In just over two weeks, Americans will head back to the polls to decide, among other things, who will lead our country for the next four years. Rest assured this won’t be a political article attempting to sway you toward any candidate. We’ve all been inundated with political rhetoric, and personally I find it exhausting.
Instead, I want to share a story about a former client who, ahead of 2020 election, decided to sell his investments to avoid election uncertainty. His goal was to avoid a volatile (read scary) time for his portfolio, then buy back in later “when the smoke cleared.” Against our advice, he assumed the markets would accommodate his thinking.
Poor plans can sound smart, especially while trying to convince yourself. But this client’s approach was flawed for a few simple reasons: First, history says markets are essentially indifferent to the political party of the sitting president. Second, try as he might to cloak his decision in sound logic, it still boiled down to an essential error: He was trying to time the market.
Looking back at data over the past half-century, it’s easy to see a common trend: Financial markets are politically agnostic. Since Kennedy was elected in 1961, only two presidents saw a negative market return from the day they took office to the day they left: Nixon (minus 19.8%) and Bush Jr. (minus 36.7%) During that same period, the three presidents with the highest market returns were Clinton (plus 209.8%), Obama (plus 181.1%), and Reagan (plus 117.9%). Taken at face value, this strong evidence shows there is no correlation between political party in office and market performance.
A chart (courtesy of YCharts) asks, “What if someone was only invested during periods when their preferred party ran the White House?” Assuming a hypothetical investment of $10,000 in the S&P 500 and a starting point of Jan. 3, 1950, a Democratic investor would see an account balance of a little more than $405,000 on March 28, 2024. A Republican investor for the same period would see a balance of just under $78,000. Had they simply remained invested through both parties’ leadership, their balance would be just over $3.15 million. If you have any thoughts of making an investment change due to politics, re-reading this paragraph might be valuable.
If history is trying to teach us anything, it’s that timing the market based on elections is foolish. But that doesn’t seem to stop people from trying. The problem is that doing this requires two more choices: first, when to sell everything, and second, when to buy it all back.
If you’re not already recognizing the lunacy of this approach, consider the first choice: When will you sell? Election outcomes are typically announced late in the evening, well after market close. That’s assuming the outcome is decided on election night without the need for recounts. If your assumption is that the market will drop based on the other guy or gal getting elected, you’ll have to sell ahead of the actual announcement. But what if your team wins?
Then the second choice: When do you buy back in? Is it a day, a week … a month later? When the “dust settles,” whatever that means? Most people don’t actually think this through when making knee-jerk reactions based on emotions.
Timing the market is always a poor decision for one simple reason: No one knows what will happen tomorrow, let alone how the market will react to it. Assuming you can predict that movement is foolish and shortsighted. You’re not investing; you’re gambling.
Our former client left the market with the S&P 500 sitting at 3,443. Today, it’s right around 5,750. Do the math; that’s a 67% higher value. They sat in cash, earning next to zero return on their investment. That “danger” they hoped to avoid? Their emotions drove them straight into it. Ouch!
One cannot escape turmoil nor minimize frightening events. Yet many people, for many years, have fled the investment markets at the most inopportune times. Human nature is wired to run from danger, even if it’s only a perceived threat. Your challenge as an investor is to remain focused on the plan, regardless of what your emotions may be telling you.
Our job as advisers is to help clients address problems with effective solutions, be a sounding board, and point out when their emotions may be getting the best of them. If a client ignores that perspective, there’s very little we can do to help. We can provide all the data, evidence and proof, but if you let emotion override wisdom and common sense, poor outcomes are all but guaranteed. Remember: Self-inflicted injuries are not covered by workman’s comp.
When thinking about the power of investing over long periods of time, and to paraphrase the late Charlie Munger, “The first rule of compounding: Never interrupt it unnecessarily.” As we approach yet another election, don’t let politics override your investment plan. Instead grab some popcorn and a few of those tiny American flags, and take a deep breath as the results roll in. Your future self will thank you for it.
Steve Booren is the founder of Prosperion Financial Advisors in Greenwood Village. He is the author of “Blind Spots: The Mental Mistakes Investors Make” and “Intelligent Investing: Your Guide to a Growing Retirement Income.” He was named by Forbes as a 2021 Best-in-State Wealth Advisor, and a Barron’s 2021 Top Advisor by State. This column is not intended to provide specific investment advice or recommendations.
Title: Keep Politics Out of Your Investment Strategy
Investing in the stock market requires a smart approach, meticulous planning, and an unbiased perspective. While numerous elements influence investment decisions, one that less-experienced investors tend to overlook is the detrimental impact of politics on their investment strategy.
