Today, millions of Americans head to the polls for the midterm elections. Whatever your political views, election seasons tend to bring a wave of strong emotions, and for many investors, a familiar question: "Should I change my investments depending on who wins?"
It's one of the most common questions financial professionals hear every election cycle, and one of the most frequently debated in online investing communities. The impulse is understandable. But mixing political feelings with portfolio decisions can lead to choices that have little to do with your actual goals.
Why Elections Feel So Financially Charged
A few behavioral tendencies are especially active around elections:
- Confirmation bias. We tend to seek out and believe information that supports what we already think. If you expect a certain outcome to be bad for the economy, you'll likely find plenty of commentary agreeing with you.
- Affect heuristic. When we feel strongly about something, those feelings color our judgment of related risks. Political disappointment can easily translate into economic pessimism, and political excitement into overconfidence.
- Illusion of control. Elections are dramatic, high-profile events, so they feel like they should matter enormously to markets. In reality, markets respond to a wide range of forces, including corporate earnings, interest rates, inflation, and global events, many of which have nothing to do with who holds office.
What Tends to Matter More
Policy can certainly influence specific industries, tax rules, and economic conditions over time. But the effects are often slower, more modest, and harder to predict than campaign rhetoric suggests. Legislation is negotiated, delayed, revised, and sometimes reversed. Markets also tend to anticipate possible outcomes well before Election Day.
Meanwhile, the things that most directly shape your financial future, such as how much you save, how you're invested, your time horizon, and your behavior during volatile periods, are largely within your control regardless of who wins.
A Few Guidelines for Election Season
1. Keep your plan in the driver's seat. Your investment strategy should be built around your goals, timeline, and risk tolerance. If none of those have changed, an election result alone usually isn't a reason to overhaul your portfolio.
2. Expect some volatility. Uncertainty around elections and their aftermath can cause short-term market swings. Expecting that in advance makes it easier not to overreact.
3. Be wary of extreme predictions. Headlines warning of economic doom or promising unprecedented booms tend to get attention precisely because they're dramatic. Treat them with healthy skepticism.
4. Focus on what you can control. Review your emergency fund, rebalance if your allocation has drifted, and make sure your contributions are on track. These steps matter in any political environment.
5. Pay attention to concrete policy changes. If new tax laws or regulations are enacted that affect your situation, that's a legitimate reason to revisit your plan with your advisor and tax professional, based on the actual details rather than speculation.
Separate Lanes
Caring deeply about civic outcomes is a good thing. Voting, volunteering, and engaging with issues are important parts of community life. The suggestion here isn't to care less; it's to keep your civic passions and your long-term financial plan in separate lanes.
Your retirement doesn't have a political party. Neither does your child's education fund. Both will likely span many election cycles, with leaders and policies of every stripe along the way.
Keeping Perspective Over Time
If you've invested for a decade or more, you've likely lived through several elections with very different outcomes. It can be a useful exercise to look back and ask how much those results actually changed your personal financial path. For most long-term investors, the answer is that savings habits, asset allocation, and staying invested through uncertain periods had a much greater influence than any single election. That historical perspective can be a calming reminder when the current cycle feels especially intense.
The Takeaway
Elections come and go. A disciplined, goals-based plan is designed to outlast them all.
If election-season headlines have you second-guessing your strategy, we'd be glad to talk through your concerns and help make sure your plan still fits your goals.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. This content is not intended to support or oppose any political party or candidate. LPL Financial and its representatives do not provide tax or legal advice.