The presidential election is less than forty days away, and investors are getting nervous.
Forty days before the 2016 election, the markets remained relatively quiet, and the S&P 500 barely budged – falling .54% from the end of September to election day. Volatility spiked fifteen days before the election, but it did not have any impact on the market.
Forty days after the 2016 election was over, the S&P 500 rose 5.54%, and volatility dropped significantly. If you remained invested through the election cycle, you probably made money. The market finished 2016 in positive territory, rising 9.54%.
Here are seven steps to take as we get closer to election day.
- Do nothing. Historically, elections have had little impact on the long-term direction of the market.
- Raise cash. A cash reserve gives you flexibility if you want to buy stocks if they should fall.
- Identify stocks. Create a shopping list of five to ten companies you want to own. If they drop in price, add them to your account.
- Sell everything. If you’re worried about a market crash, sell your holdings and move your assets to cash. If you sell your stocks in a taxable account, you may incur a significant capital gains tax.
- Sell calls. Selling calls on stocks you own is an excellent strategy for generating income. It can also provide some downside protection.
- Buy puts. A put option provides downside protection for your portfolio. You can purchase a put option on a single stock like Apple or Tesla, or you can protect your entire portfolio. Buying put contracts is expensive, but it allows you to remain invested without selling your stocks.
- Vote. Several states are open for early voting. Here is a link to a voter registration site: https://vote.gov/
After forty days, Noah opened a window he had made in the ark and sent out a raven, and it kept flying back and forth until the water had dried up from the earth. ~ Genesis 6:6-7
September 28, 2020
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.