As the election comes to an end many investors are reconsidering their portfolio allocations for the coming months. Some investors are looking at the election as an opportunity to re-enter the market with money they have had on the sideline. I was recently asked if the election usually provides a buying opportunity.
You may be surprised to know that it doesn't really matter. Over the short-term the market tends to be driven by the emotions of fear and greed. When people are optimistic, they tend to buy into the market causing prices to rise. When people are pessimistic, they tend to sell out of the market causing prices to fall. Additionally, when people are uncertain they tend to stay where they are or sell, but investors rarely buy during periods of uncertainty.
Since the period preceding the election is usually one of uncertainty, throughout history the market has frequently declined leading up to Election Day. Conversely, after the election the market tends to experience a bounce once it's been determined who will be in charge over the next four years. However, when the initial enthusiasm fades investors once again focus on company fundamentals which ultimately determine the direction of the market.
The direction of the market has been the subject of a great deal of debate. A recent TD Ameritrade poll found most Americans remain pessimistic about the future of stocks.
It's important to remember that over the long-term the market doesn't move on emotion it moves on company earnings. There are great companies growing their earnings in spite of the economy. If you are looking for long-term investments, you should focus on strong companies that will grow their earnings over the next 20-years, rather than who will win the White House. So don't fret over the day-to-day value of your 529 Accounts, 401(k) accounts, or other longer-term investments.
