As the 2024 U.S. presidential election looms, investors are grappling with heightened uncertainty, even as markets rally.
According to the latest Janus Henderson Investor Survey, 78% of respondents are concerned about the impact the election could have on their finances, surpassing other pressing worries like inflation, high interest rates and even the possibility of a recession. While these concerns are understandable, historical data suggests that reacting to short-term political volatility may jeopardize long-term financial goals.
It is a common mistake for political identity to fuel emotional decision-making. Many investors tend to let their political preferences influence how they view market risks and subsequently how they invest. This emotional influence, referred to as confirmation bias, leads investors to seek information that aligns with their views while ignoring data that contradicts them. In the 2024 election, this confirmation bias has manifested in a widespread tendency to take less risk until the election is decided — according to our survey, 62% of investors say they plan to do so.
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However, market data from past election years tells a different story. Historically, the S&P 500 Index has returned an average of 10.13% in presidential election years, only slightly lower than the average 12.72% during other years. This demonstrates that reducing risk purely based on political uncertainty may result in missed opportunities.
Long-term goals over short-term concerns
Many investors have already retreated to seemingly safer assets such as cash and fixed income in response to their election-related anxiety. Nearly half of our surveyed investors expressed a preference for staying in cash until the political landscape stabilizes. While cash may provide short-term security, it comes with long-term risks — especially in a falling-rate environment, which came at us faster than consensus anticipated at the last Fed meeting. As the Federal Reserve has officially entered its easing cycle, cash yields are likely to decline, and cash itself may underperform other assets such as bonds and equities.
For those unwilling to fully re-enter equity markets, fixed income can serve as a middle ground. Bonds are offering attractive yields, and their potential for price appreciation increases in a rate-cutting cycle. A barbell strategy — combining short-duration assets with longer-duration bonds like Treasuries — can balance safety with the potential for gains as rates decrease.
Despite the fear of an economic downturn, the data shows that staying out of the market until conditions feel…
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