Why Investors Should Quit Trying to Time Markets

History teaches us that markets eventually do recover. Adviser Mark Connely highlights how presidential elections come and go, and the impact on financial markets.
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By Mark Connely, CFP®

As the current Electoral College votes stand now, Joseph R. Biden will be the 46th president of the United States. While half of the country rejoices, the other half has serious concerns. This has been an election like no other in our nation’s history and has galvanized Americans on both sides of the aisles with record voter turnout. From an investment standpoint, I caution my clients to avoid impulsive investing decisions based on politics.

Mark Connely

Mark Connely

If history teaches us anything, it is that markets eventually do recover. They recovered from the Great Depression and from World War II and from planes flying into the World Trade Center and from a financial crisis that had some of the largest financial institutions desperately needing money from governments to survive. Markets have survived past pandemics and they will survive this one too. You see, business always finds a way to make a profit.

I can remember when there was a narrative of how bad Barack Obama was going to be for business, and clients were calling asking to get out of the market. Yet, $1 invested in the S&P 500* grew to $2.94, or $1,000,000 grew to $2.9 million, during the time that President Obama was in office.

When Ronald Regan was elected, the world was worried about this gunslinger from California. Of course, $1 grew to $3.80, or $1,000,000 grew to $3.8 million, in the S&P 500 during the Reagan administration. Even during President Clinton’s tenure, which included an impeachment trial, $1 increased to $3.56 in the S&P 500. George W. Bush did not fare as well as a result of the 2008 financial downturn. One dollar invested in the S&P 500 during his term would have declined to 79 cents. However, interestingly enough, it was a very different story with smaller-size publicly-traded companies. If you were diversified, even during that timeframe, there is a possibility that you still could have come out ahead.

If you make the mistake of trying to get out of the market and you have some type of big swing, you could literally miss out on one to two years’ worth of returns if you had a goal of getting 10%-per-year return. The market does not generate these returns consistently. Markets move quickly. Typically, investors who come out ahead are the ones that ride the cycles and do not try to time the market.

I would also advocate for diversification and would strongly caution any investor from putting 100% of their money in the market. High-quality, short-duration bonds can help to be a buffer against a market downturn. Having access to that capital can be beneficial if the markets do decline. The bonds can be sold and the proceeds used to acquire more equities during the downturn. It can also be very prudent to consider fixed protection products in an appropriate amount like life insurance and annuities.

Markets in the short run are completely random and unpredictable, so quit thinking that somehow you know what's going to happen because you don't. If you did, you would already be so rich you wouldn't care.

Markets get spooked in the short run over little things. Eventually people wake up and they realize that no matter who the president is, that individual is not the king of the world. They're not even the king of the United States of America. Regardless of which party is in power, most of us will still go to work and continue to be productive members of society. Guess what, so will businesses.

If you are properly diversified with large and small companies – both domestic and international – then it is very feasible you're going to do just fine. If you're correct that the market does take an initial dip, it will likely be back in due course. None of us have a crystal ball, so we do not know what the future holds. Last November, no one could have predicted the world would collectively be facing this deadly pandemic. Yet here we are. With proper diversification and a long-term financial plan that stays the course through unpredictable markets, most of us should be able to withstand whatever 2021 has in store for us, regardless of who is sitting in the Oval Office.

Mark Connely Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 3040 Post Oak Blvd, Ste 1150, Houston, Texas 77056, 281-220-2700. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Wealth Design Group is not an affiliate or subsidiary of PAS or Guardian. https://www.wealthdesigngroup.net/team/mark-connely-cfp.