The Challenge in Keeping Your Politics Out of Your Portfolio
Today, more than any other time, politics are influencing everyday decisions people make: from the brands they buy, to the apps they download, to what will arguably affect their lives most — their investments. We are inundated with conflicting headlines, about a market bubble and Trump ‘bump’, so it is easy to get caught up in the hype.
Despite this seemingly vast range of incertitude, the market continues to trade based on fundamentals — all of which are currently demonstrating legitimate and measurable positive indicators. If investors are not willing to ignore emotion, they could muddy the waters of rational investing and potentially experience major, unnecessary losses.
But, it is hard. Understandably so. Some investors are saying, “we have a budding economy and positive market despite a president they do not agree with?” It can be puzzling. And that confusion will end up causing many to slam on the brakes. Still reeling from the Great Recession (a traumatic event in most investors’ psyches), it can be hard to trust a market that is displaying consistently positive performance, month after month.
This is not 2008, though. Any hint of pullback in the market simply does not mean we are bound for a disaster again, like the 56 percent drop in S&P that 2008 brought us. Fear is an emotion that should not be steering this ship.
Still don’t trust it? Look at the facts.
Just recently, the healthcare bill failed to pass in the Senate. Politically, this is a big deal. Republicans have been talking about it for a long time, and with all of the Republican momentum, the markets assumed it would pass. Generally, when something is expected to happen but does not, the market tends to react violently — but it did not. This is proof that the fundamentals are solid, which is good news for the stock market and investors.
As a matter of fact, looking back at the start of the year until right now, this is going to be the best quarter of performance since 2015. These are the facts that investors should be paying attention to, instead of being led astray by press conferences, tweets and anxiety.
So, keep your eyes on the ball and ignore Trump’s twitchy Twitter fingers. Instead focus on the tax and regulatory plans in play. After the healthcare fail, the stock market has been on a run, partially because it is expecting the Trump administration to be successful in its plans for tax reform.
If the administration fails again, there will be valid concern about a market pullback. The more important question remains: Does President Donald Trump still have the political capital to affect the “tax overhaul” he is proposing? Whether you agree with his politics or not, this will undoubtedly have an effect on the market.
As in most other political cycles, the best way to prepare for political uncertainty is to maintain focus and discipline, and most importantly, remain rational. This brings me back to my hallmark piece of advice: set a plan, stick to it, and ignore the white noise. Time has taught us that it is best to let major life events steer the ship when it comes to navigating a personal investment portfolio.
Be attuned to market signals, but don’t let your political views muddy the waters. Yes, major policy changes will have an effect on market performance and therefore, a portfolio but, if policy changes do happen, it will not be overnight. There will be time to plan and react, to make the appropriate changes in your portfolio. And most important, the market will have time to react.
Neil Sosler is partner and senior advisor, Singer Xenos Wealth Management.