Recently, many people were stunned by the US presidential election results. The majority of the polls and the media got it wrong. The LA Times poll that did get it right was mocked throughout the election. Simply stated, many people just did not expect the election results to turn out the way they did. Many people had also feared an economic collapse and a stock market crash that would go along with a Trump presidency, and therefore warned others to pull their assets from the market right before the elections. However, I believe that this advice is dangerous. Warren Buffett says he is 100% optimistic about the stock market regardless of who is in office. I am in total agreement with his wisdom and believe that we should not stop investing in stocks, real estate, and perhaps most importantly, ourselves.
Continue to Invest in Stocks
I’ve heard people tell us to pull out of the markets right before the election. Historically, the stock market has a tendency to drop right after the elections (stock prices actually surged this time). The reason for pulling out is to prevent yourself from losing money due to that drop. Uncertainty over trade and business policies may lead to a lack of confidence in the markets. However, I believe that advice is dangerous in general. Stock price dips right after an election are a short-term phenomenon. Remember, when you purchase a stock, you are purchasing a share of a company. Nothing about the companies that you are investing in has fundamentally changed despite all the uncertainty in the market and political landscape. The products and services they provide are still there. The consumers are still there. As long as you are investing in high-quality companies, they will continue to operate and remain profitable. Assuming they have strong and effective leadership, they will continue to adapt to the changing business environment, legislation, and consumer demand, as they have for many decades. Some people argue that more restrictive trade policies with other nations will hurt our stock market. Although this may happen, history has shown that strong companies can continue to adapt and succeed.. You as an investor will continue to reap the rewards.
By selling your stocks right before the election, you risk paying unnecessary transaction costs, incurring additional taxes, and losing the future earnings potential of that company, all due to a short-term event. Even if you buy the stock back after the election, you would have incurred additional costs that eat into your earnings. If you hold on to a stock and the market tanks after the election, that short-term drop will be a mere blip in the grand scheme of things since the market will continue to go up in the long run. Therefore, I believe that it is a waste of time and money to try to time your investments and adapt to short-term events that do not fundamentally impact the long-term potential of a stock.
Furthermore, if you have invested in high-quality dividend stocks, you will lose the compounded dividend growth that you have accumulated over time. Those dividends can provide you with a consistent stream of income. By selling them in response to a short-term event such as an election, you would have wasted the positive impact of the growing dividends and compounding dividend reinvestments.
The bottom line is that the companies themselves haven’t fundamentally changed. If you currently own stocks of strong companies that you believe in, hold on to them. History has shown that the stock market continues to increase in the long run despite market crashes, recessions, wars, political events, and changing leaders. Don’t lose that perspective.
Continue to Invest in Real Estate
In addition to a crashing stock market, I’ve also heard concerns that the real estate market will crash. Here’s another area that we need to bring some perspective into, especially if you are a real estate investor. Land is a limited and scarce resource. The population continues to grow, as a result, there will be increasing demand for a limited amount of land. As long as you can identify the regions of our country where people are moving to, you can identify where the real estate values will rise due to increasing demand.
Similar to stocks, do not sell all your real estate in response to an election, or any other short-term event for that matter. If you are a real estate investor, continue to invest and build up that rental income. Rent is one expense that people will always try to pay. People may cut back on cars, entertainment, and other luxury expenses during bad times. However, they will always try to make rent since they need a place to live. That alone should give you confidence that you can continue to collect a stable income stream from your real estate investments.
Continue to Invest in Yourself
Perhaps even more important than investing in the stock or real estate markets, continue to invest in yourself. As long as you possess a skillset that the market will pay for, you can find a job. Regardless of inflation, changing business environments, or changing market conditions, your particular set of skills will always command a certain proportion of our nation’s total income. The more skills you develop and the better you are able to convert those skills to generate money, the greater the share of our country’s income you’ll command.
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