Since the market seesaw following Brexit, things have been surprisingly calm given the uncertainty associated with the upcoming elections. A few things to bear in mind:
1. You will hear many claims, as you do during every election, that one party is better for the stock market than the other. The truth, the absolute truth: The stock market has done better under Democratic administrations than Republican administrations, but the advantage is very slight.
2. This election, the election of 2016, is different from most. I won’t whitewash that fact. One of the candidates for president is especially unpredictable. Remember that although presidents have great power, that power is still limited, and their term is only four years.
3. The big players on Wall Street know very well that there’s an election coming. Stock prices likely already reflect the possibility of some post-election craziness. That being the case, all we can know for certain is that the markets will fluctuate, both before the elections and after.
4. Even if the economy sputters due to less-than-optimal leadership, the economy and the stock market have a strange way of sometimes moving in opposite directions. Consider that over past years, headlines that read “Unemployment on the Rise” have often gone side-by-side with headlines that read, “Dow Up.” The unpredictability of the stock market, even in decades of big change, is apparent throughout world history. We’ve seen markets fall in what seem like robust times, and we’ve seen markets rise in troubled times.
5. Trading out of stocks is often costly...there are commissions, there are “spreads” (middle-man cuts), and there may be tax ramifications. But trading out of stocks is still much easier than trading back into stocks... You may find that any political uncertainty that comes in November may drag on for months...And if your money is in cash, earning today’s pitifully low interest rates, you will be losing steadily to inflation. I’ve seen people wait years for the market to “stabilize.” If you want stability, put your money in bonds or CDs.
What then are we to do between now and November? I would suggest, if you are frightened of heightened volatility that could come with the election, you might hold off on buying any stocks over the next six weeks. In the long-run, six weeks won’t make or break you. But should you sell what stocks you have now? As long as your portfolio is well balanced (as it should be), and the money you have in stocks is not likely to be needed for many years to come, you can sit tight. As Warren Buffett says, “Investing is simple, but not easy.”