Post-election market concerns? Here鈥檚 how investors can cope.
The market doesn鈥檛 play politics, but it does vote against uncertainty. On election night, as the returns began to suggest an upset victory for Donald Trump in the race for U.S. president, global markets plunged and Dow Jones industrial average futures fell 800 points.
But the sell-off was short-lived. Global losses quickly trimmed in the early morning hours, after Hillary Clinton telephoned Trump to concede and Trump made an uncharacteristic call for unity in his victory speech. The U.S. markets opened down on Wednesday before quickly rallying, and the Dow and the S&P 500 continued to climb steadily through the day, with both closing up over 1%.
鈥淚n typical market fashion, there was an immediate overreaction, and then cooler heads prevailed and the markets reverted back to market and economic fundamentals,鈥� says聽John Gajkowski, a certified financial planner with Money Managers Financial Group聽in Oak Brook, Illinois.
A post-election reality check
This campaign was unlike any other, and the market鈥檚 positive reaction to the results doesn鈥檛 quite track with history, either. The markets more frequently lean toward a sell-off on the day 鈥斅爋r in some cases, in the days 鈥� after an election. According to Bespoke Investment Group, the S&P 500 has posted a negative return after the polls closed in 15 of the previous 22 elections.
However, single-day returns are rarely indicative of long-term results: LPL Research says the S&P 500 posted gains between Election Day and Inauguration Day in 11 of the past 16 elections, with a median return of 3%.
And it鈥檚聽possible that this market may continue to behave in unexpected ways.
Yet no single market event, good or bad, changes the single biggest piece of advice for investors: The best reaction is often no reaction. If you do nothing today, and in the weeks and months that follow, history tells us you鈥檙e likely to come out ahead of investors who let uncertainty聽dictate a change in their strategy.
Doing nothing is easy if the market continues to rally. If it doesn鈥檛, it becomes much harder than it sounds. Here are three things you can do to insulate yourself from market madness, whether or not things go in your favor.
1. Stay in the game
The market rewards investors who can聽ride out volatility, and it will continue to do so. Put a pillow over your ears, chuck your TV, close this browser window 鈥斅燿o anything that will help you avoid turning market news into a snap reaction.
鈥淚n the long run, the market is not dependent on Trump,鈥澛爏ays Chris Chen, a certified financial planner with Insight Financial Strategists in Waltham, Massachusetts. 鈥淲hatever positive or negative that he will inflict on the economy, the U.S. economy is strong, and it will be healthy in the long run.鈥�
If you want to benefit from that strength, you not only need to stick it out but continue to save. No, it鈥檚 not a cutting-edge idea. But it鈥檚 been proven to bail people out of even the toughest times. Save more than you saved last month and the month before, if you can. (If you don鈥檛 know how much you should be saving, a聽聽can give you a quick answer.)
Investment returns are important, but they鈥檙e not possible without the money you contribute. In a winning market, that money will earn a bigger return. In a sliding one, you get an opportunity to buy in at a discount.
2. Revisit your long-term plan
Here鈥檚 what you鈥檙e likely to find: Nothing has changed. You still have the same goals. They鈥檙e still the same number of years away. Unless you need the money you have invested soon, market swings are a short-term blip on a long-term investment plan.
What may have changed is your ability to tolerate those blips, as that tolerance has been through聽. If those tests are truly shaking your resolve, it may be a sign you鈥檝e chosen investments that exceed your risk tolerance. Or maybe you didn鈥檛 choose them at all; a long-running bull market can throw your equity allocation higher聽than you鈥檇 prefer, especially if you haven鈥檛 been keeping tabs.
If it keeps you from panic selling,聽聽is the exception to the do-nothing directive. But that doesn鈥檛 mean you should go in and dump all your stocks in a single day, or at all. Instead, slowly shift your allocation toward a more comfortable mix by directing your future contributions into safer investments聽like bond funds.
3. Control what you can control
If your candidate didn鈥檛 come out on top, you may be feeling like that isn鈥檛 much 鈥斅燼nd when it comes to the stock market, you鈥檙e very much right. But just as聽, he can鈥檛 break them, either. On the other hand, there鈥檚 plenty you can do to improve and stabilize your personal economy, including:
- Paying down high-interest debt.
- Taking advantage of continued low interest rates, as the Trump win may throw December鈥檚 forecasted Federal Reserve rate hike into question.
- Saving more in tax-advantaged accounts like a 401(k) and a traditional or聽.
- Building up an emergency cushion, even if bit by bit.
- Learning about聽coming policy changes and how they might affect your finances.
If none of that calms you, recent history might. After Brexit 鈥� another unexpected vote that raised market fears聽this year 鈥� the market made up losses inside of two weeks. And in the weeks and months that followed, it posted a string of record highs.
Arielle O鈥橲hea is a staff writer at NerdWallet, a personal finance website. Email:聽aoshea@nerdwallet.com. Twitter:聽.
This story originally appeared on .
