Elections cause uncertainty in the markets. This uncertainty creates volatile weeks in our portfolios - like last week! A natural reaction for investors is to feel uncomfortable. The challenge is not acting on our feelings. We know it's tempting.
Historically, we have seen that sitting in cash during an election year usually has the worst outcome. Below we see 3 hypothetical investors and consider their investment strategy in 22 different election cycles.
We recognize there is a lot going on here. Draw your eyes to the right side – which shows the best and worst outcomes for each strategy. Sitting on the sidelines created the worst outcome for the investor 16 out of 22 cycles. Whereas 14 out of 22 cycles, staying fully invested created the best outcome.
Why is this? It’s time IN the market. Missing even a few positive days impacts an investment return. Accounts that are invested for the long term can weather the ups and downs of the market.
Feeling uncomfortable? Let us know – we can talk about the risks of your portfolio as they relate to your financial goals.