Cast Your Vote for Rationality This Election
Every four years, our country has the opportunity to change direction or stay the course. And every four years, investors become increasingly nervous as the first Tuesday in November approaches. This year, that nervousness is especially acute.
Look back at the stock market this year and what do you remember?
- The Dow plummeting 2352 points in a single day last March?
- The Dow declining an additional 2997 points four days later?
- The S&P 500 and NASDAQ both closing at record highs at the beginning of September?
Hopefully, the thing you remember most vividly is not the fear that compelled you to alter your investment strategy and abandon stocks for the safety of low yielding fixed income securities and/or cash.
Emotion can be the enemy of sound investing and few events elicit more emotion than a presidential election. At the same time, however, it’s important to remember that:
- The stock market has not necessarily thrived under one party’s administration and faltered under another (see chart).
- The main drivers of the stock market are economic and earnings growth which are often driven by external factors, as opposed to who is in office
- Stocks generally rise over time, no matter who is in the White House
All this being said, it is equally important to remember that volatility in the market is common before a presidential election. This year, it might remain with us after the election if a winner isn’t declared on the night of November 3. Whatever the case, however, keep the following in mind:
- Eliminate partisan politics from your decision-making process
Don’t try to time the market based on your political beliefs or the outcome of the election.
- Maintain a long-term investment plan
Focus on the reasons why you’re investing – your long-term goals – and avoid looking at your account balances on a daily basis.
- Use volatility to your advantage
How much did you pay in income tax last year? When stock prices drop, consider harvesting losses for tax purposes. When prices rise, think about whether it makes sense to gift appreciated shares to a favorite charity and receive a larger tax deduction.
Finally, keep in touch with your Lenox Advisor over the months to come and watch for additional reports as the election approaches. We are committed to helping you remain on track with your most important financial objectives and providing you with impartial guidance, no matter who ultimately takes office.
Source: “Stock Market Performance by President (in Charts).” Darrow Wealth Management, Sept. 2020, darrowwealthmanagement.com/blog/stock-market-performance-by-president-in-charts/
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