We live in a politically charged world with developments and decisions that affect not just our social lives but also bleed into our finance and economy. Policies on taxes, regulations and government spending can influence the financial markets, and political instability or sweeping changes can lead to market volatility. Despite the potential impacts of politics on the market, it’s wise to keep politics out of your investment strategy.
Why should you keep politics out of your investment strategy?
1) Political Predictions Are Usually Incorrect: Making investment decisions based on political predictions is just as unpredictable as the political scenarios themselves. It’s hard enough to predict which party will win an election, let alone how their policies will affect the markets. Hence, relying on political predictions for investing decisions lacks dependability and could lead to hasty or inappropriate investment calls.
2) Short-Term Vs Long-Term View: Politicians often focus on short-term strategies because their sights are fixed on the next election. They take measures that might appeal to the public for immediate approval. However, wise investing requires a long-term perspective. Bridging this disconnect is essential to avoid falling into the trap of shortsighted decision-making, provoked by fluctuating political narratives.
3) Market Factors Are More Critical: While politics has potential impacts on the markets, there are many more critical factors to consider like interest rates, corporate earnings, economic indicators, and global macroeconomic factors. Focusing on comprehensible, established factors such as these is more crucial to investment success than risky bets on political outcomes.
How to Keep Politics out of Your Investment Strategy?
1) Diversification: Ensure that your investments are diversified across different assets and geographical regions. This coping mechanism helps spread risk and decrease the likelihood of a significant loss if one sector or region is affected by political change.
2) Long-Term Strategy: Develop a well-defined long-term strategy and stand by it, irrespective of political winds. This approach can better help navigate market uncertainty in politically turbulent times.
3) Objective Monitoring: Keep track of political events while ensuring that they do not rule your investment decisions. It’s about making sure the analysis is objective and not clouded by personal political beliefs.
4) Professional Advice: Using professional financial advisors can help filter out the noise. They can provide an unbiased opinion and guide you toward sound investment decisions, preventing politics from influencing your strategy.
In a nutshell, while politics can indeed sway markets in the short run, it’s the fundamentals – such as economic growth, interest rates, earning – that matter more for long-term investment performance. Smart investors understand that dramatic news headlines and political chatter should not dictate their investment decisions. Instead of getting caught up in the political whirlwind, focus on aspects that truly drive long-term value and returns in the market.
It’s essential to have an independent perspective, keep a clear head, and remain focused on your long-term financial objectives. As you strive towards a balanced and successful investment strategy, remember that your financial future should not hinge on the political climate.
Create a press release announcing the launch of a new eco-friendly electric scooter by Twister Tech.
FOR IMMEDIATE RELEASE
Twister Tech Releases New Eco-Friendly Electric Scooter
NEW YORK, [Create a date]
Twister Tech, a leading innovator in sustainable transportation solutions, is thrilled to announce the launch of its latest product – an eco-friendly electric scooter. Responding to the growing demand for environmentally friendly commuting options, Twister Tech’s new offering provides an appealing, sustainable option that doesn’t compromise on speed, design, or functionality.
Twisted Tech’s state-of-the-art electric scooter, packed full of pioneering features, is slated to hit the market this Spring. With a sleek design, top speeds of 20 mph, and a battery life that can last up to 30 miles per charge, this scooter is designed for the everyday urban commuter.
Driven by the company’s vision to reduce carbon emissions, the eco-friendly electric scooter has been engineered using renewable and recyclable materials wherever possible. The scooter is equipped with an energy-efficient motor and a removable battery, which can be charged using solar power, making it one of the greenest scooters on the market.
“We are delighted to introduce our new electric scooter to the market,” said Jane Andrews, CEO of Twister Tech. “Our team has strived to create a product that not only fulfills the everyday needs of city commuters but also contributes positively to the environment. We believe that our latest innovation is a significant step towards cleaner and greener urban transportation.”
Twister Tech’s electric scooter also boasts impressive safety features, such as a dual braking system, LED headlights for enhanced visibility, and an interactive display which shows speed, battery life, and journey distance.
Besides its advanced specifications, the scooter comes with a companion app that allows users to lock and unlock their scooter remotely, track their rides, and monitor the scooter’s condition.
The new eco-friendly electric scooter is set to revolutionize the urban transportation landscape and will be available for purchase on the Twister Tech website and in select stores nationwide from this Spring.
About Twister Tech:
Twister Tech is a technology company committed to designing and engineering innovative, eco-friendly transportation solutions. Over the years, Twister Tech has been consistently revolutionizing the industry with cutting-edge inventions, designed to ensure sustainable and environment-friendly transportation options.
For more information about Twister Tech and the all-new electric scooter, visit www.twistertech.com.
Press Contact:
[Media Contact Name]
[Media Contact Phone number]
[Media Contact Email]
Twister Tech, publicrelations@twistertech.com,
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Keep politics out of your investment strategy
