Don’t Mix Politics With Your Portfolio

With the election just weeks away, you can expect all kinds of predictions about how the winner will affect the markets and the economy. But it becomes impossible to foresee because of how much we don’t know about what comes next.

Consider after Trump won the election, plenty of people predicted a market crash. Instead, stocks rose steadily until the pandemic hit. During his term, the S&P 500 hit over 130 new all-time highs.

When Obama was elected, people predicted, “[His] Radicalism Is Killing the Dow.” But the bull market that began in 2009 ran for a decade and the S&P 500 hit nearly 130 new all-time highs during his tenure.

The long-term trend for stocks has been up and to the right regardless of who is President.

And no President in modern history has been able to prevent the stock market from falling either.

Every President back to Herbert Hoover has experienced down markets.

Truth is politicians exert far less control over the markets than many people believe. Policy outcomes tend to lag and come with unintended

consequences. And this year, we’ve seen the economy

and markets do not always correlate. It might provide the illusion of control when your party holds the reins of government, but no one person is bigger than the stock market.

Regardless of who wins in November, it’s important to keep politics out of your portfolio. It’s already tempting to make financial decisions based on emotions, biases, and blind spots. Folding in politics only amplifies the risk and makes it almost impossible to make clearheaded decisions.

There are never any easy answers when it comes to handicapping the markets because no one knows what the future holds.

There are only two things overwhelmingly likely to happen when mixing politics with investment decisions: (1) The stock market will go up and down regardless of who the President is, and (2) Investing your money based on how you vote in November will not result in levelheaded financial decisions.
 
 Adapted from Ben Carlson's Column from Fortune Magazine Oct. 10, 2020.