The band Re-Flex had a one-hit wonder song in the 1980s called “The Politics of Dancing.” A portion of the song’s lyrics went like this:
We got the message
I heard it on the airwaves.
Are now DJs.
The broadcast was spreading
Station to station
Like an infection
Across the nation.
Today, instead of the politicians being DJs, they are now reporters, pundits and opinion columnists. It’s hard to turn on the TV and not be bombarded with political analysis and commentary, or someone telling you the incredible significance of the day’s news.
One of the most frequent questions I get from clients or prospective clients is, “Do you think we should do anything different with our investments in this political environment?”
Every election cycle, there is a segment of our client base that I have to “talk off the ledge.” They are often convinced that if a certain politician or political party wins an election, then the markets can’t possibly go up as a result.
It may be a different group of people every cycle, but I can always guarantee that there will be some clients who will feel this way and want to adjust their strategy accordingly.
One of the greatest benefits that we provide to clients is that we have and are willing to share a different perspective. Most of the mistakes that I have seen with investing through the years have been behavioral, not mistakes with the actual investments themselves.
One of the biggest behavioral mistakes I see is overreacting to current events, especially elections and political events.
Research on the markets and politics shows two things that I think are very important. One is that the return from being continually invested far outweighs the return from being invested only when Democrats are in office or only when Republicans are in office. The second is that returns have actually been slightly better when we have divided government versus when either party is in total control of all branches of government. (Source: Bloomberg L.P. 12/31/18)
While there are rarely any sure things when it comes to investing, one thing I am confident about is that one of the greatest predictors of investment success is the length of time invested. Generally, the longer someone is invested, the greater their chance of investment success.
As we head into the upcoming presidential election, don’t let election results that don’t go your way get in the way.