Financial Focus/What Does Election Year Mean For Investors?
Although the presidential campaign hasnít fully heated up yet, it will soon. If you are a U.S. citizen, you may be quite interested in the election. But as an investor, should you be equally attentive?
It might seem that the presidential race brings out some issues that could have a substantial effect on your investments. In the weeks and months ahead, you are likely to hear a lot about the loss of manufacturing jobs, the growing budget deficit, problems in Iraq, strains between the United States and other countries, environmental concerns and other topics.
Clearly, these are serious subjects, worthy of a national debate. However, they probably shouldnít drive your investment decisions. The financial markets are most strongly influenced by corporate profits and the performance of the economy - and, right now, both these variables are looking pretty favorable.
History Is on Your Side
In the investment world, as in most walks of life, whatís happened in the past doesnít always foretell the future. Yet, itís interesting to note that, for the past 60 years or so, the financial markets have done better in the last two years of four-year presidential cycles than they did in the first two.
In fact, since 1941, the average returns of the Dow Jones Industrial Average in the third and fourth years of presidential cycles have been 21.3 percent and 11.7 percent, respectively, according to an analysis cited in The Wall Street Journal. But the returns for the first two years have been just 7.9 percent and 9.6 percent.
You canít count on these figures as a guide to your near-term expectations. Nonetheless, for what itís worth to you as an investor in 2004, history is on your side.
After the Election?
Like anyone else, youíll have your own reasons to vote for one presidential candidate or another. But, as you look to the future, donít make the mistake of thinking that the fate of your candidate is inextricably linked to the success or failure of your investments.
The fact is that the markets have done well and poorly under both Democratic and Republican administrations; neither party has a monopoly on the good times or the bad. Consequently, as you plan your investment strategies for the next few years, donít read too much into the outcome of the election.
In fact, your best bet is to follow some tried-and-true investment techniques year-round. Here are a couple to consider:
* Look for quality - Political leaders come and go and the economy will always ebb and flow. But if you invest for quality, you may never be ďout of style.íí So, when youíre considering a stock, look at the fundamentals of the company. Is its management sound? Are its products competitive? Does it have a solid business philosophy? Does it have a strong track record of earnings? If youíre investing in bonds, make sure they receive the highest grades from the independent rating agencies.
* Look for diversification - Once you find a high-quality stock, bond or other investment, you need to determine if itís a good fit in your diversified portfolio. For example, suppose you discover a growth stock that you really like. If you already own several others that are similar, you may not be helping yourself much by adding the new stock - and you could be diverting resources from other investment opportunities that can help you make greater progress toward your long-term goals. Your financial professional can evaluate your holdings to help ensure that youíre properly diversified.
Cast Your Vote - and Invest Wisely
This November, make sure you vote - itís important for all of us to participate in our democracy. But try to keep your investment plans separate, as much as possible, from the electoral process. Youíll want to ďvoteíí for the right investments for the right reasons.
This article was submitted by the financial representatives of Edward Jones in Hagerstown: Greg Garner, AAMS, 301-733-9465; Dave Walker, 301-766-7300; Joan Bowers, 240-420-8514; John R. Pullaro, 301-824-7726; and Todd Streett, 717-762-0911.