It is often said that the stock market does not like uncertainty and that political turmoil can lead to market volatility. With a particularly controversial presidential election coming up, there is a chance that the stock market will take a bad turn in the coming weeks.
All of this uncertainty can be stressful for investors and it can be difficult to know what to do with your money now. While no one knows exactly what’s going to happen with the stock market, there is one investment move that you should avoid no matter what the future holds.
A gesture that could put your investments at risk
When the market is in volatile ground, withdrawing your money and selling your investments can seem like a safe bet. However, cashing in because you worry about volatility could spell disaster for your investments.
Selling your investments is risky for several reasons. On the one hand, this implies time the market, which is almost impossible to achieve. The best way to lose money on your investments is to sell when the stock price is going down, so if you try to time the market but end up selling at the wrong time, it could be a costly mistake.
Also, no one knows what will happen with the stock market over the next few weeks and months, so stock prices could very well rise after the election. If you sell now, you could be missing out on this potential growth.
Staying invested could pay off later
Even if the market goes down after the election, keeping your investments is still a smart move. The stock market tends to reward long-term investors – despite its short-term ups and downs, the market still shows positive returns over time.
Again, selling your investments at the wrong time could cost you money, but if you just come out of the storm and leave your money alone during times of volatility, your investments should rebound.
Some may argue that because this year’s election is particularly heated and we are in the midst of a global pandemic, the stock market could be particularly volatile. It is true that no one can say for sure what will happen in the coming weeks, but the stock market has experienced its fair share of volatility in the past and has always managed to recover.
Over the past 20 years, the United States has experienced an Internet bubble, a contested presidential election, terrorist attacks and wars, the Great Recession, another controversial presidential election, civil unrest, and the COVID-19 pandemic. And the market continues to rise.
How to prepare
The market may go down after the election, but your best bet is to stay there for the long haul.
If you are worried about needing cash in the relatively near future, try emergency fund you will therefore not risk having to withdraw your investments if the market collapses. If you are nearing retirement, you may choose to rebalance your portfolio to ensure that you are investing conservatively enough that your investments do not fall apart in a downturn in the market.
The main thing is to focus on build a strong long-term business portfolio which stand a good chance of weathering uncertain economic times. When you invest for the long term, you can sleep easier knowing that whatever happens in the weeks or months to come shouldn’t hold you back from reaching your investment goals.