Investment markets have been quite volatile during 2020. And now comes the presidential elections on November 3rd, 2020. Politics can bring out strong emotions and biases, but investors would be wise to put these aside when making investment decisions. Be sure to avoid these three common mistakes:
Mistake 1: Investors worry too much about which party wins the election. There’s nothing wrong with wanting your candidate to win, but investors can run into trouble when they place too much importance on election results. That’s because elections have, historically speaking, made essentially no difference when it comes to long-term investment returns.
Mistake 2: Investors get spooked by primary/VP picking season volatility. Primaries are now over but the similar spookiness can also come up as we await Mr. Biden’s vice-presidential choice. The range of VP choice outcomes can feel daunting. But volatility caused by this uncertainty is often short-lived.
Mistake 3: Investors try to time the markets around politics. Presidential candidates often draw attention to the country’s problems, and campaigns regularly amplify negative messages. So maybe it should be no surprise that investors tend to be more conservative with their portfolios ahead of elections. Market timing is rarely a winning long-term investment strategy, and it can pose a major problem for portfolio returns. Sticking with a sound long-term investment plan based on individual investment objectives is usually the best course of action.
How can investors avoid these mistakes? Don’t allow election predictions and outcomes to influence investment decisions. History shows that election results have very little impact on long-term returns. Expect volatility. View it as a potential opportunity. Stick to a long-term investment strategy instead of trying to time markets around elections. Investors who were fully invested or made regular, monthly investments did better than those who stayed in cash in election years.
We have a great guide to investing in an election year. We love to send you a copy. Reach out and we’ll send it to you.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. No strategy assures success or protects against loss. Investing involves risk including loss of principal.