This next week, the US will face what is definitely the most divisive electoral cycle in recent history. As now fractured society rallies behind two leader figures, the future of the country, and everything you love about it, is at stake. If the candidate you choose to support loses, you should brace yourself to lose your house, your car, your job, your savings, and even your dog within days, weeks at most, because the other candidate will definitely destroy the economy and run the country to the ground.
Or so they would have you think.
While elections do play a huge part in the economy in the long-term, and certainly who leads the country is extremely important to determine the future of a country, even if the US were to vote the absolute worst candidate in the history of democracy into office it wouldn’t necessarily be a disaster. At least, not in the short term.
Knee-jerk Reactions and Elections
It’s not a secret that both individuals and businesses tend to react immediately to electoral events, particularly in the case of upsets. For example, the number of Americans looking into moving to Canada spikes whenever Presidential elections are held – however, the actual number of people following through with it is quite low.
And if you were wondering, moving countries as a knee-jerk reaction is almost always a bad idea.
However, when it comes to reactions and over-reactions to a political event, moving abroad is the most extreme you can do within legal parameters. There’s a whole spectrum of reactions, and, just like moving, most of them are terrible ideas.
Particularly reactions that involve your finances, and especially so if said finances happen to be your retirement funds.
If (candidate) wins, they’ll damage the economy. Better cash out now… or not?
While some of you might find this statement extreme, it actually happens. Earlier this week, in conversation with some friends, one of them mentioned members of his family, who are staunch supporters of a candidate and absolutely loathe the other, had threatened to do just this.
Their logic was that they’re so sure that candidate is going to destroy the economy that they felt it would be better to take their money while they still have it, since there was no way their retirement funds and 401(k)s would be worth anything by 2024.
There are several reasons why this line of argument is farcical, starting with how the United States of America has regularly had presidents belonging to both political parties during periods of four or eight years and none so far has single-handedly destroyed the economy. The closest we’ve been to it was a century ago, but that was the great depression which can’t really be blamed entirely on a single politician.
Yet among all bad reasonings to this, there’s a particularly dangerous one: The markets the day or week after the elections.
Markets overreact all the time. It’s kind of their thing.
Whenever political or economic events take place, markets react almost immediately, and usually in full strength. Market crashes are often sudden, but they’re also more often than not followed by recoveries.
To give you a few examples of this, the GBP reached its lowest value in three decades in the immediate aftermath to Brexit. It slowly recovered over the following months and years, although with constant downs and without maintaining its high, stable value since, mostly because the whole Brexit saga has been a bloody mess.
That last line is important here: The GBP didn’t recover quite quickly because the event is still ongoing and has been mishandled from wherever you look at it.
A second, much more recent overreaction of a market can be seen in the US, specifically in March this year when all markets crashed spectacularly due to the Coronavirus pandemic. Today, just a bit over six months later, most markets have recovered – in some cases fully, in others not quite, but certainly the sharp drop in market values didn’t last long (although, again, we’re yet to see the full effect of the COVID-19 pandemic in the economy, as it is still ongoing.)
This pattern is important here, because it may as well repeat regardless of the results of the US election. No matter who wins, it’s likely at least some markets will immediately react to it, and said reaction might be one of overcorrection.
The economy isn’t one day, but the sum of them all
This leads me to the important thing here: You might, or might not, wake up on November 4th only to see the news provider of your choice pointing out how, in the immediate aftermath of a candidate’s victory, the markets crashed. The Dow Jones went down by a gazillion points. The USD/Rupee exchange rate went to its lowest in decades. Some pundit or other predicted burger joints will cease to exist under the new, or continued, administration.
The scenario might indeed look like a bloodbath. You might think that certainly means the days of the US as a leading economy are over, and it might be better to quit while you’re ahead.
But please, don’t.
As with the start of the COVID pandemic, the effect you might be seeing will be an overreaction of the markets coupled with the usual bitterness of losing an election. Instead of cashing out your retirement and all your savings, then, just wait. Chances are things will be back to normal within a few weeks.
And what if they don’t? What if we’re truly doomed?
Even if the absolute worst POTUS were to win the election, you wouldn’t see the effects quite quickly. Instant karma isn’t much of a thing in politics and economy – while it does happen (it happened just last year in Argentina,) it requires a lot more than heavy dislike of a candidate’s brand of politics. Argentina’s downturn came after the elections were won by a well-known pundit from a political party that is also known for being heavily regulatory and anti-market. That’s not the case in the US.
The markets might go low in the aftermath of the election. And yes, they might take longer than usual to recover – after all, we’re in the middle of a recession. Still, unless the sudden decline becomes a continued one, you shouldn’t fear.
Even if it does, perhaps you shouldn’t fear. Recessions happen, and markets recover. People who held onto their savings and holdings in the aftermath of the housing crisis and 2009 recession saw values go back up soon enough. People who jumped ship, meanwhile, lost everything.
There’s a very simple, important teaching to take from this: Whatever you may choose to do in the aftermath of the election, choose wisely. Wait some time, look at the bigger picture. Just as you shouldn’t make decisions when angry, you shouldn’t make decisions right after losing an election. Your judgment will be clouded then.
Instead of jumping the gun, just wait. Time will tell you what the right thing to do is. Don’t move to Canada right away, or destroy your savings, retirement funds, and investments. The country is likely not as doomed as you might think it is.