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Presidential election years can make investors anxious – and this year’s unusual campaigns are no exception. In addition, political uncertainty is rising in the rest of the world right now. After years of modest economic growth and concerns about the future, many voters seem to be opposing traditional policies and supporting outsiders.
In the U.S., the level of political uncertainty seems to be similar to past elections with minimal impact on financial markets, despite the perception that the candidates are different this time. Abroad, the United Kingdom voted to exit the European Union (EU), increasing the uncertainty about its future role in Europe and the world.
When political uncertainty is resolved relatively quickly, people react, adjust and move forward regardless of the outcome. The U.S. election, the drop in global stocks in response to the U.K. vote and other elections may offer opportunities for investors. Don’t let the short-term uncertainty lead you to make decisions that could negatively affect you in the long term.
It looks like the Democrats will nominate Hillary Clinton and the Republicans will select Donald Trump. Investors who are worried about one or both of the candidates should remember:
Investors reacted with shock when Britain voted to exit the EU, especially since recent polls had shown a majority for “remain.” The British pound declined sharply, global stocks dropped, and bond prices rose (lowering interest rates).
In addition to uncertainty about Britain’s trade relationships, the vote increases the chances that other countries follow with exit votes of their own. And there are many political uncertainties across Europe due to concerns about slow economic growth, high unemployment, refugees and terrorism.
Keep in mind these key points about “Brexit”:
In our view, the fundamentals matter more than any campaign controversies. That’s why we recommend the following actions:
Don’t let politics derail your long-term strategy toward your financial goals. Prospects in the U.S. and abroad are much brighter than you may think.
1 Source: Ned Davis Research, 3/4/1901–12/14/2015. Stock returns are represented by the Dow Jones Industrial Average. Past performance is not a guarantee of future economic growth or how the market will behave in the future.
2 Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.