The Uncertainty is Behind Us – Is Now the Time to Rally?
All year long I have fielded questions like, “Will the market go down if (fill in either candidate) gets elected? Should I be doing something with my portfolio now?”
Unexpected events or unknown problems typically cause the biggest drops (and sometimes fastest recoveries) in the market. Take 2008 for example; a near collapse of the banking system. While some may have seen the warning signs, I don’t think many knew how bad things had become. Alternately, take the recent Brexit vote in June; the market dropped like a stone when the vote unexpectedly turned toward leaving because remaining was widely expected. The market rebounded from this ‘crisis’ in a week.
What to Expect During Election Years
Volatility is normal in an election year. We have known all year that we were going to have a new president come January and we have known for several months who the candidates were.
Does that look like the economic uncertainty of 2008; a true crisis of confidence?
The answer is no.
According to a recent CNBC.com, the market has had a tendency to trade higher in election years which many people don’t realize. My point is this: Deciding to ‘sit this one out’ and sell your stocks has historically been a bad decision. Missing just the 10 best days for the market over 20 years ending in December 2015 cost you a big chunk of your return, according to Franklin Templeton. It was much worse if you missed even more time on the sidelines.
Don’t be so concerned about side-stepping a downturn that you miss out on the upturns. Dips in the market should be viewed as buying opportunities whether they are ‘caused’ by the election cycle or anything else, which we covered in 5 ways to embrace volatility. I hope this helps calm your nerves.