Keeping your political preferences out of your investment decisions is harder than it sounds, especially in today’s 24/7 news cycle. I have seen politics become more influential almost every year since I started in this business back in the late 1990’s. The sad thing is that it has only been a drag on investors trying to reach their financial goals.
This is particularly true when it comes to an upcoming presidential election, like the one that is scheduled about 18 months from now. During the runup to the election, investors will fret over the possibility that the candidate from the party they don’t support could win the election. This will cause them to make irrational decisions, like putting all of their investments in cash. Then, when the market doesn’t react the way they think it should have, they miss out on those subsequent gains. Now, they also have to guess when to get back into the market, and that usually backfires on them as well.
Being in the investment world lo these many years, I’ve seen first-hand that how the market performs is not affected by who is in the White House. Regardless, political affiliations tend to blur the line between perception and reality for many investors and it has never been more evident than it is right now. Survey results from Republicans are the complete opposite of Democrats when asked about the health of our economy. It’s crazy because everyone is looking at the same numbers. Yet, we are so influenced by our political beliefs that we believe in two distinct, but entirely different realities.
When this happens, investors tend to let their politics steer their investing, and this almost always results in falling short of their investment objectives.
Also, you have to remember that well-run companies are going to do well regardless of who is in the White House. Sure, a change in the political landscape could force certain industries to evolve, but that doesn’t mean you should sell your investments and hide your cash under the mattress. Great companies will adapt and thrive.
Finally, you have to understand that the stock market is forward-looking, which means it has probably already priced in the things that you’re worrying about. So, stop worrying about them. The key takeaway from this little chat is that politics have little effect on your financial success.
Please comment or send an email if you have any questions. Thanks!
Joe Baker, CFP®
Baker Asset Management, LLC
