As this article goes out, we’re in the middle of an election cycle. Heightened emotions often accompany election cycles, but you should aim to avoid letting your emotions dictate your investment decisions. In this article, we’ll take you through ways to election-proof your investment portfolio. Thinking about this during an election year is crucial since it is common for many people to panic about finances around election cycles. If you read through this article, you’ll come away with some ideas and techniques to help you and your portfolio navigate this election cycle.
If you look back over the last almost 100 years, you’ll see we’ve only had two presidential election cycles that ended with the stock market in negative territory. Many people believe that if their party doesn’t win, the stock market will have negative outcomes. However, historically, the presidential election cycle has not dictated what’s going on in the stock market. Instead, the stock market responds to the general markets, economy, geopolitical environment, social environment, and more. In short, many factors beyond the election affect the markets. In fact, more often than not, stock market outcomes have been positive at the end of a new president’s first year in office, regardless of their party. Although this election is very polarized, we should rely on the data, and historically, there is a better chance that the market outcome may be positive.
Even so, we want to talk about election-proofing your portfolio.
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Tip 1: Diversify Your Assets
Election-proofing your portfolio comes down to diversifying your assets among many asset classes. Take a moment and think back to 2022. At this time, the markets across the board were down, such as bond and equity markets. In 2022, bonds were down 5-15%, and equities were down 20-40%; it felt like nothing was working. Did you have anything in your portfolio at that time that was growing?
In today’s higher interest environment, more conservative investors can get much higher yields and potential guarantees than in past years. With this in mind, think about your portfolio mix and ask yourself: “Do I have things in my portfolio mix that may go up if the bond and stock markets go down? Do I have things that hold steady when the bond and stock markets are going down?”
This is what we call true diversification. We like to see assets that zig and zag in the portfolio, so you have investments that don’t normally respond to fluctuations in the bond and stock markets. You may consider real estate, medium & long-term bank CDs, multi-year guaranteed annuities, indexed annuities, buffered ETFs, or other strategies. There are many strategies that successful clients at REAP Financial use to achieve true diversification.
Tip 2: Take Advantage of High Markets to Prepare for Downturns
You should also consider creating greater safety in your portfolio. We have seen all-time highs in the market so far in 2024. Generally, when you see all-time highs in the market, you may consider taking some of your chips off the table. By this, we don’t mean getting out of the market entirely, but rather harvesting some of these all-time high gains so you have cash ready to deploy at discounted prices when the market takes a downturn.
Oftentimes, people buy when the market is rising, but don’t have cash on hand to buy when the market is down. Downturns are a great opportunity to buy, as you can take advantage of discounted prices. We believe this is a smart way to look at the markets right now in 2024. Heading into the election, as of the writing of this article, we are still at all-time market highs. With that in mind, consider: what is your strategy to harvest some of these returns and have cash on hand going forward?
Tip 3: Maintain Your Long-Term Strategy
Finally, as we go through this election cycle, you should aim to maintain a long-term investment strategy. Avoid letting emotions take control of your investment decisions. If you’re in your thirties or beyond, you’ve likely been in the market through many of the downturns. Historically, we’ve seen that the markets come back more and more after each downturn; the downturns are also historically much shorter and turn around more quickly, resulting in higher bull markets and markets in general. In short, do not let the election cycle change your long-term investment approach. Instead, focus on things that can give you better diversification, stronger guarantees, and possibly harvest gains as we get closer to election day.
These are some key strategies and approaches to keep in mind during an election year to strengthen your investment strategies. If you’re interested in election-proofing your portfolio, you may also be interested in how to keep emotions out of your financial decisions. You can watch this video on those strategies here!
Work with a Financial Adviser in Austin to Election-Proof Your Portfolio
Whether it’s diversifying your assets, preparing for market downturns, or maintaining your long-term investment strategy, a financial adviser can offer personalized guidance based on your unique financial situation. At REAP Financial, our experienced fiduciary advisers specialize in helping clients election-proof their portfolios and stay focused on their financial objectives, no matter the political climate. Contact us today to schedule a consultation and take the next step toward securing your financial future with confidence.
Contact REAP Financial
Email: admin@reapfinancial.com | Phone: (512) 249-7300
Office Address:
9414 Anderson Mill Rd #100
Austin, TX 78729
