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High Exposure to Stock Market Volatility
First, dont panic.
Astudy by T. Rowe Pricefound that presidential elections have little correlation with stock market volatility.
In most cases, financial markets actually see less volatility around presidential elections.
The marked exception is the one month following a presidential election.
Significant fluctuations in stock prices can signal investor anxiety, but little else.
But everyone else should just keep holding long-term.
Coming full circle: dont panic.
High Exposure to Recession Risk
The same study did find something more salient about election cycles.
Take extra caution to protect against the effects of recession if youre extra vulnerable to them.
Policy uncertainty can impact specific sectors, noted Meiggs.
Geopolitical tensions that often accompany elections can create additional risks, noted Meiggs.
If your portfolio is vulnerable to geopolitical risk, pay extra attention in election years.
Consider reducing your exposure, or at least preparing to do so, if aparticularly unpredictable presidentwins the race.
Youre Postponing Saving & Investing
The greatest risk to your portfolio is you, not the president or Congress.
These were Andrew Jackson, Franklin D. Roosevelt and Lyndon B. Johnson.
So, he sold completely out of stocks and went to cash prior to the election.
My colleague then bought back into stocks after the market had rallied following the election.
Then the pandemic hit, and the stock market declined precipitously.
Of course, my colleague sold back out of stocks near the nadir.
Once again, markets rallied following the pandemic.
Suffice it to say, his attempts at market timing were wealth-destruction moves.
Dont venture to time the market, dont venture to get too cute or clever.
And most of all, dont panic.
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