The US election 2024 is just around the corner, and if there’s one thing we know, election times can make the stock market unpredictable. The potential for policy changes, taxes, and international relations can make markets go up and down unexpectedly.
For traders, managing risk is essential to avoid significant losses and maximize opportunities. This article will explore simple, effective trading strategies for managing risk during the election season.
Why Trading Is Riskier During US Elections 2024
Before discussing strategies, let’s examine why the stock market tends to be riskier during elections. Elections create uncertainty—we don’t know who will win, what policies they will introduce, or how these policies might affect different industries.
This uncertainty often leads to higher volatility, meaning stock prices move up and down more often and quickly. When markets are volatile, losing money is more accessible, especially if you aren’t prepared.
Trading Strategies to Manage Risk During the US Election 2024
However, while election periods can be risky, they can also bring opportunities for those who know how to protect their investments. The strategies below will help you stay safer and make smarter trading choices.
1. Use Stop-Loss Orders to Limit Losses
A stop-loss order is one of the simplest and most powerful tools for managing risk. This tool automatically sells a stock if its price drops to a level you set, which can prevent large losses.
How to Set a Stop-Loss Order
- Decide the maximum loss you’re willing to take on a stock.
- Set your stop-loss order at this price. For example, if you bought a stock at $100 and don’t want to lose more than 10%, set the stop-loss at $90.
Using stop-loss orders during the election season helps protect your investments from sudden price drops, which are more likely during times of high uncertainty.
2. Diversify Your Investments to Reduce Risk
Diversification means spreading your money across different assets, like stocks, bonds, and commodities, instead of putting it all in one place. By diversifying, you’re less likely to lose a lot if one stock or asset drops in value because other parts of your portfolio might increase.
Easy Ways to Diversify
- Invest in different industries: Consider holding stocks in healthcare, technology, energy, and consumer goods.
- Look at other asset classes: Bonds, precious metals like gold, or even real estate can help balance your portfolio.
- Use ETFs or mutual funds: These funds hold multiple stocks or assets and are a simple way to diversify without buying each stock individually.
Diversification can act as a “safety net” for your investments during unpredictable times, helping you reduce risk overall.
3. Focus on Safe-Haven Assets for Stability
Safe-haven assets tend to keep their value even when the market is shaky. Common safe-haven assets include gold, US Treasury bonds, and stable dividend-paying stocks. These assets are popular during election times because they don’t fluctuate as much as regular stocks.
Why Gold and Bonds Work Well
- Gold: Often called a “crisis asset,” gold holds its value when people are nervous about the market.
- Treasury Bonds: Backed by the US government, Treasury bonds are among the safest investments, making them a good choice in uncertain times.
Allocating a portion of your portfolio to safe-haven assets during the election can add a layer of stability, protecting you from big market swings.
4. Hedge Your Portfolio to Offset Losses
Hedging is like buying insurance for your investments. It involves taking a second position that could offset potential losses in your primary investments.
Common Hedging Techniques
- Put Options: Option contracts increase in value if a stock’s price drops. They’re a way to “hedge” your bets if you own the stock and are worried about its price.
- Inverse ETFs: These funds are designed to go up when the market goes down, so they hedge against losses in your regular stock investments.
Hedging can be complex, but even small hedges can provide a cushion during market volatility, helping to balance out losses in other areas of your portfolio.
5. Stay Updated and Be Ready to Adjust
Staying updated on current events is critical when trading during an election, as market conditions can change quickly. Pay attention to news about:
- Candidate debates
- Poll results
- Policy announcements and campaign promises
Knowing what’s happening can help you make informed decisions and adjust your strategies. For instance, if a candidate proposes a policy impacting energy companies, you might adapt your investments in that sector.
6. Avoid Emotional Trading and Stick to Your Plan
It’s easy to get caught up in the excitement and make quick, emotional trades during volatile times. But emotional trading is one of the most significant risks to your portfolio. To manage this, set a clear trading plan with goals, stop-loss levels, and strategies in advance. Then, stick to it.
Tips to Control Emotions
- Take breaks: If stressed, step away from the market for a while.
- Review your goals: Remind yourself of your original plan.
- Limit your trading frequency: Avoid overtrading because prices are moving a lot.
A steady, disciplined approach can protect you from the panic-driven decisions that lead to losses.
7. Keep a Cash Reserve for Flexibility
Holding some cash in your portfolio gives you flexibility to buy opportunities that arise when prices are low. During election times, there may be sudden drops in stock prices, creating buying opportunities. Keeping some cash on hand allows you to invest when prices dip instead of being fully invested with no liquidity.
Benefits of a Cash Reserve
- Quick Access: You can act quickly if a great buying opportunity appears.
- Reduced Risk: A cash reserve means you’re not fully exposed to the market, which can help limit your overall risk.
Try to Trading Safely During the 2024 US Presidential Election
The 2024 US election season is bound to bring changes and uncertainty to the market, but with the right strategies, you can protect your investments and make informed decisions. Use tools like stop-loss orders, diversify your assets, and consider safe-haven investments to balance risk. Stay informed, avoid emotional trades, and prepare a cash reserve for opportunities.
Understanding these strategies helps you, as an investor, stay prepared for whatever election season brings. Follow your plan, stay disciplined, and use these tools to maximise your trading during this crucial time.
As we move through this election season, Vestrado is here to support you in navigating the challenges and opportunities that arise. You can turn market uncertainty into potential gains with the right strategies, staying informed, and intelligent risk management.
We’re committed to helping you make confident, well-informed trading decisions that align with your goals. Stay tuned with Vestrado for more insights, tools, and guidance to help you trade wisely through this election. Let’s move forward together, equipped and ready for whatever the market brings.
