All year long, I have fielded questions like “will the market go down if (fill in the other party’s 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. Another example is the recent Brexit vote in June. The market dropped like a stone when the vote turned toward leaving – while staying was widely expected. The market recovered from this ‘crisis’ in a week, however.
An uncertain stock market in light of a recent election
Volatility is normal in an election year and we have known all year that 1) we were going to have a new president come January and 2) 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 article, the market has had a tendency to trade higher in election years, which many people don’t realize. My point is, choosing to ‘sit this one out’ and sell your stocks has historically been a bad decision to make. According to Franklin Templeton, just missing the 10 best days for the market over the last 20 years, which ended in December 2015, could have cost you a big chunk of your return. 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. Click here to learn 5 Ways to Embrace Volatility.