Robert Dunn, CFP®
Volatile Markets During Election Years and What You Should Do
Updated: May 26, 2022
The markets have certainly had a lot to overcome this year. With another bout of volatility this week and an election coming up next week, it would be normal to be feeling a little anxious. Investors may feel nervous about the impact our election will have on the stock market. No matter whom you end up voting for next week, remember to keep everything in perspective. Here are four things you should do in a volatile market to help you do that, especially during an election.
Resist The Urge To Panic
When market volatility strikes, your gut instinct may be to panic. However, periodic market volatility is a regular aspect of the stock market and something every investor will encounter. Down markets often present tremendous opportunities to buy at a discount, rebalance your portfolio, and reassess your risk tolerance. No matter which party fares best in the upcoming election, markets have performed well for investors under both major political parties’ leadership. In fact, the average annualized return for the S&P 500 is 10.3% since 1929 during presidential terms. (1)
Resist the urge to sell your holdings and move into a cash position. If you do so, you may miss out on generating returns that would speed your portfolio’s recovery. According to Fidelity Investments research, missing the five best days in the market could impact your return by as much as 38%! (2) By missing time in the market, you miss out on what the brilliant Albert Einstein referred to as the “8th wonder of the world”: compound interest. It is better to stay invested so you don’t miss out on any part of the recovery. Trying to anticipate market movements only adds anxiety and undue risk to your investing strategy.
Keep A Long-Term Perspective
Keeping a long-term perspective is critical in down markets. Remember that after down periods, markets tend to rebound fairly quickly. The average annualized return after a market decline of more than 10% is 11.3% in the year following the reduction. (3) The most critical factor in investing is your time in the market and letting it work for you. With the upcoming election in mind, the chart below illustrates that no matter which party fares best, history tells us that markets have rewarded long-term investors under a variety of presidents from both parties: (4)
Rebalance Your Portfolio If Necessary
Down markets can be an opportunity to reassess your risk tolerance and rebalance your portfolio. Rebalancing could include incorporating more conservative or defensive types of assets into your portfolio and also selling or buying portions that have become overweight or underweight based on your goals and objectives. At Novi Wealth Partners, our intelligent rebalancing process utilizes proprietary asset class thresholds and tolerance bands that allow us to rebalance our clients’ portfolios when it is right for them.
We’ll Get Through This Together
Are you feeling anxious about the market, election, or your investment strategy? No matter the market conditions, we at Novi Wealth Partners are dedicated to empowering you to find your definition of wealth and achieve it. Call (609) 921-7002 or email firstname.lastname@example.org to set up a consultation, get your questions answered, and gain some peace of mind. If you missed our recent 3rd Quarter Market Commentary here’s a quick synopsis.
About Novi Wealth Partners
Novi Wealth Partners is an independent, fee-only comprehensive financial planning firm dedicated to empowering clients to discover their definition of true wealth while providing the confidence to achieve it. With 20+ years of experience, we have found that most people don’t care about money, but instead, they care about what money can do for them and their loved ones. As a result, we focus on guiding our clients to find their unique vision for their life and developing a plan to help them live out their values. Our goal is to truly understand our clients on a personal level and help them navigate life’s many changes.
(1) S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global.
(3) January 1990–present: S&P 500 Total Returns Index. S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global.
(4) S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global.