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Why I don’t think investors should react to US election volatility

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The day has finally arrived, and US citizens are waiting with bated breath to learn the outcome of the Trump vs Biden presidential race. Investors around the world are anxious too, because this is an election as unprecedented as the whole of 2020. And who will win, is still anyone’s guess. Nevertheless, I don’t think investors should impulsively react to the US election result. And that’s because, whatever the outcome is, I think stock market reverberations will be short-lived.

Take a long-term outlook

Billionaire investor Warren Buffett and others like him, such as the UK’s Nick Train, are advocates of long-term investing. I think this is a great way to approach it. It’s simple, effective, and the barriers to entry are low. Best of all, by taking a long-term approach, the day-to-day volatility of the markets can largely be ignored. Which is why I think the US presidential election is a prime time to ignore the fluctuations and sit tight.

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That’s not to say it won’t throw up a buying opportunity. When I say ignore, I really mean don’t panic-sell. If I see my favourite stock prices dip during a time like this, it could well be a chance to buy. But I will add these to a long-term portfolio for a minimum of five to 10 years.

Government stimulus

What happens stateside usually has a knock-on effect on the UK financial markets. The US is still suffering massively from the coronavirus crisis, and its citizens are waiting for news of further stimulus. In the event of a Trump win, he has vowed to bring about a massive stimulus package. In this case, I imagine the stock market will react positively. However, if Biden wins, he too is likely to do the same, so in either case, the US stock market should gain some ground once stimulus is in place. Until then, volatility is to be expected. While volatile periods can provide perfect buying opportunities, it’s really important not to get emotionally involved. Avoid selling when volatility is high.

Market volatility ahead

In the UK, we’re still enduring the Brexit fallout and an imminent lockdown throughout England. Both these events are causing the FTSE 100 and FTSE 250 to tremble. I think the UK stock markets will probably react to the US election results, temporarily. Again, this will be short-lived, and the state of the wider economy matters more to investors.

Until a vaccine is in widespread circulation, I think the stock markets globally will endure further volatility. That’s why I like a set and forget approach to investing.  

I don’t think investors should worry too much about the US election result. What will be, will be. With time, the stock market volatility will give way to calm. Meanwhile, it’s a great opportunity to research quality stocks and buy bargains for the long haul.

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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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