Election stress isn't causing people to change their investing strategies - yet

MW Election stress isn't causing people to change their investing strategies - yet

By Gordon Gottsegen

Many individual investors report feeling 'anxious' or 'scared' about the election - but those feelings aren't affecting their portfolios much

We're entering the part of 2024 where the presidential election is really heating up. It seems like every week there's some new pivotal event that sways the course of the election - whether that's last month's presidential debate, the assassination attempt on Republican nomiee Donald Trump or President Joe Biden stepping out of the race and passing the torch to Vice President Kamala Harris.

It's hard for your average American to ignore what's going on in politics right now, especially in the age of social media and today's digital-news environment. But is all of this affecting how people invest their money? Maybe less than you'd think.

A handful of brokerages and financial organizations have been polling retail investors to see how people are adjusting their portfolios leading up to the election. And for the most part, the data show that most people aren't changing their investing approach very much.

According to a survey by online brokerage Public, 73% of surveyed customers said the election year is not impacting their investing strategy, while only 37% said it is.

Meanwhile, a poll by financial news and education platform Finimize found that only 14.5% of retail investors said they are making significant changes to their platform ahead of the election.

Why is that? It's not that retail investors don't feel strongly about the election: In a survey by wealth-management platform Betterment, 35% of retail investors said they felt "anxious" about the election, while 22% felt "scared" and 21% felt "excited."

See also: Political whiplash got you rattled? Don't make this classic money mistake.

Dan Egan, vice president of behavioral finance and investing at Betterment, told MarketWatch that it's common for emotions to pour over into things they aren't related to. In this case, that would be emotions about the election pouring over into how some manage their finances. But at the moment, that's not causing any widespread changes among retail investors, he said.

"Right now, we're at the stage where people are anxious about the uncertainty of the election," Egan told MarketWatch. "We've got polls and stuff, but we're so far out that it's not worth worrying about. Now is the time when it's going to be volatile until there is certainty at the end of it. And [investors] don't want to be exposed to that volatility, regardless of who's going to win."

Egan pointed out that markets and people alike don't like uncertainty. Uncertainty can make markets especially volatile, which can make retail investors as a little anxious. Egan said that this is especially true among new investors, who might opt to sit out the volatility of the election and defer their investments to a later time. However, more experienced investors are more comfortable holding their positions through this volatility.

In a July survey by brokerage Moomoo, 81% of retail investors said they believed the second half of 2024 will be more volatile than the first half.

On top of that, the same survey found that 84% of respondents believe the presidential election will have a significant impact on the stock market.

However, past data doesn't support this belief. Historically, the U.S. stock market tends to grow during election years, though its gains are slightly less than the average annual gain for the overall market. So elections don't usually result in selloffs.

Breaking news can affect daily market swings as traders digest what happened and try to position themselves for the future - and election-related news can have this affect, too. For proof of this, look at the "Trump trade" that has gained in popularity these past few weeks as polls have tilted in the Republican nominee's favor.

Active traders may try to capitalize on election news like this. For example, Interactive Brokers Group Inc.'s $(IBKR)$ most active symbol list showed trading activity in Trump Media & Technology Group Corp. $(DJT)$ surging following the assassination attempt.

However, the retail investors actively trading on news like this are most likely in the minority. According to Public's survey, only 16% of investors said they were buying more stocks or options based on who they think will win the election.

Short-term trades may or may not be profitable, but it's important for investors to know the difference between political headlines that cause market swings and fundamental changes that influence where the market is headed in the long term.

Read more: Do political headlines really matter for the stock market?

The propensity for retail investors to buy and hold the securities in their portfolio means they are more geared towards longer-term investing. This may also explain why most retail investors haven't been changing their investing strategies going into the election.

Buying and holding through the market volatility leading into the election may take some resolve, but that's what retail investors seem to be doing right now.

On the positive side, the election having a set date means that people have an idea of how long this uncertainty will last. In both 2016 and 2020, markets rallied once an election winner was decided.

So for now, retail investors may want to ignore the volatility and stick it out until the election is over. Of course, that's easier said than done.

-Gordon Gottsegen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

July 24, 2024 13:39 ET (17:39 GMT)

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