With the US election all over the news, I have seen a bunch of articles on how to protect your portfolio. Is trying to protect your portfolio before an upcoming news event a good idea?
Trying to protect your portfolio before a known event is likely a money-losing strategy. That’s not how the market works.
The market is always taking into account current expectations. In other words, expected events are “priced in”. If events happen as expected, it usually has no effect. News is just noise!
Every year, there are major news stories that cause uncertainty. Many investors worry about them, try to change their portfolio to defend against whatever risks they perceive. In almost every case, nothing happens and they were defensive for nothing.
Market crashes are caused by unexpected events, not by the issues that are all over the news. As hunting wisdom says, “It’s not the bear you see. It’s the one that jumps you from behind you have to worry about.” There is a list of past news uncertainties and what happened here: https://edrempel.com/its-not-the-bear-you-see/ .
This year, it is the US election. Hillary will almost definitely win and the market already expects her to win. There is an outside chance Trump will win and the markets are priced today based on that.
Many investors are defensive because of uncertainty. If the election happens as expected, it is a non-event because it is already priced in.
The most likely results are either:
- No effect on the markets. Everything is already expected and priced in.
- A relief rally right after the election when the uncertainty is gone.
Either way, investors that are defensive now because of uncertainty will probably be better off if they just ignoring the news. Just keep your long term portfolio and goals.
After the election, there will be the next uncertainty in the news to keep some investors defensive. The Fed in the US looks like it will start raising interest rates in December. Brexit will probably get implemented next year. And something else after that.
Bottom line, short term market timing based on news events does not work. Keep your long term view on your portfolio. News is just noise!