Reports say U.S. investors are keeping record levels of cash out of the market leading up to the 2016 presidential election.
Overall confidence in the market is strong and U.S. stocks hit a record high in early July, according to Reuters. But investors are wary of the turbulence caused by the contentious and unpredictable election cycle.
Bob McCann, a senior UBS Group bank executive, told Reuters that many investors would rather keep their funds on the sidelines and wait out the election season than risk sudden losses due to the volatile political climate.
The market losses of 2008 made investors wary of election season instability and more likely to keep lots of cash on hand in any situation.
“Historically, individual investors define risk as, ‘How much volatility can I live with in my portfolio?’” McCann said. “The definition has changed to, ‘How much money can I afford to lose permanently?'’’
McCann cited a report due to be released later in July that he says shows 84 percent of high net worth investors think the election will significantly impact their finances.
Presidential politics only have a small impact on a portfolio, according to Time magazine, which cites data that shows an overall upward trend in the market, no matter which party is in power.
Investment advice publisher Kiplinger agrees, adding that markets seem to follow a natural ebb and flow within the election cycle. Data shows that wars and recessions tend to begin in a president’s first two years while expansions typically follow in the latter half of a term.
The most recent election cycles have been abnormal, with markets out of sync with typical patterns. Many investors are unusually uncertain about what the upcoming election will mean for markets, reports Kiplinger.
It is the high emotions associated with the upcoming election that pose a threat to portfolios, according to Time, rather than any particular candidate's policies.