Under two weeks until the presidential election and undoubtedly the most frequently asked question I receive as an investment advisor in Albany and the Adirondacks is, “Should we change our risk level going into the election?” Depending on your political leanings, you may feel like you should invest more heavily in the stock market or sell some investments to cash. However, sometimes the best action is no action.
Long-Term Investing Strategies and the Election
Investing is all about staying within your timeframe. As most people know, even those already retired can have a fairly long time horizon with their retirement money. Trying to anticipate the short-term direction of the stock market is usually extremely hard, not to mention trying to find the right timing to buy or sell. That’s why, in general, you have a higher chance for success using a buy and hold strategy in a high volatility environment. The longer that you hold an investment, the less the day-to-day volatility effects the long-term results.
Short-Term Investing Strategies and the Election
Even short-term investing (1-3 year investments) can see the odds of success increase if employing a buy and hold strategy. While you may feel motivated to reposition investments based on what you expect to happen in the markets as a result of the candidate you expect to win, this can be a trap based on multiple assumptions and guesses.
In that scenario, you would need to have a pretty accurate guess of not only who will win the presidency, but, perhaps more importantly, who will win the Senate and the House. Then, based on that prediction, you will then need to (1) anticipate the market sentiment on the outcome, (2) accurately predict if there will be strong market gains or a sharp drop, (3) predict what sectors are poised to flourish under the elected leadership, and (4) decide when to get “Back in” or to “Cash out” after the initial election trading rush. That’s a lot of assumptions (some would call guesses) on which to base an investment strategy.
More Investment Strategy Advice
In general, I advise my clients to use caution with too many timing trades in an unpredictable election year. My rule of thumb is, if you are considering trading based on guessing one or more events happening, think twice about making that trade.
Of course, these thoughts relate strictly to timing and trading the market. If you feel like your overall risk level may have changed, or you are just feeling more uneasy about the markets and investments, then this is a great time to review risk. Changing and adjusting risk so you are comfortable can make sense, especially when done in a measured way.