Navigating Your Finances Through an Election Year: What to Expect

As we enter yet another rollercoaster election season, politics are everywhere. Television, social media, billboards, and city streets are filled with political ads and rousing speeches—but does the bustle of an election also impact your finances? It’s possible.

Your financial performance depends on many factors, but the good news is that there isn’t much evidence that politics affect market performance in the long term. However, the market is unpredictable, and because our political environment is highly polarizing, it’s important to prepare your finances to withstand the years ahead.

Regardless of the election results, strategic financial planning remains a vital tool in safeguarding financial well-being. This blog will explore the potential impacts of election outcomes on your finances and provide strategies to help you confidently navigate this period of uncertainty. 

Understanding Market Volatility During Election Years

Election years are notorious for increased market volatility due to the uncertainty surrounding the outcomes and potential policy changes. Historical data reveals that markets often experience fluctuations during election cycles. According to research by Fidelity, for the last 75 years, US stocks have averaged returns of 9.1% in election years. 

However, history has also shown that presidential elections don’t have a lasting impact on the stock market. Inflation and the economy are more likely to impact stock market returns than a particular party winning the election.

Political uncertainty can lead to short-term volatility, but the following chart shows the minimal long-term effect presidential elections have had on the stock market.

In the long term, the individual or party controlling the White House has a relatively small impact on overall market performance. So, it’s impractical to base asset allocation decisions solely on election outcomes. That’s why it’s crucial to maintain a diversified portfolio, as it helps mitigate risks associated with market fluctuations and positions investors for long-term gains.

Policy Changes and Their Financial Implications

Election outcomes can lead to significant policy changes affecting taxes, regulations, and economic conditions. Different scenarios, such as changes in tax rates or trade policies, can have varying impacts on investments, retirement plans, and overall financial strategies. For example, the sunset of the Tax Cuts and Jobs Act (TCJA) means that several tax rules will expire in 2025. Here are four you need to be aware of:

• Estate tax exemption: The TCJA doubled the estate and gift tax exemption, further increasing since 2017 to adjust for inflation. In 2026, the exemption will be cut in half for taxpayers and is expected to be about $7 million instead of the current $13.16 million.
• Income tax rates: TCJA lowered tax rates for most income groups, so you should anticipate a tax rate increase for 2026. For example, the middle tax bracket will jump from 24% to 28%, and the top tax bracket will jump from 37% to 39.6% starting January 1, 2026. With higher tax rates on the horizon, it may be wise to consider a Roth conversion to maximize your income.
• Capital gains taxes: The TCJA separated the tax-rate income brackets for capital gains and dividend income from the tax brackets for ordinary income, but that won’t be true in 2026. This means you may be subject to higher capital gains taxes depending on your tax bracket. 
• Standard deductions: The TCJA increased the standard deduction to $29,200 for couples filing jointly and $14,600 for individuals in 2024. However, in 2026, it is expected to decrease by half, requiring taxpayers to itemize their deductions.

These changes could impact your investments, retirement plans, and overall financial strategies, so it's essential to remain flexible in your financial planning. A financial advisor and tax professional can offer expert advice on tax-efficient investing and adjusting asset allocations to help mitigate specific risks associated with policy shifts.

Investor Sentiment and Decision-Making During Election Cycles

Investor sentiment—the general mood among investors—can influence market movements during election cycles. Behavioral biases such as fear, regret, overconfidence, or selective memory can lead to irrational decision-making. 

It’s not surprising that investors often react emotionally to election news. The country's future is at stake—it’s a big deal. But making hasty decisions that don’t align with your long-term goals is a recipe for disaster.

Instead of turning off the news until November and deleting all forms of social media, here are a few best practices for managing emotions during market volatility and avoiding reactionary decisions:

• Remember your goals: During unprecedented times, focusing only on what’s in front of you can be easy. The red and negative numbers can be jarring, but remember the long-term goals you have yet to accomplish. Remember that every time the market declines, it comes right back up again. Focus on the future.
• Be patient: A well-designed financial plan is built to weather the storms of market fluctuations. Take a breath.
• Focus on what you can control: As much as you’d like to, you can’t control the market. But you can take this time to review your financial plan and understand its design to overcome these growing pains.
• Maintain an emergency fund: An emergency fund can be a financial safety net during economic uncertainty. Having 3-6 months of total living expenses saved can be a massive weight off your shoulders if your income is affected.
• Work with a financial advisor: The best way to avoid emotional investing during election cycles is to work with a trusted partner who’s been through it before. A financial advisor can answer your questions, prepare you for policy changes, ease your fears, and adjust your portfolio.

Your Election Year Dream Team: Michael Brady & Co

Navigating your finances during an election year involves understanding the history of the markets, anticipating policy changes, and maintaining a long-term perspective. While the future of the election may be unknown, a solid financial plan can provide stability and resilience, regardless of external political factors.

As we approach November, work with a financial planner to ensure your financial plan is robust and aligned with your goals. Our Michael Brady & Co team will swiftly guide you through this election season, taking proactive steps to review and adjust your financial plan and provide stability and confidence in navigating upcoming financial decisions. Get in touch with our team to get started!