Many people are understandably anxious about the results of this year's presidential election. Whoever's voted into office will face the daunting tasks of dealing with the coronavirus pandemic, saving the economy, and reuniting a divided nation.
The political stakes are high, but there's also the personal financial angle to consider. The results of this year's election could cause the stock market to plummet. As an investor, you'd be wise to gear up for that possibility. Here's how.
1. Make sure your portfolio is diversified
A diverse portfolio could help you ride out an upcoming stock market storm. In the weeks leading up to the election, make sure you're happy with your investment mix. If you're not, make changes before the stock market potentially takes a turn for the worse. If you don't own a large enough variety of stocks, consider adding index funds to your portfolio. They're easy ways to diversify without incurring costly fees.
2. Dump stocks that are already losing
When the stock market tanks as a whole, you should avoid selling off investments and locking in losses. However, there's a difference between a general downturn and a few stocks in your portfolio that are grossly underperforming, even when the rest of your investments are up. You may want to unload sluggish stocks before the broader market is impacted by this year's election results. That way, you'll minimize your losses -- losses that you should use strategically for tax-saving purposes.
3. Stockpile cash
Stock market crashes offer money-making opportunities for investors. If the market tanks following the election, you may get a chance to load up on quality stocks that previously were too expensive for you. For that, you'll need money, so now's the time to reserve a little cash.
You don't have a ton of time between now and the election, but spending more conservatively for a few weeks could give you more buying power in early November (as could unloading a losing stock).
4. Practice the art of not panicking
Seeing your portfolio balance dive following a major political event can be alarming, but remember: You only lose money in stocks when you sell them at a loss. The market may crash in the coming weeks, but if you stay calm and sit tight, you might be surprised at how quickly your investments recover. Reminding yourself of these facts now can help you keep a cool head even in a difficult situation.
There's no way to predict how the outcome of this year's election will impact the stock market. Stock values could even rise once results are announced. Still, it's best to prepare for the worst.