It’s early October and the S&P/ASX 200 Index (ASX: XJO) has already appreciated 2.8% since the start of the month. After the ASX 200’s lacklustre performance throughout September, I’m sure there are more than a few investors out there who are thinking about deploying more cash into the markets this month because… well you know, they’re going up.
But I think it might be prudent for investors to keep at least some (if not all) of their powder dry over the course of this month.
Well, we have one of the (arguably) most consequential events of the year (and perhaps of the decade) in early November. I’m of course talking about the United States 2020 presidential election. Yes, the election for president (as well as for the entire US House of Representatives and a third of the US Senate) will take place on Tuesday 3 November (Wednesday our time). The incumbent Republican, Donald Trump, is running for a second and final term against the Democratic nominee, former vice president Joe Biden.
Putting political views aside (that’s not what we really do here at the Fool), what does this have to do with investing? Or more specifically, not investing, as I’ve indicated.
Elections and investing
This election is consequential for all investors. And here’s why: Even under pre-2020, normal circumstances, elections are inherently disruptive events for investors. Elections lead to uncertainty, which leads to volatility. Throw in the special set of circumstances in 2020, including a highly divisive president and unprecedented levels of political polarisation in the US, and we have a recipe for extreme volatility. If the election is close and hinges on days or week of recounts, these circumstances will be exacerbated enormously. No matter what happens on 3 November, I’m expecting the US share markets to be up and down like a yo-yo. And that means, in all likelihood, our markets will be exactly the same.
This is normally a great time to have money to sink into the markets. Volatility can be frightening for investors, but it is also the patient investors’ friend. Anyone who invested large amounts of money in quality ASX shares back in March would be very glad they did so today, even if it was absolutely terrifying at the time. And no matter what happens in the election, I’m confident it won’t lead to any long-term issues that might affect the performance of ASX shares (or American companies for that matter).
So I’m saving all of the cash that I can for this period. It might not play out exactly the way I’ve outlined today, but I think there’s a fair chance it will. And if it does, I’ll be glad to have an extra-large cash pile to play with. Just something to consider this October!