How To Prepare For A Historic Election

How To Prepare For A Historic Election

over 3 years ago2 mins

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With 40 days to go until momentous US elections – and concerns growing that the outcome of the country’s presidential vote may not become immediately clear – investors wondering whether they need to take any action may be surprised 🇺🇸

What does this mean?

America goes to the polls on November 3rd, with control of the White House, Senate, and House of Representatives all up for grabs. While the Democratic Party seems set to retain supremacy in the latter, the future of the other two branches looks more uncertain. The unprecedented prevalence of mail-in ballots means the presidential race in particular may not be decided for weeks – and the Republican incumbent on Wednesday indicated his willingness to contest the result in court.

Ballooning government debt and high unemployment add economic and social instability to the political – but with markets nevertheless near to pre-pandemic peaks, some investors may wonder whether now’s a good time to get out. Not so, according to trillion-dollar investment manager Invesco and big US brokerage Charles Schwab: both pointed out this week that time in the market is more important than timing it ⏱

Past performance is no guarantee of future results – yet US stocks have historically delivered positive returns in the week leading up to elections. And the sole recent example of contested presidential polling – the year 2000, in which no victor was crowned until over a month afterwards – only saw the S&P 500 falling 5%; a similar decline to that experienced by the index in just two days earlier this month.

Source: Invesco
Source: Invesco

Why should I care?

The 2000 election also took place early in a recession, with interest rates at 6.5% and, despite a big tech bubble having recently burst, US stocks still trading at a high price compared to bonds. In 2020, by contrast, the US economy appears to be in recovery mode, with interest rates at rock bottom, further central bank support on standby, and stocks at their cheapest in years relative to bonds.

While investors’ focus on election-related uncertainty – and potential policy changes – is understandable, their human weakness for confirmation bias risks distracting from the big picture. Economic and political landscapes may change, but individual investment goals are unlikely to – and in the long term your portfolio should shrug off any short-term dips.

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Making panicked and pricey changes to a settled strategy in the midst of heightened market volatility while abandoning tried-and-tested investment principles is a sure-fire way to lose money. Indeed, Invesco’s view is that any potential drawdowns in US markets should be treated as a buying opportunity

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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