On Tuesday, November 8th we’ll finally know who the 45th President of the United States will be. What a campaign rollercoaster it’s been. It’s been so contentious and unpredictable, many investors are wondering what it means for their financial futures. Here are some things to consider as the last 40 days of the campaign unfold.
Markets don’t like uncertainty
The VIX (known as the fear index) has been very low for most of the summer. The average reading for the past few years has been around 16, yet the past three months it’s been closer to 13 and sometimes lower. Think of it as a market heart rate. Without making predictions, it’s hard to imagine how the pulse wouldn’t rise as we get closer to an uncertain decision day. A rise in the VIX is usually paired with a dip in the markets, however temporary.
It may be tempting to take money out of the market ahead of potential election-inspired losses, but that’s a good instinct to resist. Remember that markets recovered from Brexit within just one week – an extremely fast turnaround compared to other historically significant market upsets.
Nasty surprises and a simple antidote
There is a soothing antidote to investing ahead of major unpredictable events. It’s called Dollar Cost Averaging. For example, instead of putting an additional $1,000,000 in the markets in one go, buy in $200,000 installments over the course of five months. Starting today, that gets you fully invested by February. By then, the election results will be old news and the new president will have moved into the Oval Office.
Dollar cost averaging evens out results. You could miss part of a rally, but you’re less likely to take the full brunt of a painful -15% correction. We can help you make your decision on how to space out your buys.
Lemonade from lemons
Investing is the only place when everything goes on sale, everyone runs out of the store. Market dips can be a buying opportunity, especially for investors who have portfolio strategy timelines measured in decades instead of years. Remember to look across the spectrum, from emerging market stocks to small-cap domestic stocks. Also, remember that when you use ETFs (exchange traded funds) you have a powerful opportunity to Tax Loss Harvest (utilizing losses to reduce taxes on gains).
If the election produces a dip, think of it as an overdue gift from Hillary and Donald.
Who wins? Who knows?
Despite the wishful thinking of many Americans, one of the two major party candidates will soon be elected. We don’t know how the results will unfold. And even if we did, we wouldn’t know what it means for the stock market. Cause and effect are never so simple in money and politics. We strongly encourage you to avoid any significant change in investments based on the voting outcome. Watch with interest, but don’t try to guess where markets will go.
Max Osbon – firstname.lastname@example.org
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