Dear First Mates,
With election season upon us, it’s an opportune time to review our core principles when it comes to mixing investments with politics. In short, they shouldn’t. Our mantra is:
“We are goal-based equity investors driven by our financial plans. We never let the political tail wag the investment dog.”
Here are 5 truths no matter who wins:
1. Markets have performed well under both parties.
If you disapproved of either President Obama or President Trump and refused to invest during their terms, you missed out on phenomenal market gains for 12 long years. In fact, 19 of the 23 elections since the S&P 500 Index began produced positive performance – a whopping 83%*!!
2. Investors are better off staying fully invested.
The research shows that over the last 120 years the more time investors spent participating in markets, the better they did financially. Partisan portfolios grossly underperformed.
3. The monetary policy of the Federal Reserve can affect markets.
Presidents can be helped or hurt by the Fed’s monetary policy (contractionary vs. expansionary). Wise investors will pay attention to Fed policy and never fight the Fed.
4. Market’s don’t care about presidential approval ratings.
It’s hard to determine any relationship between a president’s popularity and the performance of the financial markets. Ironically, some of the best returns in the market came when the approval rating of the president was in the low range of 36% to 50%.
5. Don’t take Punditry as Objective Market Analysis.
Trying to make investment strategy out of “expert” prognostication—much less financial journalism—usually sets investors up to fail. Just look at 2020. How many “experts” predicted the market would recover after one month?
The overarching lesson of this year’s swift decline and rapid recovery is, of course, that the market can’t be timed. Aside from the self-inflicted wound of incurring capital gains taxes, your chances of getting out and then back in advantageously are historically very poor. Nor can I possibly be helpful to you in attempting to do so. We are goal-based equity investors driven by our financial plans. We never let the political tail wag the investment dog. These are the investment policies you and I have been following all along, and if anything, our experience this year has validated this approach even further. As have all year—and as I will continue to do every election year—is urge you all to stay the course. Thank you, as always, for being my clients. It is a privilege to serve you. God Bless America.
With gratitude,
David Warshaw, CFP®
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“The four most dangerous words in investing are: ‘this time it’s different.'” – Sir John Templeton
Source: Invesco – 10 Truths No Matter Who Wins
Source: First Trust – S&P 500 Index Returns in U.S. Presidential Election Years