You’ll probably hear a lot of noise about elections; this year is one of the busiest ever for elections around the world! I’m sure you've heard a Mr Donald Trump is fighting for a spot back in the Whitehouse and the UK itself must have a general election by 28th January 2025, if not earlier.
As always, what we try to do is educate behavioural finance and much of it is about ignoring the noise.
A core skill for all investors is the ability to understand the difference between signal and noise.
Signal refers to the relevant, accurate, and helpful information investors rely on to make informed financial decisions.
Noise, conversely, is any information that distracts investors, shifting their focus from long-term objectives to short-term concerns. This noise often takes the form of sensationalised news headlines, short-term market forecasts, and market commentary.
As long-term investors, separating signal from noise is crucial to making rational, evidence-based decisions that align with your financial goals. Even during normal times, noise far outweighs the signal of useful information. We can expect a tidal wave of noise to flood the media in the coming months.
Navigating this information will be a challenge, but by staying focused on your long-term plan, you can stay the course and avoid getting swept away by the current election-related drama.
Elections and Media Noise
Elections have a way of bringing out the worst in political discourse. The airwaves and newsfeeds are filled with politicians making bold claims and attacking their opponents. The media often amplifies this divisiveness, making it challenging for investors to separate fact from fiction.
Incumbent leaders will claim credit for any positive economic developments during their leadership. They'll paint a rosy picture of the future, promising continued growth and prosperity if re-elected.
The opposition will likely blame the current administration for economic hardships, such as high inflation, unemployment, or market volatility. They'll argue that a change in leadership is necessary to get the economy back on track.
It's important to remember that making long-term financial decisions based on these claims is rarely wise. Political rhetoric is often exaggerated and ignoring the complex realities of the global economy.
While short-term volatility may occur, the long-term trajectory of financial markets is influenced by many factors beyond any single election or political party.
Smart Strategies To Navigate The Noise
What can you do to navigate this tidal wave of election noise?
The first step is to be aware of the election’s potential impact on your emotional state of mind and possible investment behaviour. When bombarded with conflicting information and emotionally charged rhetoric, it's easy to get caught up in the hype and make impulsive decisions.
To mitigate this risk, consider reducing media consumption to minimise exposure to the constant barrage of politically charged information. This doesn't mean ignoring the news entirely but being selective about the sources you rely on and the amount of time you spend consuming election-related content. Be particularly cautious of articles that evoke fear or elicit strong emotional responses, as they may not have your best interests at heart.
Trust your well-crafted, long-term financial plan instead of getting caught up in the short-term noise. This plan should be based on your goals, investment return requirements, and time horizon. Only make changes to your portfolio if your financial goals or circumstances have changed.
Your financial plan is built on historical evidence and realistic market assumptions, designed to help you weather any short-term turbulence and achieve your long-term objectives.
A Vote For Your Financial Future
In the coming months, your mind will become a battleground for attention.
Politicians and media outlets will vie for your focus, hoping to sway your opinions and decisions. Campaign ads, debates, and news coverage will dominate the airwaves, making it difficult to escape the constant buzz of election season.
While it's important to be an informed citizen and to participate in the democratic process, don't let the noise of the election drown out your long-term financial goals. In the face of the approaching tidal wave of election noise, remember to focus on what matters most: your financial well-being and long-term goals. By tuning out the noise and staying committed to your investment strategy, you can confidently navigate this challenging period and emerge with your financial future intact.
As your financial adviser, I am always available to discuss any concerns you may have about the impact of the elections on your investments. Together, we can review your financial plan and make any necessary adjustments to ensure that you stay on track.
And again If we look at previous evidence – to always ignore the noise. How many presidents have we had since the S&P started?
What about the UK?
