Investment Strategy in an Election Year: Is a Market Correction Coming?
Is a market correction on the horizon? In this episode of the A Wiser Retirement® Podcast, we discuss key strategies for investing during an election year. We explore the stock market’s average rise during election years, emphasizing the value of long-term investment strategies and avoiding market timing. We also cover the importance of having a cash reserve for downturns, rebalancing portfolios during sell-offs, and staying invested through political cycles.
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Summary
Is a Market Correction Coming?
Market corrections during election years are considered a healthy part of the market cycle. While short-term volatility may occur, especially around election outcomes, the long-term outlook for a secular bull market remains positive.
Election Impact on Investments
Election outcomes can influence market trends, but they typically have minimal long-term impact on portfolios, especially when holding low-cost index funds. It’s important to stay invested despite political uncertainty, as trying to time the market can lead to missed opportunities during rebounds. Historical data shows that the S&P 500 experienced a 177% increase in 2022, reinforcing the importance of long-term investment perspectives.
Market Trends During Election Years
Since 1950, the stock market has historically seen an average increase of 7.5% during election years. However, markets typically peak in September or October before rebounding after election results. Other economic factors, such as Federal Reserve rate cuts and tax policies, also contribute to market volatility.
Stock Market Performance Under Different Presidencies
Over the last 70 years, investing during Democratic presidencies would have yielded $61,800, whereas investing through both Democratic and Republican presidencies resulted in $1,690,000. This demonstrates that staying invested through both political cycles yields significantly better returns than trying to time the market based on political changes.
Avoid Timing the Market
Attempting to time the market, especially during volatile periods like election years, can be risky. Markets often anticipate events six months in advance, and economic factors such as the election cycle can cause short-term corrections. Focusing on long-term goals helps mitigate the temptation to make rash decisions during temporary fluctuations.
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