Should politics impact our investing?
Many folks are concerned about the upcoming presidential election. The two major party candidates elicit strong reactions. Three quarters of those surveyed think it will have a big impact on their personal finances. And many folks are pulling out of the market in response to their fears of a Clinton or Trump presidency. Is this a good idea?
It’s helpful to look at a little history. During the dot-com busty from 2000 to 2003 the Nasdaq index was crushed, falling 78 percent. Alan Greenspan took rates down to 1%, and the Bush administration pushed through about $1 trillion in tax cuts. With a trillion dollars, you can throw a pretty good party. Many people opposed to Bush thought the stimulus was bad: it would balloon the deficit, the tax-cuts were a giveaway to the wealthy, this was just more trickle-down economics, and so on.
While those may have been good points, they were largely irrelevant to the stock market. All the fresh cash supported a strong cyclical rally over the next four years. The S&P 500 rose 100% from 2003 to 2007.
The same thing happened to those critical of the Obama administration. After the Affordable Care Act was enacted in 2010, many critics thought that it would destroy the health care sector—creating distortions and perverse incentives. While the ACA may have done this, it also added 40 million new health care consumers. And the health care sector has rallied 140% since the law was passed—40% more than the general market. Those who expected Obamacare to destroy the health care sector missed out.
When it comes to politics, investors need to vote at the ballot box, not with their portfolios. Our investments should be driven primarily by our own personal circumstances, not our political convictions. Short-term thinking rarely helps us meet our long-term financial goals.
Political campaigns engage our emotions. When it comes to investing, though, emotions aren’t usually very helpful. This extraordinary election gives us an extraordinary opportunity to keep calm and invest rationally.
Douglas R. Tengdin, CFA
Chief Investment Officer