Looking to start investing? Don't wait until after the presidential election
As Americans prepare to vote in the Nov. 3 presidential election amid the global coronavirus pandemic, some are wondering if the potential for outsized market volatility is a reason to delay investing in stocks.
The U.S. stock market has moved sharply up, down and sideways in 2020, and there's little indication that the swings will subside.
Still, financial advisors say that investors shouldn't worry too much about the upcoming presidential election, especially if they're just embarking on retirement planning. Even if the election does lead to market swings, it's not a reason to hold off getting started.
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"I always say invest whenever you feel ready, but don't put it off because you're afraid of certain market risks," said Michaela McDonald, a certified financial planner and financial advice expert at personal finance-app Albert. "Those are always going to be there."
While this year's presidential election is a high-priority event, elections generally aren't huge market movers, according to Brad McMillan, chief financial officer of the Commonwealth Financial Network in Waltham, Massachusetts.
"From a stock market perspective, elections are non-events," he said, adding that in the last 14 of 17 election years, the S&P 500 index was up during the year. "There's no real reason historically to say we should be worried about this year."
Here are some key points to remember if you're an investor getting started around the Nov. 3 presidential election.
1. Start as early as possible – regardless of potential market events
Financial experts usually say to start investing as soon as possible so that retirement savers can take advantage of compound interest over many years to grow wealth.
"History has shown that, by and large, the amount of time in the market is way more important in being able to grow your money than the exact time when you put it in," said Adam Grealish, director of investing at Betterment.
2. Assess your risk tolerance and financial goals, and balance your portfolio accordingly
If you have decided to take the plunge and invest, it's important to understand your risk tolerance, or appetite for losing some money in the short-term.
"We can't control how the stock market's going to behave on a given day, month or year for that matter," said CFP Heather Winston, assistant director of financial planning and advice at Principal Financial Group, based in Des Moines, Iowa. "We can control how much we participate in it and to what degree."
Winston recommends having a diverse portfolio filled with different assets that don't move in tandem, such as a mix of stocks and bonds. "You can continue to have more confidence, even when you're face with uncertainty, because something in that portfolio will be winning at any point in time," said Winston.
3. Don't get caught up in daily market movements
It's best to check on your retirement account once a year or anytime you have a change of life event, such as changing jobs or getting married, said Grealish from Betterment. Daily check-ins are a bad idea, as they can lead investors to make emotional decisions.
If you are attuned to daily market swings and are worried about investing a chunk of money all at once, Grealish recommends dollar-cost averaging, basically splitting up a large sum into smaller amounts to be invested over time.
This helps protect investors from being locked in at one market price, and encourages them to buy on down days, which can be good for long-term growth.
If I were a younger person, I would love to see the markets go down because that means I could buy cheaper.Brad McMillanchief financial officer of the Commonwealth Financial Network
4. Embrace volatility
Market volatility is normal and can even be an opportunity that investors should take advantage of, according to financial experts.
"If I were a younger person, I would love to see the markets go down because that means I could buy cheaper," McMillian said. "Younger people should not fear market pullbacks."
5. Focus on what is in your control
While it's tempting to try to time investing around market events, or to fret over short-term movements, there are other things that investors should focus on that are actually in their control.
Investing has a lot of things that are potential mosquitos, such as fees or paying taxes when they could be deferred, according to Grealish.
"Market swings are kind of like lions and tigers, which people are very afraid of," Grealish said. "But the fact is that mosquitos are way more dangerous — you're way more likely to be killed by a mosquito, unfortunately, than a lion or tiger."
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