Three strategies for investing in an election year

The U.S. election always makes news around the world, but with a near-miss assassination attempt, an incumbent president’s withdrawal from the race, and a new candidate emerging from the wings all in a matter of days, the 2024 race for the White House is suddenly proving to be a very dramatic one. Here at home, the discussion is often focused on how either leader would affect the Canadian market. Even with our own federal election scheduled for next year, our economy is likely to be more influenced by global forces emanating from the United States, Canada’s closest trading partner.

How will the U.S. presidential election affect your investments?

Political developments, unexpected changes, and global events are all causes of market volatility. This is just another name for the movement (up or down) of the stock market. As you invest, it’s understandable to be concerned about sudden changes in the market, especially when it’s the value of your investments increasing and decreasing erratically.

There will be no shortage of forecasts and predictions as election day draws near. It often isn’t easy, but it’s best to ignore the chatter. Historically, elections have made almost no difference to long-term investment returns such as retirement investments.

How do stocks react right after an election?

The S&P/TSX Composite Index measures the largest companies on the Toronto Stock Exchange. It’s known as the U.S. equivalent of its S&P 500 Index and is often seen as a reflection of the general strength of the Canadian economy. During many of the last few U.S. elections, the index dropped slightly after election day for about five days, regardless of the winner’s political party. Once the news starts to settle down, the market does too.

In general, the market has shown incredible growth since the S&P/TSX Composite Index began in the 1970s. Despite a few significant drops—particularly after major events like the COVID-19 pandemic, 9/11, and the financial crisis of 2008—investors who stayed invested greatly benefited.

Is there a politics-proof long-term investment strategy?

Retirement investments are designed for the long term. You may have 5, 10, or even 20 years until you stop working. This gives your money time to grow and the market time to recover from current volatility, including the upcoming election.

Three things to consider when investing for your retirement

1 Consider all aspects of retirement

Retirement planning tends to focus on money, but there’s also the question of how you want to spend your time.

• What do you want to do when you retire?
• How can you decide how to spend your time, stay connected with family and friends, and maintain good health?
• When will you spend time with family and friends?
• What will you do to stay healthy?
• Have you set goals for retirement?

Once you have a clear picture of what your retirement looks like, you’ll be able to plan with more accuracy.

2 Invest for the long term

Take steps to understand what investing looks like in all market conditions—inflation, recession, or market volatility—so you can be prepared. Your approach will change as you near retirement and you’ll want to make more conservative investments once your retirement date is coming up.

3 Tune out the noise

Trying to time the market to avoid losing money is impossible, even for the best of investors. Figure out your overall risk tolerance and consistently contribute to your savings, either through automatic deposits from your paycheque or lump sums when you can.

Keep your retirement on track during an election year

Market volatility is a regular part of investing but when it comes to your savings, it can be hard to imagine losing money if the market dips. It’s natural to want to take action and even withdraw your cash during major events like an election, but saving for retirement is a long-term strategy. Instead of worrying about every market movement, the best course of action is to do nothing. Try to ignore the headlines and focus on your own goals. Come up with a retirement plan and work toward that goal, no matter the politics.