Dated 3 November 2020
2020 has been a pivotal year, marked by significant events that are likely to have impacts on the world for years to come. The US election on Tuesday 3rd of November is going to be another one of those events.
This year, on top of the usual uncertainty around who will be the next US President, and how the election plays out for other elected US politicians, there is also the added uncertainty around how long it will take until a winner is determined. Covid-19, which is still rampant across many parts of the world including the United States will lead to a larger proportion of mail-in and absentee votes, which take longer to count. This means that on the election night on Tuesday in the US (Wednesday 4th November NZT), unless there is a landslide victory for either party, it is likely that the world won’t know who has won the election.
Regardless of whether there is a clear winner on the night or not, the possibility that sharemarkets will react is always on the cards. In fact, the US sharemarket decline last week has already been attributed, in part, to the political situation. The key thing to remember is that this type of uncertainty is a normal part of investing. Global sharemarkets always respond to significant geo-political events, and this time will be no different.
If global sharemarkets do get choppy, it’s important not to lose perspective and make any reactionary decisions. For most investors, you will be in it for the long haul, and should be invested in a fund that is suitable for your investment timeframe. If markets react positively to whatever the outcome of the election ends up being, then your investment or KiwiSaver balance is likely to increase – and while you will be pleased to see that, you probably won’t take any action or make a withdrawal, unless you were already planning on doing so.
Similarly, if sharemarkets react negatively to the election results, then it’s possible that your KiwiSaver or investment balances fall. We know that it can be unsettling to see your investment balance change during times of volatility – but it’s important to keep in mind that historically, major sharemarkets have always recovered – it’s when you make a hasty withdrawal or unplanned fund switch while markets are down that you tend to lock in losses.
We don’t need to look back far to see a great example of this. Earlier this year in February and March we saw global sharemarkets sharply decline in reaction to the global spread of Covid-19. However, a few months later in September and August, we saw that many sharemarkets had recovered and were posting fresh highs once again. Investors that reacted by withdrawing their investments during the drop would have missed out on the recovery and any subsequent gains.
The US election this week is just one of the events that might influence sharemarkets and therefore your investments. The reality is that nobody knows exactly what is going to happen (that’s why we have elections), and movements up and down for investments should be expected as these sorts of events unfold.
Beyond the US political process, the rising Covid-19 cases and the economic consequences for the US and Europe are also weighing on the outlook. Investors often look to us during these uncertain times and wonder what to do. Uncertainty is often uncomfortable, particularly at times like this when financial markets can get a bit choppy, and the news flow somewhat dramatic. It’s important that we stick with the basics at times like this – investors need to focus on their own goals and timeframe, and as an investment manager, we stick with the processes, values and beliefs that we always use to manage money.
Regardless of who wins the election in the US this week, there’s still plenty of challenges to face here and abroad, but financial markets, and our investments will continue to march on. We encourage you to make sure you’re in the right fund for your investment goals and timeframe so that you can ride out whatever comes your way. Check out the link relevant to you below:
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