Election Season Fears vs. Market Reality
Elections have the ability to stir up emotions like nothing else, and even at this early stage in the election cycle, this presidential race has already moved into that territory. I am beginning to hear grumblings and questions about my thoughts on the race and the impact it could have on investment holdings.
While political debate is healthy from a democratic process perspective, it can be dangerous if you allow politics to influence your investment decisions.
I can’t possibly stress how important this is. I’ve witnessed countless examples of pent-up emotions clouding investment judgment over the last 30+ years, and it has happened on both sides of the aisle.
The political preferences span the entire spectrum and I’ve heard dozens of potential doomsday scenarios vividly predicted to me over the years if “X” gets elected vs. “Y.”
Many of the questions recently have a bit of tongue and cheek mixed in, but some of them stem from genuine, deep seeded fear and concern.
Here is where that has the potential to become dangerous.
Beliefs and Philosophy
Based on our life experiences, education, and interactions, we all develop our own unique set of beliefs about what is just and what we value.
Over time, those beliefs morph into our own personal philosophies which, in turn, govern the way we feel about and react to various situations like this year’s presidential election.
While the reality of not having a political party or candidate who shares my philosophy is frustrating for me at times (it used to really bother me 30 years ago), it has no impact whatsoever on the way I live, how we run our business, or, for the basis of our discussion today, the way I invest. None.
There are many reasons for this which I’d like to share and have you consider because there is a dangerous mistake I’ve witnessed many conscientious, well-intentioned individuals make during election seasons.
Election Season Danger
With respect to the financial confidence we all need in order to experience our Ideal Futures, where the danger lies for all of us is the beliefs we’ve developed, and thus our biases, and the extent to which we allow those biases to carry over and influence our investment decisions.
For example, gone unchecked, many believe that the political party they affiliate with is better for the economy, and better for the stock market.
You may very well believe that. However, when it comes to making decisions with your Retirement Bucket™ of investments that must support you for the rest of your life, allowing those beliefs and biases to influence your decisions can be very costly.
Here are some reasons why:
- Campaign Promises: For as far back as any of us can remember, every presidential candidate has touted campaign promises and policies they would implement if elected. The reality, however, is that most of their plans do not get implemented, or they get watered down in the legislative process. Go back to the last six elections for great examples of this. Every president rode into office with grandiose campaign promises which went unfulfilled. The danger for all of us is allowing our biases, one way or another, to overrate these campaign promises and their impact on the future.
- Congress: While the president has significant power, our founding fathers implemented a system of checks and balances in our federal government to keep presidential powers in check. If you can recall Bill Clinton’s first term in office in 1992, the democratic party had majorities in the Senate and the House for his first two years. In 1994, the Republican party took control of the House and President Clinton’s agenda changed dramatically from what he campaigned on. Getting back to our own biases, you may like or not like that President Clinton’s agenda had to be adjusted, but it’s not healthy to allow that frustration to influence your investment decisions.
- Historical Returns: If you study the history of stock market returns, you will find no correlation between stock market performance and the party affiliation of the president. It’s entirely random and it is certainly no predictor of future performance. There are far too many other factors influencing market performance. Take a look at The Market and U.S. Presidential Elections.
- Private vs. Public: As you can see in this Visualizing U.S. GDP graphic and article, the annualized GDP of the U.S. is $26.5 trillion. Of this 88% or $23.5 trillion comes from private industries. The remaining $3 trillion is from public sector government spending at the federal, state, and local levels. Objectively, whoever becomes the next occupant of the White House continues to have a limited ability to significantly impact economic output.
- Entrepreneurs and Their Companies: As we have all witnessed time and time again, entrepreneurs, and the great companies they develop and run, figure out a way to create tremendous levels of value and flourish under both positive and adverse conditions. For fun, list out the ten companies whom you interacted with today (perhaps Microsoft, Apple, Amazon/Whole Foods, Walmart, Meta (Facebook), Alphabet (Google), Toyota, CVS, Novartis, Marriott, for example). Think about how successful they have been in spite of all the road blocks placed in front of them. Legislative agendas of a new administration simply become another temporary market condition they have to deal with.
With all of this said, I don’t want to imply that presidential elections, and politics in general, aren’t important and they have no impact. Elections in democratic countries are critically important.
What I do want to emphasize is that, while you may like or despise the winner of this year’s presidential election, keep that emotion intact because the winner should have little or no impact on your investment decision making process.
This is intended for educational purposes only. You should not assume that any discussion or information contained in this post serves as the receipt of, or as a substitute for, personalized investment advice from Savant. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.savantwealth.com. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement.
Jack Phelps
Financial Advisor / Managing Director