Investors Get Nervous During Presidential Election Years

Written by: Jay Llewelyn, CFA®, Shareholder, Research Analyst & Portfolio Administrator

Behavioral finance always plays a big role when it comes to investor decision-making, but it becomes especially important during emotionally charged times—like presidential election years. Simply speaking, behavioral finance identifies psychological influences and biases that affect financial behaviors, such as second-guessing investment choices. With the 2024 election around the corner, emotions can run high, and that is when investors are most likely to make impulsive decisions based on biases that can hurt their financial results.

So how do you sit tight and make smart choices during election cycles? The key is simple: stick to your plan and treat it like any other year. But while that is easy to say, emotions can make it tough to follow through. I believe that understanding how markets behave during presidential election years can provide valuable insights for reinforcing the choice to stay on track.

The good news is that stocks have historically trended higher regardless of which party was in office. This is illustrated in the red and blue mountain chart above, that tracks ninety years of election cycle impact on the capital markets. While presidential elections often lead to increased market volatility, once the uncertainty subsides, the market does usually stabilize and return to normal. Therefore, by staying the course through periods of heightened volatility and filtering out any election-related noise, individual investors are better equipped to remain calm and focused in the weeks leading up to election day.