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We're Family Rated |
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Jan
18
2008
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Will Presidential Election Year Affect Investors? |
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Reprinted with permission of Investment Representative Celine Richardson of EdwardJones
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Friday, 18 January 2008 |
 As you are no doubt aware, 2008 is a presidential election year. As a citizen, you may well have a great deal of interest in the election. But how about as an investor? How does an election year affect the investment climate? And - again from the perspective of an investor - does it matter who wins?
To begin with, let's examine how the stock market reacted in the past to the selection of a president. The Dow Jones Industrial Average rose in nine of the past 11 presidential election years, with an average gain of slightly more than nine percent. So it's clear that, for the most part, the market has done pretty well when America goes to the polls.
Does the election or re-election
of a president just make us more optimistic, leading us to invest
more heavily and thereby drive up the markets? Probably not. In
reality, many factors - such as corporate profits, geopolitical
concerns, interest rates and inflation - drive stock prices. And
this is true in all years, whether an election is held or not. Consequently,
stock returns from past presidential election years, while impressive,
cannot serve as a reliable predictor of what the market might do
in 2008.
Now, let's turn to the next question:
As an investor, how will the outcome of the election affect you?
There's not really a simple answer. In the past, the stock market
has performed well - and performed poorly -under both Democrats
and Republicans. Of course, candidates of both parties will have
different priorities and try to enact different economic agendas,
and these priorities may have some impact - although one that's
notoriously hard to predict - on different market sectors. In short,
no one can accurately forecast the effect of this November's election
on the financial markets, and that won't change even after the nominees
are known.
Instead of pondering the "what-ifs"
involved in a presidential election, you're much better off following
some tried-and-true investment strategies. Here are a few to consider:
- Keep on investing. World events may be good or bad, and the
stock market may be up or down - but no matter what happens,
the most successful investors stay in the market. Look for quality
investments and hold them until either your needs change, or
the investments themselves undergo some type of transformation.
- Know your risk tolerance. If you're losing sleep at night
over your investments, you're probably taking on more risk than
the amount with which you are comfortable. At the same time,
if your investments are putting you to sleep, they may be too
conservative, which could mean they're not providing the growth
necessary to help you meet your goals. Strive for a balance
that fits your investment personality.
- Think long-term. If you're constantly adjusting your investment
mix in response to short-term events, you'll probably rack up
big commissions and you almost certainly won't make the necessary
progress toward your important objectives, such as a comfortable
retirement. So, train yourself to ignore daily or weekly or
monthly price fluctuations and keep your eyes on the far horizon.
If you've chosen the right investments, they should be designed
to help you work towards your goals in exchange for your patience.
This November, don't forget to
vote. But before and after Election Day, cast your ballot for solid
investment technique.
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Today:
September 07, 2008
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