It is often asked around election time, “Should I get out of the market? It seems to be a very volatile time.” This is a fair statement that warrants some thought and discussion. To be fair, the other major issue facing the markets is whether the board at the Federal Reserve will raise rates this year. To address these issues, it is imperative to break down certain issues and personal traits to answer the question.
First, are you an investor or a trader? Most people are investors, but let short-term thinking derail them from the long-term goal. Often, fear will drive people to make irrational decisions. Long-term goals should trump any macro-related events, as those come and go and will always exist. This is the No.1 issue that comes up and oft en is tough to overcome. the decision to sell all equities and bonds tends to occur at market lows, and those same assets are not repurchased until much later at a higher price. Remember the market is a reflection of certainty. the more uncertain the world, markets, etc., the lower the value of assets. Develop a plan and make sure you are on track even during the rough days, months and years.
Second, instead of focusing on “what is volatile and could be bad” depending on who is elected, focus on some common themes that both candidates agree on. Do they both plan on defense spending or infrastructure support? then, look at those as a part of an overall diversified portfolio.
Last, remember that rates have been reduced to all-time lows over the past 10 years and have increased some as of late. Rates will rise even more if the Fed deems it so, which they have directed would more than likely happen. Bonds have an inverse relationship, so a rise in rates will reduce the principal value of the bonds and possibly certain stocks that are correlated to the bond markets. This makes it tough as an investor, as the general rule of thumb is to sell stocks when times are volatile and buy bonds. However, in today’s low rate environment, this may be tough to do.
In closing, a balanced portfolio that is built to a corresponding risk tolerance is the ideal way to manage assets for the long term. Do not allow short-term macro events to derail a solid investment plan, as this investment plan was more than likely back tested, which includes plenty of macro events very similar to the ones you will face over the next 30 years. History does not repeat itself, but it sure does rhyme! Travis S. Anderson