As you are probably well aware, the presidential race this year is set to be a nail-biter. The chances are, you have your favourite. But did you know that the race can have a significant effect on your investments? Whatever you have invested in, the presidential race and subsequent outcome can make a big difference to the value of it. It’s all down to an old theory about the ‘presidential cycle’ and its relationship to the stock market. If that sounds implausible, prepare to be surprised. Here is how this year’s presidential race could affect your financial investments.
The Cycle
The theory owes its origins to the influential economist John Keynes. It states that the four-year presidential cycle has a direct relationship with the value of stocks and shares. And just about anything, in fact. Anything, that is, that you might be invested in. During mid-term and the election phases of the cycle, stocks are down considerably compared to the last year before the election. Time and again, stock levels rise substantially in the run-up to the presidential election. Of course, what this means for you is that right now is a great time – possibly the best time – to invest.
After the Election
The data from the past fifty or so years all show the same undeniable pattern. So what about after the election? Well, according to experts, post-election is just about the worst time for investors. Those who missed their opportunity just before the election have shot themselves in the foot by this point. The reason that things don’t look so good after the election is mostly political. In the run-up to an election, candidates are careful to keep the voters happy. This is because they know that there is a definite link between voter confidence and a strong economy. Or, at least, an economy that appears strong. So, in the final year of the presidential cycle, you are always likely to see changes in taxation and spending patterns. The executive government has control over these. However, interest rates are controlled by the Federal Reserve, and therefore are not so directly affected.
Other Impacts
But it’s not just taxes that are affected by the presidential cycle. Many presidents in the past, keen for votes, have pushed through all sorts of changes before an election, in the hope of pleasing the voter. Some trends have arisen over the years. Healthcare is one area particularly affected, possibly for the simple reason that it affects every voter at some point. But another aspect that could be affected this year is social security. This one could have a big effect on your investments. Experts believe that the social security system is headed towards insolvency in the 2030s. You can protect yourself from reduced social security income. The way to do this is to build up alternative income streams. Depending on your situation, this might mean making more sensible investments. And as we have discovered, the best time of the next four years to do that is right now.
