Election years are stressful across the board, and your personal finances are not immune. The prospect of a new government and potential policy shifts can create a whirlwind of speculation, leading to market volatility that can unsettle even seasoned investors. Understanding the dynamics at play and developing strategies to navigate this turbulent period is crucial for maintaining financial stability and making sound investment decisions.
Why election years cause financial stress
Election years always mean two things: the promise of change, and uncertainty about that change. Each candidate or party proposes different economic policies, tax plans, and regulatory approaches; until we get answers, it’s natural to respond with apprehension. “The combination of the potential for change and the uncertainty of that impact creates a recipe for anxiety,” says Julie Guntrip, Head of Financial Wellness at Jenius Bank. When you can’t predict or influence the economic outcomes of different candidates, Guntrip says, “you may question if the changes will negatively impact progress on your financial goals, such as the performance of retirement savings in the markets or the value of your home or investment property.”
How election years affect personal finances
So, how exactly do macroeconomic trends like elections affect your wallet? Guntrip provides some examples:
Retirement accounts: Volatility in the stock market can cause fluctuations in 401(k)s and other retirement accounts, leading to stress 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 impact spending habits and major financial decisions, like buying a home or starting a business.
Investment decisions: The temptation to make rash investment decisions based on short-term market movements or predicted election outcomes can be strong.
Of course, elections are cyclical events, and markets have historically trended upward over the long term regardless of which party is in power. Let’s take a look at some strategies to keep a long-term perspective.
Tips for managing financial stress during election years
To help stay level-headed and avoid investment missteps, Guntrip has three main pieces of advice: Stick to your plan, diversify your portfolio, and maintain an emergency fund.
Stick to your plan. A well-thought-out investment plan helps serve as a roadmap for your financial future, aligning with your long-term goals, risk tolerance, and overall financial situation.
Diversify your portfolio. Diversification, the golden rule of investing, may help to cushion your portfolio against the impact of any single poor-performing investment by spreading your investments across different assets, industries, and regions.
Build your emergency fund. This financial safety net is crucial because it could help you avoid liquidating your investments during a market downturn to cover unexpected expenses.
The bottom line
While election years can indeed cause heightened financial stress, it’s important to remember that this is a regular part of the economic and political cycle. By maintaining a long-term perspective, staying diversified, and focusing on personal financial goals, investors can navigate these periods of uncertainty with greater confidence.
Remember, reacting hastily to short-term market fluctuations often leads to less-than-ideal investment decisions. While it’s important to stay informed, constant exposure to election news and market commentary can increase anxiety. Set boundaries on your media consumption.
Instead, use this time as an opportunity to review and reaffirm your financial strategy, ensuring it aligns with your long-term objectives—regardless of the election outcome. In the meantime, focus on what’s in your control, like triple-checking the status of your voter registration.
