Sitting in Cash: Should I Wait Out the Election?

“Let’s wait and see what happens”

We hear this a lot when investing around election season. So what should investors do?

Sitting in cash can backfire and it becomes addictive. It also requires you to answer a big question: When do I get back in?

Here are two things to think about heading into this election cycle:

Both halves participate in the economy the day after the election

Bonus: What the U.S. race means for investors

Authors Anthony Saffer, CFP®,CKA® and Alex Okugawa, CFP®, CEPA®, CKA® 

Full transcript:

Anthony: Hello and welcome to One Degree Advisors where we help families cut through the noise to make confident financial decisions and Alex we are approaching one of those times where it’s definitely bringing on uncertainty and people are wondering how will the election affect the stock market and their Investments?

How will the election affect my investments? [00:15-01:47]

Alex: Yeah. So I think one of the biggest problems we see right now and I’m saying this regardless of your political affiliation regardless of whether you classify as a, you know, a Democrat or a republican a Libertarian it it doesn’t matter. We’re just going to look at this from a very broad approach trying to remove emotion from it as much as we can. The biggest problem that we tend to see especially as we head into election cycles is people who get very nervous very skittish and then want to go into all cash.

But here’s the problem, you know this whole I want to wait and see approach historically doesn’t work very well. You know, let’s say, you know, the market does go down. Okay, so you did great you got into cash, but now when do you get back in? It’s not like the news is necessarily going to look very good on the way down and you’re going. Yes! Now is the Time to invest right? You’re likely to see I want to see things get better and then conversely if you’re wrong, let’s say the market does go straight up. Now You’re going to be sitting on cash on the sidelines going well now this didn’t go the way I thought it would. Things are way overpriced than they should be. I’m just going to keep waiting… It’ll come back down and then you keep waiting and waiting and then maybe that day never does come so that’s really the main problem we see here. It becomes emotionally charged and people want to make extreme volatile decisions during these times.

Why you should follow Objectives over Emotions [1:48-02:55]

Anthony: So we want to have we want to follow objectives over emotions.We want to have a plan and be able to stick with it. The data would show if you go back through presidential elections that it’s inconclusive at best as to partyaffiliation and the results of the of the stock market. You have to also consider that it’s not just who the president is orwhat party they’re affiliated with but how is the house made of how is the Senate made up in these different combinationstend to produce fairly similar results across the board.

The other thing too is that if you’re looking at it from a true to statistical standpoint is that there really aren’t that many presidential elections, even if you go back to say like 1900? A statistician is going to want thousands of occurrences to really see some special trend and we just don’t have that much that data

The market does not care what you think [02:55-03:27]

Alex:  Well, the other thing too that we think about is that you know, whichever political camp you’re in you have to realize there’s another side to this. Right, there’s a person who’s on the other exact opposite end. If you think something’s negative, they’re viewing it as a positive.

So the market really doesn’t care about what you think as a whole right? It’s just in general these things work together in the like you said Anthony the data is pretty inconclusive on which party is best here.

Anthony: And that is just it’s not saying that we don’t all have our convictions as to what propels the economy and what’s good for business and overall Society we have those and we should vote on our convictions. But the market doesn’t necessarily align, especially from a like bright up standpoint. Like hey, this is what happened. And here’s what the markets going to do.

Why having a plan is important [03:28-03:56]

Alex:  So again, what we want to do is want to go into this.With a plan and of course, you’ve heard us say us say this many times before but the first thing you need to do is have aplan ahead of time.

You simply cannot base a strategy off of feeling or hey, this is what I think’s going to happen, you know, make sure you get this stuff in writing have a Strategic Investment Plan talk with it talk about it with someone else whether it be a financial advisor or professional, but really have a plan ahead of time get it in writing and stick to your guns.

Why you should stay invested [03:57-04:31]

Alex: I’d say the second thing is stay invested, right even if you go, you know what, I need to dial down my risk that can be okay, but be very careful of making big widespread changes, right It’s one thing to say. I’m a hundred percent invested in stocks. And now I need to go to all cash and a said saying well, I’m a hundred percent stocks. Maybe we’re just going to take it. We’re going to dial down 10% or 15% and then, you know another month or two. We’ll take a look again. See how I feel you see how I feel and how things look right? That’s a much better way to tackle this problem then, you know trying to rip off the Band-Aid and make all the changes just at once.

Be objective and have a plan for this election [04:32-04:36]

Anthony: Yeah, so the intensity of the news is only going to pick up over the next few months. Like you said, it’s important to be objective and have a plan.

These are the types of things that we help people with every day to invest towards their objectives align it with their financial plan. If you would like to talk to us go to our website and you can schedule a call. We’d love to talk to you.

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More Reading: How Should I Prepare for an Uncertain Election