It's often been said that the stock market does not like uncertainty, and political turmoil can result in market volatility. With a particularly contentious presidential election coming up, there's a chance the stock market could take a turn for the worse over the next few weeks.
All of this uncertainty can be stressful for investors, and it can be difficult to know what you should do with your money right now. While nobody knows exactly what will happen with the stock market, there's one investing move you should avoid regardless of what the future has in store.
One move that could put your investments in jeopardy
When the market is on shaky ground, pulling your money out and selling your investments may seem like a safe bet. However, cashing out because you're worried about volatility could spell disaster for your investments.
Selling your investments is risky for a few reasons. For one, it involves timing the market, which is a move that's nearly impossible to pull off successfully. The best way to lose money on your investments is to sell when stock prices are down, so if you try to time the market but end up selling at the wrong moment, that could be a costly mistake.
In addition, nobody knows what will happen with the stock market over the next few weeks and months, so stock prices could very well increase after the election. If you sell now, you could be missing out on that potential growth.
Staying invested could pay off later
Even if the market does decline after the election, holding onto your investments is still a smart move. The stock market tends to reward long-term investors -- despite its short-term ups and downs, the market still shows positive returns over time.
Again, selling your investments at the wrong time could result in losing money, but if you simply ride out the storm and leave your money alone during periods of volatility, your investments should rebound.
Some may argue that because this year's election is especially heated and because we're in the middle of a global pandemic, the stock market could be particularly volatile. It's true that nobody can say for sure what will happen in the coming weeks, but the stock market has seen its fair share of volatility in the past and has always managed to recover.
Over the last 20 years, the U.S. has experienced a dot-com bubble, a contested presidential election, terrorist attacks and wars, the Great Recession, another controversial presidential election, civil unrest, and the COVID-19 pandemic. And the market is still continuing its upward climb.
How to prepare
It's possible the market will fall after the election, but your best bet is to stay in it for the long haul.
If you're worried you might need cash in the relatively near future, try to cushion your emergency fund so you won't risk having to withdraw your investments if the market crashes. If you're nearing retirement, you may choose to rebalance your portfolio to ensure you're investing conservatively enough that your investments won't take a nosedive in the event of a market downturn.
The bottom line is to focus on building a portfolio of solid long-term companies that have a good chance of pulling through periods of economic uncertainty. When you invest for the long term, you can sleep easier knowing that whatever happens in the next few weeks or months shouldn't keep you from achieving your investing goals.
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