Uncertainty is affecting the markets leading up to the presidential election and amid the COVID-19 pandemic, but investors can find opportunity in volatility, a financial adviser said.
The Standard & Poor’s 500 index rose to a record high in early September but has since fallen about 4% and had its first monthly decline since March.
Josh Montanez, financial adviser with Northwestern Mutual Wealth Management Co. and Montanez Financial in Fayetteville, said investors are concerned about a second COVID wave this winter leading to another economic shutdown like in early spring. They also are concerned about changes that might happen depending on the election outcome.
“What typically drives the market is change,” Montanez said. “Investors don’t like change. They like consistency.”
However, a recent Capital Group article shows a hypothetical $10,000 investment in the S&P 500 would have provided good returns in 18 of the past 19 presidential elections. The investment made at the beginning of each election year would have gained value 10 years later, according to the article. The only negative 10-year period followed the election of George W. Bush in 2000. In that decade, the S&P 500 had a negative return amid the 2000 dot-com crash and 2008 global financial crisis.
But investors can have good returns in difficult economic times.
“A lot of people tend to make a lot of their money when there is volatility because then people tend to find opportunities,” said Montanez, adding that the market declined in March because of investor fears. “Some companies got crushed, and other companies rose from the ashes and are having an exceptional year this year. It’s because they were able to adapt and adjust to what’s going on in the world.”
He noted investors only lose money when they sell in a down market. He highlighted the importance of staying in touch with one’s financial adviser and sticking to a financial plan.