Posted by John Posey on February 27, 2020
Have you ever wondered how much impact a new president and political party will have on the stock market? I’m guessing you may have given it a thought with another election year upon us. Of course, whatever side you’re rooting for is better for the economy, right? The debate will rage on for eternity, but here’s the spoiler – neither party is inherently better for the equity market. If you want to further confuse things you can think about which party will control the House and Senate. Now my mind gets sore trying to think about all the what if’s, but I’ll save you the pain. In my research on the topic, there are no strong statistical conclusions throughout history that can be made with any real conviction. Based on an article (click here) by Reuters Plus last June, there hasn’t been any clear historical evidence to suggest one party favors better equity returns over another, but that doesn’t mean politics won’t play a role. The impact is really made when new political initiatives and legislation create uncertainty. New laws can create change and unintended consequences. Markets don’t like uncertainty and volatility is the side effect. Volatility can be your friend when you’re saving money and taking advantage buying on the dips, but once you have surpassed the accumulation phase in your life you’re not likely to appreciate it much. It’s better to accept volatility is just a part of investing in the market. One could argue the silver lining with the gridlock in Washington is the status quo is maintained and the market doesn’t have as much to react on politically although a myriad of other topics and events will keep market uncertainty rolling.
Here’s my key takeaway quoted from the article: “There is a time when one party may be good for stocks and a time when they may be bad for stocks. Understanding how they impact investor sentiment and demand for stocks can be useful. But making emotional portfolio changes based on an election outcome could impact you for far longer than a new president’s term.” In short, it would be ill-advised to make long-term investments decisions based on a new president and their political party.
Instead focus on the few things that are really in your control AND really matter. It’s far better for your mental and financial health. I’m not telling you to stop following politics or to quit contemplating what could happen in the future but beware of taking action on those feelings. Playing make-believe with your money is a precarious game. It’s a hazardous proposition to let outside forces take the wheel and drive your investment decisions. Disciplined investors make decisions based on what is happening in their own lives.
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