As we approach the presidential elections once again, we find ourselves bombarded with pessimism, toxicity, and misinformation from various media outlets. As investors, our immediate reactions to sudden market volatility can do more harm than good. Therefore, it is crucial to respond thoughtfully and deliberately to these situations, rather than react impulsively.
Long-Term Focus
Investors who are influenced by short-term market moves can get caught up in the volatility of the market. On the other hand, those who focus on the long term are not as affected because they are looking beyond the short-term ups and downs. Therefore, it is essential to take the longer view, which encourages more thoughtful and deliberate financial decisions.
The investment company Invesco found that “over the past 120 years, the long-term performance of the market has shown almost no correlation with government policies.”
Tip #1
One tip for investing during politically volatile times is to focus on the most likely outcome, rather than the worst-case scenario. For instance, in the last two presidential elections, some investors wanted to sell all their stocks because they feared the market would crash under a Democratic or Republican President.
A case in point may be found in the last 2 elections. In 2020 when Biden was elected, some investors wanted to sell all their stocks because they feared that markets would fall under a Democratic President. But 2020 and 2021 turned out to be a significant move up in the market, which still holds.
Similarly, in 2016, some investors sold their stocks because they believed stocks would crash when Trump was President, but investors who stayed in cash after the election missed out on gains over the next 4 years.
Tip #2
Another helpful tip is to focus on what we know now rather than predicting the future. It is vital to remember that we are investing for long-term goals, which do not necessarily coincide with the election cycle. Over the long term, investors have done better by staying invested through political changes rather than investing only during their preferred party’s regime.
Tip #3
Lastly, try not to make extreme changes to your investments during politically volatile times. It is better to make small changes rather than extreme moves all in or out of stocks. If you decide to sell some of your stock allocation, limit it to a small part of your portfolio. This means that you might miss out on gains if the market moves higher, but if it helps you avoid selling out of stocks entirely later, then it is worth doing.
In conclusion, it always pays to resist pessimism and remain positive, especially during politically volatile times. We should focus on the most likely outcome, rely on what we know and avoid making extreme changes to our investments.
As an investor, it is crucial to take the longer view and make more thoughtful and deliberate financial decisions. If we keep these principles in mind, we can come out of market volatility our well thought-out long-term financial plan intact.
Be well and invest wisely.
Eaton Financial Group is a registered investment adviser. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.