How midterm elections can impact investment markets

All right. Historically, in the weeks, even months leading into the midterm elections, investment markets behave strangely. Sorry to block the Good Day Detroit. I wasn't on my mark. Oh, my gosh. I've got to get on my mark, Michael. I know. Oh, my gosh. It tells me where to be with the election here. Financial instructor Michael Mazarett from the retirement education explains why midterm markets are so unusual. And we've seen that in the past year, in the past several weeks. Yeah. One thing that the stock market tends to hate is uncertainty. And with elections, there's a lot of uncertainty. There are polling, who's in the lead. And one thing we beg people to keep in mind is that if you're investing for the long term, you should not be making short-term decisions with your portfolio based on who might win the election or who does win the election. And the market bears that out. In the years during midterm elections, the stock market tends to be more volatile than other years, and then in the 12 months post-midterm elections, the market tends to do a little better than average. So once all the chips land and the market sees, okay, who's winning or who won, there's sort of almost a sigh of relief typically, and the market has a pretty good year. Not always, obviously, there's no crystal ball, but this is why people should not be making short-term decisions with their portfolio based on their politics. How much does... Who is in the White House impact the stock market, if at all? So it can in short term spurts, it can. Play an impact. But this is where people need to understand the market has done well under both parties. And if someone is picking stocks or trying to time things based on who they like or don't like in the White House, they're going to cost themselves a fortune over their lifetimes. When it comes to investing, one of the most common mistakes people make is allowing their emotions to drive their decisions. And when you add politics to it, it's like adding gasoline to the emotions. It really gets people worked up. And so they tend to make even more severe choices choices with their portfolio based on those politics and time and time and time again it tends to hurt people more than help people. Because of the volatility that we see historically with midterm election years, is this a good time for investors to jump in to a market? So if someone is trying to build long-term wealth, it is always a good time to be jumping in. No time like the present, right? If we're trying to build long-term wealth. But this is why it's so important for people to understand. What is the job for each one of my dollars? Because if someone, for example, is 35 years old and they have 30 more years before retirement, yes, this is a great time to be investing in the stock market, just like it was yesterday, just like it will be tomorrow. If someone is approaching retirement and they might need some of this money for income and retirement, it's a very different story. So that's why it's so important to set the politics, set the news aside, and first understand what are my goals for my money? Because once you can give each of your different dollars a job, is it short-term income? term growth? Is it something else? That is what should drive how the money gets invested, not who's winning in the election race. When we talk about the volatility of the market and we watch the Dow go, you know, red arrow, green arrow and all the other indices. But what triggers the ups and the downs when we're talking about, particularly when it comes to election seasons? Well, even setting aside election seasons, the thing that really triggers the ups and the downs are the underlying companies. I think people lose sight of the fact sometimes that the stock market is based on the stocks and the stocks are based on the companies. If Apple has a fantastic quarterly earnings report, on average, Apple stock tends to do better. If they have a bad quarterly earnings report, they tend to do worse. So these things really come down to, you know, how are businesses doing? How's the U.S. consumer doing? That ultimately drives its way through to the companies, to their stocks, to the stock market. So people tend to think think of quote unquote the stock market, but it's important not to lose sight of the fact that the stock market's based on the companies, which are based on the economy. And so again, Can there be moments in time where certain presidents are saying things positively or negatively? That can happen. But in the grand scheme of things, it is impossible to base your decisions around who you think is good or bad for the country or who you want to win the election. Speaking of specific companies, we've seen that a little bit here recently with the AI chip stocks taking a little bit of a hit. companies that are taking a hit, so the market takes a hit. Exactly, and so for the past couple weeks, there's been a lot of volatility, both positive and negative, for AI chip stocks, and what's interesting about that, not to go off on a tangent here, but that is part of the ballot. There's a lot of AI data center issues on the ballot this year, and so that's one of the things adding a little more fuel to the fire for the volatility on Wall Street. These are things that over long periods of time will play themselves out, and whether Wall Street likes the results of the election or not, fast forward 12, 24, 36 months, this is going to be old news at some point, and the market will keep churning forward. Well, and this is why an index fund, a diversified portfolio by way of an index fund, somebody else doing it for you, right, is really the way to go. Well, ideally, with a pet. Passive index fund? No one's doing it. It's a basket of stocks that no one is stock picking, no one is market timing. And by the way, that's the cheapest way to invest in the stock market, is a passively managed index fund. And that's why having that diversification is so important, because in an event where, let's say, chip stocks do fall, then there are plenty, there are healthcare stocks, there are energy stocks, there are consumer goods stocks, there are plenty of other sectors of the economy that can pick up the baton and run the race and and help the index recover. Michael, you're coming back for the next hour. We're going to be talking about... Health insurance, right? Yeah, not a fun topic, but an important one. Real sexy. We're going to make it real sexy, Michael. Especially right now. Open enrollment is right now. Right, exactly. Got to get that taken care of. I'm always telling the friends about the HSA and the triple tax benefits. Yes, we should talk about that. It's one of the best accounts out there. We'll talk about it. If it works for your particular family or your individual needs, it can be really good. We'll talk about it with Michael. Retirement Education Foundation right there, REFEDU.org.