the results can be unpredictable. Key economic indicators such as jobs, interest rates and inflation can move in unexpected directions.
Financial markets can do well no matter who is in charge. Since 1970, the stock market, as measured by the S&P 500, has returned an average of more than 10% per year. And that goes for any political combination—Democratic president with a Democratic Congress, a Republican president with a Republican Congress, or one party holding the presidency while the other holds Congress.
The fact is that financial markets are determined by many factors that are beyond the control of political leaders. To give just one example, it is the Federal Reserve, not the President or Congress, that sets interest rates, and the Fed itself may do so in response to unforeseen or unexpected economic events, such as the supply backlogs that occur in part have led to this. due to the COVID-19 pandemic. And other events, including natural disasters, global political or military conflicts, oil production, etc., will also have an impact on our economy and financial markets.
Therefore, instead of making investment decisions based on the political scene, “vote” for some proven strategies. First, try to build a diversified portfolio that includes U.S. and international stocks or equity-based mutual funds, corporate bonds, U.S. Treasury securities, certificates of deposit (CDs), and other investments. While diversification cannot protect against all losses or guarantee profits, it can protect you from market volatility, which may primarily impact one asset class. Put simply, if you only own stocks and the market falls, your portfolio could fall more than if you also owned bonds, which often move in a different direction than stocks.
Here's another suggestion: invest for the long term. Short-term downturns will always occur in financial markets, but you should not overreact by selling investments to cut losses. If you don't invest in the market, you end up missing out on the early stages of the next rally, where the biggest gains are often made. Ultimately, the most successful investors are those who hold high-quality investments over decades as part of a strategy that fits their risk tolerance, time horizon and personal goals.
Elections can give political leaders great influence – but when it comes to making the right investment decisions, you have the power.
This article was written by Edward Jones for use by your local Edward Jones financial advisor.
Edward Jones, Member SIPC
Kirk E. Doyle, AAMS®
www.edwardjones.com/kirk-doyle
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