Market changes are a common and natural reaction to events as significant as the US presidential election, regardless of which side of the fence you might have found yourself on. At Naked Finance, we’re here to help you understand these market movements so you can be confident in the decisions you make around your finances.
The Market's Response to the US Elections
Typically, after any significant event – the US elections included, the markets experience a little turbulence as investors digest the news. This is often short lived as the new administration policies take shape and the market finds its footing. This is especially true when expectations around the election result are priced into the market ahead of time. The markets typically factor in the party’s possibilities of winning and forecast a response in preparation. While the political landscape might feel uncertain, we believe the market has already priced in the risk, meaning the impact on your investments is likely to be muted, especially in the long term.
Avoiding the Pitfall of Moving to Conservative Funds
A natural reaction to turbulence is to buckle down and some may feel drawn to shift their investments from growth focused funds to more conservative ones. But such decisions can lock in any unrealised losses and may limit the potential for future growth.
We have seen this shock response in the recent past, during the COVID-19 crash. The market experienced a sharp decline, but within months, it rebounded strongly. Investors who remained in growth funds, or even added to their positions during that downturn, saw significant gains as the market recovered. Moving to a conservative fund during periods of correction would have crystallised losses and prevented investors from capturing the full rebound when the growth phase resumed.
Despite our stance on staying the course, this is not a hard and fast rule for everyone. The funds you invest depend on the time that you have to invest before you need to access funds, so reach out if you have questions.
We’re Entering a Growth Phase
Elections aside, the markets have recently been through a correction phase, and it is common to see a transition into a growth phase next. As investors, this is one of the best times to be in the market – especially for long term investors who have the time to ride out the initial bumps. It is a great time to stay invested and for those who can invest more, it could be an ideal time to add to your portfolio. Talk to the team if you want to learn more about the opportunities.
At Naked Finance, our strategy is always focused on long-term growth, even during periods of short-term uncertainty. The key to successful investing is staying the course, understanding market cycles, and ensuring your portfolio is positioned to capitalise on future gains.
In Summary
Market reaction to elections: Short-term volatility is common, but markets usually stabilise and find growth after the initial adjustment.
Don’t move to conservative funds: Shifting away from growth funds can lock in losses, reducing your potential for recovery and long-term gains.
This is a growth phase: With the recent correction behind us, now is a great time to stay invested, and even to invest more.
As always, if you have any questions or concerns, or if you’d like to discuss your portfolio in more detail, don’t hesitate to reach out. We’re here to help you make informed decisions that align with your financial goals.
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