Google “election year stock market” and you’ll see much investment history and speculation. When you process news events, particularly politics, don’t blur the lines between the economy, the markets, and the companies you own. These are very different and when it comes to your investments, I suggest you focus squarely on the companies. Let me explain.
We fear how the candidate’s trade policies, tax laws, and party affiliation will affect the economy.
However, the economy and individual companies are very different. During the 2008 “great recession,” people were rightly alarmed by the rising unemployment rate. This certainly wasn’t good news for the economy. However, as an investor you own small pieces of many companies. In a steep recession, it is prudent for your businesses to lay-off employees, cut travel budgets and delay capital expenditures. A paradox, what is good for you companies, is bad for the overall economy. I don’t mean to imply that the economy doesn’t matter. The economy does affect your companies, but I believe it’s easy to over-estimate how your portfolio is affected.
What about changes in tax laws? Those certainly affect your portfolio. My advice from practicing tax law for thirty-six years is to never change your portfolio based on what you think Congress “might do.” When a law is passed, consider the ramifications and take appropriate actions. Be alert to proposed changes, and consider strategies, but don’t act until you know exactly what Congress has done. They have a way of surprising you.
So who is better for the stock market, Republicans or Democrats? I say don’t worry about it. The daily, monthly and annual election year stock market gyrations will have little effect on your long-term investing success. If you owned, a bait shop would you consider selling it or expanding it based on who is elected President? I certainly hope not. Your decisions would be based on business basics like the demand for minnows (“minners” as my friend Mark says), the number of other area local bait shops, time of year, etc. These same concepts hold true for the companies you own in your portfolio. Well run businesses have remarkable resilience in adjusting to economic and political environments.
So investors, when you are listening to the daily election updates, forget about the stock market, keep the economy in perspective, and focus on your companies. This just might keep you from making an investment mistake.
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