It is safe to say that politics are a touchy subject. It’s made even more touchy by the extremists on both sides who think that anyone taking an opposing view are beyond incompetent. These people color the waters of the more moderate (and level-headed) middle. Politics are personal though.
What I have observed over the past four election cycles is the intersection of politics and investing. It’s what I want to address briefly here since it is invariably going to become a real focus of conversation over the coming months. I’m going to save you the suspense of the outcome and that is as the title of this article implies:
Politics don’t matter when it comes to investing.
Yet, just about every person that has enough political involvement to cast a ballot thinks it does. But it just doesn’t - at least not in the long run - as there is very little data that supports any link between politics and investing.
I came across a neat graphic from Invesco titled “2020 US Presidential Election: 10 Truths No Matter Who Wins” that I wanted to share with some commentary to follow.
As you can see from the graphic above, if you invested $10,000 from 1896 in the DJIA, you would have over $7,000,000 today. If you had instead chosen to only invest when your favored party was in power, regardless of which party that was, you would have far less than just $1,000,000 today.
During the 2008 and 2012 election, I remember Republicans saying they were going to get out of the market. During the 2016 election, it was the same rhetoric from Democrats. Both would have proven to be quite poor choices. The long and the short of it is that you would have been better served just staying invested.
Who the president is isn’t what determines the direction of the stock market. It is more likely to be earnings and economic growth.
But wait, doesn’t the president and his/her policy agenda impact those earnings and economic growth? Maybe a little, but what gets lost in that argument is the management of the individual companies that we are investing in.
Don’t overlook the management team of these companies. As I said in a previous article:
The purpose of the management team in place of any specific company is to increase that value further for existing business owners (shareholders). They monitor the business climate, interest rates, tariff situation, supply chains, overall supply and demand of their products, innovate on future products, continue research and development, maintain quality supplier and distributor relationships and plenty more.
Each of those activities will take into account the geopolitical and economic environments with the explicit goal of continuing as a profitable business and perhaps further increasing those profits. And regardless of what you hear on TV, they must do their jobs quite well on the whole. Otherwise, the market will figure it out and they will go out of business at some point. It really is that simple.
My goal isn’t to convince anyone of anything politically. Despite having gone to college thinking I would become an attorney and eventually enter politics, I find myself with less and less patience regarding the political environment as a whole.
The main objective I have is helping people like you make better retirement decisions and part of that is separating our politics from our portfolios.
If you get wrapped up about politics and it causes you want to make portfolio changes, consider reading the entirety of the report. It will be time well spent.
As always: Stay the course!
Thanks for reading.
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This post is not advice. Please see additional disclaimers.