There’s no shortage of headlines and uncertainty surrounding the stock market in an election year. Investors are often left wondering if they should make changes to their investment strategy or sit tight and wait for the dust to settle. While it may be tempting to make impulsive decisions based on election-year jitters, there are a few key dos and don’ts to keep in mind when it comes to investing during this tumultuous time.
Do: Diversify Your Portfolio
Diversification is always a sound approach to investing, but it becomes even more crucial during an election year when the market can be especially volatile. By spreading your investments across different asset classes and sectors, you can help mitigate the risk of being overly exposed to a single election outcome. Consider allocating your assets across a mix of stocks, bonds, real estate, and commodities to help weather potential market turbulence.
Don’t: Make Predictions Based on the Election Outcome
It’s tempting to speculate about how the election results will impact the stock market.
However, attempting to predict the market’s movements based on election outcomes is a risky gamble. History has shown that the market’s response to election results is often unpredictable, with both positive and negative reactions to different election outcomes.
Instead of trying to time the market based on election predictions, focus on a long-term investment strategy that aligns with your financial goals.
Do: Stay Informed
During an election year, it’s essential to stay informed about the policies and proposals put forth by the candidates. Certain industries and sectors may be more affected by specific policy changes, and staying abreast of these developments can help you make informed decisions about your investments. Stay informed about economic indicators, geopolitical events, and market trends to make strategic investment choices that align with the evolving political landscape.
Don’t: Make Emotional Decisions
Market volatility can evoke strong emotional responses, leading some investors to make impulsive decisions that can negatively impact their portfolio. Making investment decisions based on fear or greed is rarely a winning strategy. Avoid knee-jerk reactions to election-related news and maintain a disciplined approach to investing. Keep your long-term goals in mind and resist the urge to make drastic changes based on short-term market movements.
Do: Look for Opportunities
Election years can create unique investment opportunities, as market volatility may drive stock prices down, presenting attractive entry points for long-term investors. Consider taking advantage of any market dips to add quality investments to your portfolio at reduced cost.
Keep an eye out for undervalued assets that have strong growth potential and consider using dollar-cost averaging to gradually invest over time, reducing the impact of short-term market fluctuations.
Don’t: Neglect Your Financial Plan
Regardless of the election cycle, it’s important to stick to your financial plan and investment strategy. Revisit your asset allocation, risk tolerance, and investment objectives regularly to ensure that they align with your long-term financial goals. Avoid making drastic changes to your investment strategy based on short-term events, as this can derail your progress and undermine the effectiveness of your financial plan.
Investing in an election year requires a disciplined and informed approach. By diversifying your portfolio, staying informed, and avoiding emotional decision-making, you can navigate the market uncertainty and potentially capitalize on investment opportunities. Keep in mind that market volatility is a normal part of the electoral cycle and maintaining a long-term perspective is key to successful investing during election years.
Stephen Kyne CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret, Grant are separate entities. 18 Division St, Ste 202, Saratoga Springs. 518-583-4040. Asset allocation and diversification are approaches to help manage investment risk. Asset allocation and diversification do not guarantee against investment loss. Past performance does not guarantee future results.
