At the time of writing this post, many await the results of another highly publicised American election cycle. An incendiary media has created endless concern over economic shifts and potential changes in interest rates following the election – and for many of us, this noise can be an all-consuming distraction.
However, letting these uncertainties dictate your financial decisions can be a costly mistake. At AdviceFirst, we encourage you to hold steady and recognise the resilience of a well-structured, long-term plan, regardless of political transitions or market jitters.
This article will discuss how to stay level-headed during a time of economic distraction.
The Reality of Short-Term Disruptions
History shows that, time and again, we tend to overestimate the long-term impact of short-term events.
Elections and economic policy changes have an undeniable impact on the markets in the near term, but the actual, lasting impact is often far less significant than we might imagine in the moment. This phenomenon is especially true for New Zealand, which is influenced by larger global events but often feels a softened impact over time.
When we look at previous U.S. election cycles, for example, there’s often an immediate response in global markets, with investors reacting based on their perception of political outcomes.
But despite these short-term reactions, there is a common trend: the U.S. economy stabilises, and, as a result, New Zealand’s markets often follow suit. Financial data from previous election years shows that the markets usually rebound, often reaching new heights within months of an election, after initial fluctuations settle down.
A Look Back: Past Elections and the N.Z. Economy
Let’s consider the last two decades as an example. Historically, U.S. election years tend to bring increased volatility to global markets.
In 2008, following the global financial crisis, markets took a hit during the U.S. election period. Yet, within the next year, they were on a solid path to recovery.
Similarly, during the 2016 U.S. election, there was a slight dip in global markets due to uncertainty about a new administration.
However, by the following year, markets were setting new records. New Zealand’s economy experienced related volatility, but within a relatively short period, its market fundamentals held steady.
This pattern is consistent: the U.S. election season often spurs temporary market adjustments, regardless of which party is victorious.
The real danger is not necessarily the election itself – it’s the reactions we may have in response to election-induced volatility. When we allow fear of future uncertainties to dominate our financial decisions, we risk losing sight of the big picture.
Investors who hold onto their assets in these periods, rather than pulling out based on fears of potential disruptions, generally see positive long-term results. For Kiwi investors, this history reinforces the importance of patience and a steady approach in the face of political changes and potential market disruptions.
Emotions have a unique ability to cloud our judgment – and during times of uncertainty, it’s essential to lean into a well-considered strategy, not an emotional response.
Staying the Course Amidst Change
So, what’s the alternative to letting fear dictate our choices? As we often say, long-term success is about staying the course.
Your long-term financial plan was likely developed with a focus on diversification, which helps account for market ups and downs, political changes, and economic shifts. The real power of this strategy lies in its stability – as you’re not invested solely in a single product, you can generally ride out short-term fluctuations without compromising your long-term goals.
Here’s how you can keep perspective:
Remember the Data: Long-term market data shows us that economies and stock markets are remarkably resilient over time. A political event, however monumental it may feel in the moment, is rarely the reason for a long-term financial upheaval.
Focus on Your Goals: Short-term disruptions are merely that – short-term. By keeping your eyes on your long-term financial goals, you’re far less likely to be swayed by temporary events.
Seek Guidance When Needed: During periods of volatility, your AdviceFirst wealth adviser can talk through your concerns and help you stay grounded. A steady voice can offer reassurance and reinforce the value of your plan, helping you avoid rash decisions based on immediate reactions.
Review Your Strategy Regularly: Having a sound strategy is crucial, and it’s equally important to ensure it still aligns with your goals. If your priorities or life situation have shifted, it may be worth revisiting your financial plan to ensure it still supports your long-term vision.
Book a review with your AdviceFirst wealth adviser to ensure your strategy is still aligned with your long-term goals.
The Power of Perspective
In the big picture, the results of any given election will eventually become part of the landscape that both the markets and your investments move beyond.
Although it’s tempting to react to each piece of political news, it’s essential to remember that long-term wealth-building strategies are designed to withstand these bumps along the way.
At AdviceFirst, we believe in empowering you with the tools and guidance to weather the ups and downs, focusing on what truly matters: a robust, adaptable strategy that keeps you moving towards your financial goals and achieving long-term success.
Remember, it’s not the events themselves that derail us but our reactions to them. Choose a path that focuses on opportunities within the noise, and your long-term vision can remain firmly intact, no matter what changes lie ahead.
Stay steady, stay focused, and stay on course – and let moments like elections be a reminder of the importance of resilience, not a reason to lose sight of your goals.
If you’re interested in exploring other strategies for your investment portfolio, we invite you to book a financial review. Contact the AdviceFirst team on 0800 438 238 or email hello@advicefirst.co.nz.
Disclaimer: This blog is for informational purposes only and does not constitute individual financial advice.
