Wednesday, November 6, 2024

Market Volatility Tied to Elections Can Be a Good friend or Foe

If earlier years are any indication, traders shouldn’t be stunned by a bout of volatility related to the U.S. presidential election.

Nevertheless, historical past favors those that keep the course.

Market Volatility as an Alternative

Volatility is a function of investing, not a defect.

Nevertheless, many traders might instinctively consider market volatility as one thing to worry and keep away from, which might result in rash selections and subpar long-term outcomes.

An evaluation utilizing the every day closing worth of the CBOE Volatility Index (VIX), which is a real-time measure of anticipated near-term volatility of the S&P 500, reveals that investments made on any day had a median return simply shy of 10% over the following 12 months.

Nevertheless, an funding made on days the place the VIX closed at elevated ranges sometimes related to intervals of stress carried out considerably higher, rising upwards of 25% or extra over the following 12 months.

Given this dynamic, many traders can profit by viewing the VIX as much less of a “worry index,” and extra of an “alternative index.” As a result of whereas it is all the time an excellent time to speculate, historical past reveals that among the greatest alternatives have come during times related to rising volatility and unease.

A bar chart showing that stocks purchased when VIX is high do well. Credit score: Lincoln Monetary

This represents highly effective context for these traders who are likely to really feel a bit nervous concerning the prospect of market volatility.

By reframing their perspective on volatility, it might encourage them to remain the course, or maybe capitalize on the chance that it tends to supply to place further property to work for the long-term.

Keep Positioned for the Lengthy Time period

Preparation and persistence have traditionally confirmed to be essentially the most priceless traits of profitable long-term traders.

So, whereas we are able to put together for the prospect of some market turbulence within the coming weeks and months, historical past reveals time and time once more that tuning out the day-to-day noise and sustaining a long-term perspective is a sensible technique.


Jayson Bronchetti. Credit: Lincoln Financial

Jayson Bronchetti is government vice chairman, chief funding officer at Lincoln Monetary and president of Lincoln Monetary Investments. He’s a member of Lincoln Monetary’s senior administration committee and contributes to the corporate’s Market Intel Trade stories.

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