Election Volatility and Market Impacts
With the U.S. election just around the corner, investors are understandably anxious about how election-related volatility might impact their portfolios. American Century Investments®, a prominent global asset manager, offers insights into navigating these turbulent times. Historically, events surrounding elections have been unpredictable, and political landscapes can shift rapidly. This unpredictability underscores the challenge of trying to time the market based on political events.
Staying Invested During Volatility
The analysis from American Century suggests that the best strategy during election-related market fluctuations is to remain invested. History shows that significant or surprising election results often lead to temporary market dips, not long-term upheavals. For example, elections in countries like India, the U.K., and France have resulted in short-lived market changes, regardless of the election outcome.
Victor Zhang, CIO of American Century, explains that despite the temporary nature of market volatility during elections, being fully invested historically yields better results compared to holding cash. Analyzing data from 1932 to 2021, it is evident that staying in the market is a more profitable strategy.
Fundamentals of Asset Allocation
Investors are advised against trying to capitalize on election-related volatility. Instead, they should focus on the fundamentals: understanding their investment time horizon, the purpose of their funds, and their risk tolerance. Keith Lee emphasizes identifying robust businesses that can withstand political uncertainties, which is more reliable than speculative investments based on political predictions.
Policy-Related Market Impacts
While American Century does not let election predictions dictate their investment decisions, they acknowledge that certain policies, such as trade tariffs, can have significant economic repercussions. Presidents have considerable authority over trade policies, which can influence productivity and the broader economy.
Additionally, policies around mergers and acquisitions may also be affected by election outcomes, potentially impacting corporate strategies in the coming years. However, these should not be the sole basis of investment decisions.
Conclusion
For a deeper dive into investment strategies amid political uncertainties, American Century's full investment outlook offers guidance on global markets, sustainable investing, and more. By focusing on solid, long-term growth companies, investors can better navigate the inevitable ebbs and flows of market volatility.
