With less than a month to go before the Presidential election, many clients and friends have asked me how the markets will respond to the voters’ choice. While there will be no shortage of prognostications in the media, investors would be well served to avoid speculating.
Trying to outguess the market is often a losing game. All of the current information and polling on the election is baked into current stock market prices. Major market fluctuations usually occur when unexpected events happen. As of today, we expect either Clinton or Trump to be our next President. So stock prices reflect that reality to a large degree.
History tells us that markets provide substantial returns over long time periods regardless of which party holds the Presidency. So for “buy and hold” investors, the best advice is to “do nothing” and let the markets work for you. The underlying reasons for investing your wealth in the stock market have not changed.
Generating excess returns or limiting losses based on the election results will likely be the result of random luck. However, those decisions can be very costly to the long-term investor who may make the wrong moves based on the short-term news cycle.
The highest probability of long-term investment success remains the same: identifying your personal goals and objectives; creating and sticking to a diversified asset allocation plan using low-cost evidence-based investments; and rebalancing regularly.
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