It’s politics season, which means your Facebook, tv, and radio will be filled with mudslinging political ads. While these may spark worry or concern, don’t let them muddy up the long-term outlook of your investment portfolio. Many fear that presidential elections can bring about undesirable changes to taxes, regulations, government spending, and debt. The truth is in the short-run we have no idea what will happen, but in the long-run we have a more informed idea, at least in terms of the public markets. What if I told you the day after Donald Trump was elected president the S&P 500 rose 1%? While some may say, “I told you so,” others may call it a fluke, and this is precisely the point. No one can predict with any consistency how markets will respond in the short run to changes in the political winds.
Some investors may believe their particular political party has experienced better market performance than the opposition. However, what the data shows is almost all presidencies over the past 100 years have experienced positive market performance, with the exception of Herbert Hoover, who presided over the beginning of the Great Depression, and George W. Bush who inherited the Dot Com bubble and presided over 9/11 and the financial crisis of 2008. The data illustrates our fundamental belief about investing: the more time you give a diversified portfolio the greater the odds of achieving a positive annualized return.
Instead of focusing on things outside of your control (politics, trade wars, psychology of the masses), first understand why you are investing. Why are you taking on risk in hopes of achieving a higher return? Is it to save for retirement? For your children’s education? For a new home? Getting a firm grasp on this understanding should precede everything else. Once you have this in mind, it helps to push your perspective off into the future as opposed to the present moment, which is probably being held captive by a cable news talking head. Although these pundits can occasionally be informative, they mostly distract you from the bigger picture. When we zoom out only a handful of things become pertinent: diversification, asset allocation, and fees. These components combined with a long-term perspective will help you reach your financial goals more than short-term market timing will. Don’t let politics convince you otherwise