Why You Should Sell Off Stocks Before the Presidential Election
Written by
Jordan Rosenfeld
Edited by
Sean Fisher
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In May, Warren Buffett, Berkshire-Hathaway chairman, sold off more than 100 million shares of Apple stock, despite claims that he plans to remain invested in Apple. The reason? He’s nervous about what changes the next president may make to the capital gains tax, and wanted to get ahead of it.
It’s easy to take this as a sign that you should sell off any stocks you hold that have increased in value, before the 2024 presidential election, as well.
However, the financial decision of a power player like Buffett may or may not apply to your own personal investments. Experts explain whether you should or should not sell off stocks before the 2024 presidential election.
The Rates Are Not Set in Stone
Justin Godur, finance advisor and CEO and founder of Capital Max, pointed out that capital gains rates are not set in stone, but can fluctuate based on legislative changes, which, yes, are often influenced by the economic policies of the administration in power.
“With a presidential election on the horizon, the uncertainty around tax policy is higher than usual. If the new administration decides to raise capital gains taxes, waiting to sell could mean paying a much higher tax rate on your gains,” he explained.
He posed a hypothetical scenario: imagine you’re currently facing a 20% capital gains tax. If you sell a stock that has appreciated $50,000, you would owe $10,000 in taxes. However, if tax rates increase to 30% under a new government, the same sale would cost you $15,000 in taxes. Selling now, in a lower tax environment, could save you $5,000.
Furthermore, selling earlier can give you more control over your financial planning, Godur said.
“By realizing your gains now, you can reinvest the proceeds into other, potentially less volatile, assets or diversify your portfolio to reduce risks associated with market fluctuations.”
This proactive approach not only secures your gains but also positions you for greater financial stability, regardless of how tax rates shift in the future.
Speculation Can Also Affect Markets
Even putting the actual tax rates aside, speculation about such changes can also affect the market now, according to Michael Collins, CFA and founder of WinCap Financial.
“The financial markets generally dislike uncertainty. If there’s speculation or uncertainty about potential tax policy changes, it could lead to increased market volatility.”
While nobody has a crystal ball that tells you the future, selling stocks before any potential changes in tax policy or market fluctuations can help mitigate this uncertainty and reduce the risk associated with sudden market movements, Collins said.
Lock in Investments
“Selling stocks sooner allows you to lock in your investment gains at the current tax rate,” noted Collins.
Since markets can be unpredictable, waiting too long to sell could result in missing out on potential gains or even experiencing losses if market conditions deteriorate.
You can also think of selling as just another adjustment to your investment portfolio, not necessarily driven by fear of tax rate increases. “By selling stocks that have appreciated in value, you can rebalance your portfolio and potentially reallocate funds into investments with better tax efficiency or more aligned with your long-term financial goals,” said Collins.
Even if there’s no certainty about the timing or specifics of potential tax changes, selling stocks sooner rather than later provides flexibility and allows you to execute your investment strategy on your terms, Collins advised.
“Trying to time the market perfectly is challenging, and taking proactive steps based on potential policy changes can be a prudent approach.”
Do a Thorough Analysis
Godur said that the decision to sell stocks should be based on thorough analysis and tailored to your personal financial situation.
“However, understanding and anticipating changes in tax laws is a crucial part of this decision-making process. By acting now, you can optimize your investment outcomes before potential tax hikes decrease your returns.”
When Your Stock Has Peaked
On the other hand, just selling your stocks to get ahead of potential capital gains taxes might not be the wisest move, according to Joe Camberato, CEO of National Business Capital, a national lending platform.
“I wouldn’t recommend selling stocks just because of a presidential election. You should only consider selling if you really think the stock has peaked, if you no longer think the company is a good investment, or if you want to take some profits off the table after the stock has reached a certain return. If you still believe in the company, then holding onto your stocks might be the best move, regardless of the election.”
Though Biden has proposed increasing the capital gains tax percentage, Camberato doesn’t think the increase will pass. “If they do raise the capital gains tax bracket, it could discourage people from investing their money.”
Other Factors At Play
Hao Dang, an investment strategist at Consilio Wealth, agrees with Camberato.
“Investors should give very little weight to a presidential election when deciding to sell a stock or not. A better reason to sell could be risk reduction, not because of the election, but rather stocks have done well recently and it could be time to trim.”
He pointed out that both key presidential candidates have overseen good and bad markets. “Trump had good years in 2017 and 2019. He had bad years in 2018 and 2020. Biden had good years in 2021 and 2023. He had a bad year in 2022.”
From his perspective, good and bad years are driven by many other factors that carry more weight than who is president. “The stock market will chug along with ups and down regardless of who wins.”
In a nutshell, if your stock has peaked, you’re worried about higher capital gains, or now is a good time to take profits from stock sales and invest them elsewhere, then it’s probably a good time to sell. Otherwise, hold tight and see what comes after November, 2024.
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