I try to steer as far clear of politics as I can when managing clients’ money.
As much as I try, though, it becomes nearly impossible to do so. As the years go by, we continue to see increased polarization and the topic comes up, especially during Presidential election years. I will of course listen to a client’s views on the topic and consider them, but then try to redirect to other areas. Part of this is because it’s a very uncomfortable topic. More of it is because it’s a “Bucket 3” issue (see my “3 buckets” article). But the biggest reason to redirect the conversation is that who our President will be next year is but a small component of determining your long-term financial success.
In 2020, Ameriprise published a research piece [1] that discussed this topic in depth. In it you will see (Page 7) that going back to 1974 (and perhaps further), each President aside from George W. Bush (who had the Great Financial Crisis AND 9/11 during his term) presided over markets that were positive during their terms.
Page 8 shows that in 16 of 20 presidencies going back to 1900, there were positive returns for the markets, and all sorts of geopolitical events have occurred in that 120 year time frame. Page 13 shows market volatility 60 days before and 60 days after the election – volatility tends to increase as we get closer and then dissipate in the 60 days afterward. The rest of the report shows data with or without incumbents in the race, the makeup of congress and other factors.
For me, the bottom line of the report is that while it’s good to be aware of the history, there’s not a clear enough pattern in any of it that would lend me enough confidence to be able to take decisive actions as a result – and that’s even if I knew the outcome of what is sure to be close to a 50/50 vote. If I can’t act on it, it doesn’t do me much good to focus on it.
Put it this way…do I believe the next President will really have a material impact on one of the 25-30 securities I might own for a client in terms of what its return will before the next 10 years? Outside of some things on the periphery, I don’t think so – markets are bigger than that. I certainly can’t adequately anticipate how it might play out well enough to act on it.
The other thing that stands out to me is that focusing on something like the election as abasis for making investment decisions takes all my power away, as it is something completely out of my control, vs. focusing on those things that are.
In my “Why optimism is so important” article I discuss the long-term nature of the markets and being optimistic about the future. Elections occur every 4 years and someone wins and someone loses, but the economic cycle is not necessarily aligned on this same timeline. We’ve had many clients either immediately before or immediately following the last two elections who were fearful of what would happen if the candidate who was not their own were to win the election. And in both cases I could see why they might have had fears, given their beliefs. But if any of them had acted on those fears it would have turned out to be a mistake, as long as the time frame was long enough.
Remember also, that while markets and investment performance are very unpredictable in the short run, they are very much more predictable in the long run, no matter the politics.
In addition to simply zooming out and thinking longer term, there are things over which you do have control, and actions you can take if you are concerned about the short term. You can make sure you have short term funding needs secured in cash accounts and even some cash at home. You can make sure you aren’t carrying high interest debt and not take on more debt than you can afford. You can spend less than you earn (either by earning more or spending less).
But for the rest, your longer-term money? History says the best actions you can take are to continue the things that make a long-term difference. Remain invested at the long-term risk level you are comfortable with, continue systematically saving (see my “Dollar cost averaging” article), stick to your plans and ignore the noise.
[1] https://www.ameriprise.com/binaries/content/assets/ampcom/2020-us-election-guide.pdf
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