Protect Your Investments By Taking The Long Look
With so many people having their 401K investments in the market in some way the question of when to buy and when to sell is a common one.
When there is some kind of event that causes market volatility there is an increased pressure to make a move. Always remember that investing is a long-term strategy. When events spark market changes step back to evaluate and possibly get good advice before making any changes to your portfolio.
Presidential elections are one of those events that cause market volatility. Take a look at this analysis of how to act in a volatile market.
In the hours after the president is elected, equity investors need to brace for volatility. What they shouldn’t do is panic.
…This matters because the compulsion to act in the vote’s aftermath is often very strong — stocks swing twice as violently as normal those days, data compiled by Bloomberg show. They plummeted 5 percent just after Barack Obama beat John McCain in 2008. But while nothing says Wednesday’s reaction won’t be a harbinger for the year, nothing says it will, either, and investors should think before doing anything rash
“Trying to trade that is very difficult,” said Thomas Melcher, the Philadelphia-based chief investment officer at PNC Asset Management Group. “Even if the market sells off, if you have any reasonable time horizon, that should be a buying opportunity. The dust will settle and people will conclude the economy is OK.”
In the 22 elections going back to 1928, the S&P 500 has fallen 15 times the day after polls close, for an average loss of 1.8 percent. Stocks reversed course and moved higher over the next 12 months in nine of those instances, according to data compiled by Bloomberg.
“Some people are probably going to overreact, and there will be other investors trying to second-guess what those investors are doing,” said David Brown, a professor of finance at the University of Wisconsin School of Business, in Madison, Wisconsin. “There is a salience of short-term events, particularly bad events, that lead people to react to short-term information.”
Swings in industries are no more prescient than the broader market. The S&P 500 Health Care Index declined 3.6 percent the day after Obama first won; since then it’s the stock market’s third-best performing group with a 149 percent advance. Also meaningless is the victor’s party. The median S&P 500 gain in Democratic terms since 1928 has been 27.7 percent, according to Leuthold Group LLC, compared with 27.3 percent under Republicans. – Bloomberg
Ups And Downs Are Normal For The Market
We all love to watch the market rise and count our profits! But we know that the reality is that markets are in a constant state of flux and the rise and fall of markets is a normal part of the process. Recognizing that a rise always comes after a fall can make it more tolerable to wait it out during market volatility!
Volatility in the stock markets should not be feared by investors, because any large losses are often reversed after the panic subsides. What’s more, investing — whether for retirement or the more immediate future — is a not a short-term proposition, and making rash, emotional decisions can be dangerous.
The outcome of Brexit is a prime example of a shocking news event that “stunned investors and caused a mini-meltdown in global equity markets . . . for all of three days,” said David Twibell, president of Custom Portfolio Group in Englewood, Colo. “Then markets reversed higher and many investors who panicked lost out on sizable gains…”
…Investors should avoid making rash, emotional decisions and get caught up in the initial market reaction, because their long-term investment strategy remains the best bet, said Twibell…
…The volatility in the market can occur for days after the election, but focusing on nonpolitical macro factors like economic growth, interest rates, inflation and the pace of innovation “typically have a much greater impact on markets over the long-term than who is sitting in the White House,” he said. “Look beyond the moment and don’t let your emotions get the best of you. While this may be easier said than done, it better positions you for the long run.” – The Street
Are you tempted to act when the market becomes volatile?