Will the Presidential Election Affect Your Investment Strategy
~ By Gerald Rome, Colorado Securities Commissioner ~
One of the few things in politics that most Americans can still agree on is that our sixteenth president, Abraham Lincoln, was a brilliant political strategist. Perhaps the tactic which most contributed to this reputation was Lincoln’s belief that his political rivals should figure prominently in all of his policy decisions. After the election was won, Lincoln put personal and party considerations aside and assembled, as one historian put it, a “team of rivals” from previous political opponents. It can be said that much of Lincoln’s success can be attributed to his ability to work with those whose opinions and politics often differed vastly from his own.
Our current political biases and polarization might shock even President Lincoln. We are inundated on a daily basis with intense political rhetoric that can make finding common ground seem like an impossible feat. This climate affects many areas of our lives, including our investment decisions. Today, we hear something similar from both sides of the political spectrum: “The sky is falling! If my chosen candidate does not win, the economy is doomed and so are my investments?” Because we hear this kind of thing on an almost daily basis, it is no wonder that elections tend to bring out our more emotional side. This is more so during a presidential elections and even more when the candidates are as controversial as they are today.
Time and again we learn that this type of emotional investing is not the safest or best approach. A study conducted by university researchers found that our investment decisions are greatly dependent on whether the candidate we favor wins or loses a presidential election. Belief in certain “myths” about how the markets will behave depending on which party is in office also tend to influence investor behavior. The problem is that not only has research shown these myths to be false, but basing our investment decisions on whether we think the right party is in power can do serious damage to our portfolios and overall financial health.
Within the fervor of election season, it can seem that there is a lot at stake. Tensions run high, and we can easily fall into catastrophic thinking about what will happen if the “other side” is victorious. However, as with anything related to money management, it’s important to take a step back, remove emotions from the equation, and remember that once the dust settles you’ll want to have maintained a steady and secure investment portfolio.
When it comes to your money management, it may be wise to assemble your own team of rivals. Create a system of checks and balances whereby the legitimacy of your investment decisions will be tested based on their own merit, not on how you may be feeling about this year’s candidates or the anticipated future of a political party.
In short, know that by nature we will all be feeling pressure one way or the other to change up or scale back our investments come November 9th. But perhaps take a page out of Mr. Lincoln’s book, and run your decision past one or two trusted “rivals” first.