Are the election jitters shaking your investment strategy?

With the 2024 US presidential election looming, investors are grappling with heightened uncertainty even as markets recover.

According to the latter Janus Henderson Investor Survey78% of respondents are concerned about the impact the election could have on their finances, surpassing other pressing concerns such as inflationhigh interest rates and even the possibility of one recession. While these concerns are understandable, historical evidence suggests that responding to short-term political volatility can jeopardize long-term financial goals.

It is a common mistake that political identity drives emotional decision-making. Many investors tend to let their political preferences influence how they view market risks and how they subsequently invest. This emotional influence, known as confirmation bias, leads investors to seek information that aligns with their views while ignoring data that contradicts them. In the 2024 electionsThis confirmation bias has manifested itself in a widespread tendency to take less risk until the election is decided. According to our research, 62% of investors say they plan to do so.

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However, market data from recent election years tells a different story. Historically, the S&P 500 Index has averaged 10.13% during presidential elections, only slightly lower than the 12.72% average in other years. This shows that limiting risks purely based on political uncertainty can lead to missed opportunities.

Long-term goals over short-term interests

Many investors have already retreated to seemingly safer assets such as cash And fixed income in response to them election-related anxiety. Nearly half of investors surveyed expressed a preference to remain in cash until the political landscape stabilizes. While cash can provide short-term security, it comes with long-term risks – especially in an environment of falling interest rates, which came at us faster than the consensus we last expected. Fed meeting. Now that the Federal Reserve has officially entered its easing cycle, cash yields are likely to fall, and cash itself may underperform other assets such as bonds and stocks.

For those unwilling to fully re-enter the stock markets, fixed income can serve as a middle ground. Bonds offer attractive yields and their potential for price appreciation increases in a rate cut cycle. A barbell strategy – which combines short-term assets with longer-term bonds such as government bonds – can balance safety with the potential for gains when rates fall.

Despite fears of an economic downturn, the data shows that staying out of the market until conditions feel “safer” can be a costly mistake. In fact, 55% of investors we surveyed expressed concern about an impending recession, a concern that has led many to take a wait-and-see approach.

However, waiting on the sidelines often results in missing out on market rallies. Historical data shows that risky investments, such as stocks and bonds, tend to outperform cash in the long term. From 1996 to 2023, balanced portfolios composed of 60% stocks and 40% bonds significantly outperformed cash on a rolling five-year basis.* In addition, markets tend to recover quickly from short-term volatility and miss the early stages of a market recovery. This can have an adverse effect on the long-term growth of the portfolio.

Tame FOMO with diversification

While many investors are reducing risk, some are leaning heavily on sectors they believe offer attractive short-term profits. Our research shows that 73% of respondents see technology as a strong investment opportunity in the coming year, largely driven by the hype surrounding artificial intelligence (AI). The Beautiful 7 shares – technology giants such as Apple, Microsoft and Nvidia – have received a lot of attention. However, this FOMO (fear of missing out) can lead to an over-concentration in technology stocks and a lack of diversificationwith 44% of investors surveyed preferring to focus solely on these names rather than maintaining a diversified portfolio.

While AI presents an exciting long-term investment theme, investors should be wary of overexposure to any single sector. History has shown that diversification is critical to managing risk and achieving sustainable portfolio growth. Sectors like healthcare, which also benefit from innovation, provide a counterbalance to technology while offering potential exposure to the AI revolution.

The 2024 presidential election has caused great concern among investors, but overreacting to short-term political events could be damaging. History shows that factors such as interest rates, inflation and corporate profits play a much bigger role in long-term market performance than election results. By staying invested, maintaining a diversified portfolio and focusing on long-term goals, investors can weather this period of political uncertainty without sacrificing their financial future.

* Source: Bloomberg, as of December 31, 2023. Average of five-year rolling annualized returns, based on calendar year returns. A 60/40 balanced portfolio is a combination of 60% S&P 500 Index and 40% Bloomberg US Aggregate Bond Index and assumes annual rebalancing. Past performance does not predict future returns.

The opinions and views expressed are as of the date published, are subject to change and may not reflect the views of others in the organization. They are for informational purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. There is no guarantee that the information provided is accurate, complete or current, nor are there any guarantees as to the results obtained from its use. W-0924-796352-09-15-2025

This article was written by and represents the opinions of our contributing advisor, not the Kiplinger editorial staff. You can consult the details of advisors at SEC or with FINRA.