Three Ways to Prepare Yourself for the Election – and its Aftermath

It doesn’t matter which candidate you’ve been rooting for in this U.S. election, given how important the American economy is to Canada and the rest of the world, presidential contests always do a number on people’s nerves.

The good news for investors: historically, stocks have climbed during presidential election years. For instance, since 1944, the S&P 500 rose an average of 6.8 per cent in years when Americans headed to the polls, according to independent investment research company CFRA Research. As of October 30, the index was up 22 per cent year to date.¹

Of course, that doesn’t mean markets won’t react to the election results – investors don’t like uncertainty, and if recent U.S. elections are any indication, it could take time before a clear winner is announced, which may increase stock market volatility.

So, what can you do to make sure the election news and potential market reaction don’t get the best of you? We have some suggestions.

Have the right mindset

Volatility is always a part of investing. Stocks go up and down – and they can sometimes fall hard in particularly unstable situations – but historically, equity markets have climbed over the long term.

In uncertain times, it could be helpful to understand what leads investors to react to market volatility. Loss aversion, in particular, often causes people to make rash decisions with their money. Research shows that investors tend to feel losses two times as much as gains, and this could potentially create the urge to sell stocks at inopportune times. When the election dust settles, you may also want to revisit your risk tolerance levels.

Also, be mindful of action bias – the idea that people have a penchant for doing something rather than nothing – and the bandwagon effect, which is our tendency to follow a crowd.

Be aware of research and trusted commentary

Keeping up with the flood of news during an election cycle can be exhausting. Paying constant attention to the abundance of blogs, commentary and social media punditry available around election time and your head will surely spin. Instead, you could stick to reading or watching a few sources you trust.

Misinformation and disinformation can also cause confusion. If something sounds odd or not believable, whether about a stock, a news event or the market in general, do your own research by seeking out the original source of that report. That could mean locating a press release on a company’s website, reading the original story on a trusted publication’s page or locating the source of a tweet versus watching the memes or reading out-of-context posts.

Consider setting up alerts and watchlists on your stocks and you can receive news releases, media mentions, analyst rating changes and more right in your inbox.

Stay on top of your investments and account

Those who are feeling jittery around election time may want to remind themselves of what’s in their portfolio and monitor how their stocks and bonds are performing in the days and weeks ahead.

Evaluate how your portfolio is balanced. RBC Direct Investing’s Portfolio Analyzer can help. It lets you see your overall mix of Canadian, U.S. and international stocks, fixed-income securities and cash so that you can assess your level of diversification. You can choose to analyze a single account or group of accounts – even practice accounts – to get a big-picture view. You can also drill down to individual weights and holdings concentration.

Going forward, another thing you may want to consider is dollar-cost averaging, which involves investing a set dollar amount on a regular basis regardless of current market prices. Automatically moving a little bit from your chequing account into an investment account every month could help take the emotions out of investing.

Whatever happens, do your research and consider factors other than the election when making decisions about your investments – other things could impact the markets more than a presidential election. While the next little while may feel chaotic, it may not be long before people move on and change their focus from the election result to how the next president will govern.

¹ _{Source: Google Finance, "S&P 500", October 2024}