What to do with your money before the election

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• Expect short-term stock market volatility around the US presidential election.
• Don’t let that volatility affect your long-term strategy; stay invested no matter who wins.
• Instead, take four steps now to strengthen your financial position.

With a major presidential election looming, it’s impossible not to wonder how the outcome will impact you and your money.

What should you do with your finances ahead of the vote? Do you need to make changes to your investment portfolio before the election? As a financial planner, I see what to do (and what to avoid).

Keep politics out of your portfolio

You have good reasons to hold the political views you hold. But when it comes to your investments, keep some distance between politics and your portfolio.

If you zoom out for a broader perspective, the U.S. stock market has grown in value over time, regardless of which party is in the White House or which party controls Congress. While it’s tempting to make definitive connections, such as “the market does better when X is in power” or “stocks rise when Y,” it’s incredibly difficult to pinpoint a specific cause for market movements or events.

I wouldn’t be surprised if we see increased volatility in the stock market around the election. In fact, I would expect it. But if you’re a long-term investor, part of your job is to rule that out. It’s noise, not signal.

This is not to say that elections don’t matter or that there is no difference between the two candidates involved. It do means that you should (a) expect big swings in either direction in the short term and (b) stay calm and stay invested.

Beyond Your Hammock’s fractional CIO, Mario Nardone of East Bay Investment Solutions, shared the chart below with us and our clients earlier this year. It shows what happens when you jump in and out of the market depending on whether your favored party is in the White House… and how those returns are crushed by the investor who just stayed invested the whole time:

On average, market returns were positive in an election year and the following year, regardless of who was elected. It is more important to focus on the long term for your investments than to try to guess what will happen in the near future.

4 actions you can Take it now, before the elections

As human beings, most of us have a propensity for action. When we have a strong opinion about an issue or event, it feels much better do something instead of sitting around and doing nothing.

But your money, and especially your investment portfolio, probably does needs u to “do nothing” before the elections.

This is especially true if you’re a long-term investor with many years (or decades) between now and when you hope to start tapping into your savings and investments to support your lifestyle. Still, there are some proactive steps you can take to put yourself in a better financial position now.

1. Confirm that you have access to cash reserves

Always have an emergency fund or a certain amount of cash on hand that you can access as soon as possible. A high-yield savings account is a good option for this; CDs and vehicles like iBonds are not.

2. Reduce any major areas of spending

If there are obvious areas in your budget where you can cut back, try eliminating those costs now and direct that money toward savings instead. A little extra cash flow can give you peace of mind.

3. If so excess cash, make it work

If you have a full emergency fund, cash that you can use for your short-term goals, and still If you have extra money in the bank, you’ll miss opportunities to earn more. Move excess money into something like a CD if you want to lock in current rates (Business Insider tracks the best CD rates) or your investment account if you prioritize long-term growth. Also, be sure to max out qualified retirement accounts and vehicles like HSAs before December 31.

4. Think about ways to reduce your tax bill

One of my favorite strategies for our clients is to donate appreciated shares of stock to charitable organizations and match the value of the donated shares with new money in your account. You must do this before the end of the year to take advantage of last year’s tax return. You may also consider tax-loss harvesting to offset capital gains.

The policies we pursue and adopt at all levels of government matter, and we should care about them. I believe strongly in proactively working to change what we believe is wrong and supporting what we believe is right. However, impulsive or emotional monetization in the run-up to an election helps no one – and can especially harm you personally.