Investing During an Election Season
18 August 2020
One quality that has made humans so adaptive is the advanced ability to recognize patterns — it helps with deducing future outcomes. This is especially true when it comes to investing. Successful investors comprehend patterns such as relationships between stock prices, global economic shifts and consumer spending sentiments — among many others — to help pick stock winners.
One potentially problematic side effect of our capacity for pattern recognition is that sometimes we spot patterns and make connections where there aren’t any. This can be especially true when we let our political biases impact our investing strategies. In fact, evidence shows that investing by party affiliation or anticipated political events can be a losing move — those who invest only during the presidencies of one party have underperformed their peers.1
Becoming a more objective investor during election periods can be harder than it sounds. As we enter election season, this may be an especially useful time to explore why this is the case and what we can do to stay informed. Take a look at these suggestions that may help improve objectivity:
It’s easy to get caught up in the magnitude of a presidential election. But the closer we follow the news, the more we may lose objectivity in evaluating that magnitude. To bring back a better sense of reality, try expanding your awareness; take time to shift your focus.
First, noticing the mundane things around you can calm down the mind, which by itself can help with judging events more sensibly. Second, expanding your focus to other considerations that affect the economy can help remind you that investments move up and down based on many variables. The president, though influential, is only one of many factors. A more objective investor will recognize this and move on to other factors such as consumer confidence or manufacturing indicators to get an edge on more shortsighted peers.
Keep Our Founders in Mind
A common economic concern when entering an election season is that incumbents will promote gridlock; that is, divisive leaders will be focused more on conflict between parties than working together. This isn’t necessarily a negative financial indicator. The founders of our government intended for there to be much gridlock, as it was seen as a tool to prevent rapid changes — and not having to worry about lots of change can ease the fears of certain markets.
When applying this outlook to your investments today, the same themes often ring true. By being mindful of gridlock rather than getting swept up in doubt, and returning to your personal values and goals, you may find it easier to stay on track.
Focus on What You Can Control
When investing, it’s often worthwhile to focus more on elements within our control such as aligning investments with our risk tolerance, values and time horizon. Worrying about systematic risks (things we can’t control) can zap us of energy that would be best used in more productive ways. Ruminating on how political events can affect investments can be especially draining — which is once again something that can prevent us from thinking objectively.
Election season can be an exciting time, watching history unfold. But it’s important to keep a level head when associating politics with investing for our own future. That’s why when approaching your investing plan, it can help to be mindful of when you’re making connections that aren’t there. By taking time to explore your money beliefs, beyond the scope of political buzz or distraction, you may build a more robust investment philosophy.
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1“Past Performance Does Not Guarantee Future Results.” Bloomberg, 31 Dec. 2015.