Color of Money
you should be able to put up with the periodic bouts of volatility that the market faces, whether due to uncertain election results, a pandemic or a financial crisis.”
Q: Should I just put my money in a savings account to avoid the rollercoaster ride of the stock market?
A: Don’t let the daily seesaw of the markets dictate your investment moves, said Carolyn McClanahan, a certified financial planner who founded the fee-only Life Planning Partners based in Jacksonville, Fla.
Like other experts, McClanahan said it’s important to make sure you have an emergency fund or funds available that aren’t aggressively invested if you need it in the short term.
“If you need cash for the next three to five years, then you need to take that money out of the market,” McClanahan said. “And if the market goes up, you’re going to kick yourself. If it goes down, you’re going to be happy. There’s no way to predict.”
In a newsletter to clients, McClanahan’s firm noted that this year, the S&P 500 plunged 35% and then rebounded 60%.
The important thing is to have an investment plan and stick with that strategy, so the gyrations of the stock market don’t result in making changes based on your emotions. “Stick to what you need for you so that all the noise gets excluded,” she said.
Q : Why should I stick with stocks when the market is so volatile?
A : “Putting up with short-term volatility can be mentally taxing, but it’s the cost of doing business if you want a shot at earning a higher return over time,” Benz said. “If the market falls and you have a long time horizon, try not to peek at your portfolio. Take a walk, bake some bread, find a good book. But do not peek.”
Q : What can I learn from the previous performance of the stock market after an election?
A “The big lesson is not to allow your political views to influence your investment strategy,” said Ric Edelman, founder of Edelman Financial Engines said. “If your candidate wins, you become happy and optimistic, and that can cause you to increase your exposure to stocks. If your candidate loses, you become unhappy and pessimistic, and that can cause you to reduce your exposure to stocks. Optimists take too much risk, and pessimists suffer lower returns. Remember that every president is in office for a maximum of eight years, but you’ll be around for 30 or 40 years. Don’t let a short-term presidency harm your longterm financial goals.”
All of the experts agree on this one thing: Over the long term, historical returns suggest that your 401(k) is going to be OK, regardless of the election.
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