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Separating Our Financial Heads from Our Political Hearts

The 2016 presidential election is coming at us like stampeding buffalo, and it seems there’s no reprieve from the rhetoric.

Among the claims on both sides of the campaign trail is that electing [insert candidate name here] will boost the stock market, improve the economy, and put more cash in your wallet. But the question, as always, is who’s speaking the truth? If (and this is certainly a hypothetical question) your #1 concern when you walk into that voting booth is the future strength of your portfolio, how should you vote in November?

Back in 2003, when GW Bush was in his second year in the Oval Office, I met with a new client at the University Club in Montgomery, Alabama, where Stephen was a professor at the University of Alabama. After our initial greetings and social niceties, the conversation quickly shifted to how much Stephen “hated Bush” and that he couldn’t see investing in the stock market as long as Bush was in office. “As soon as a democrat is back in office, he’ll straighten out the economy and restore order to this mess, but I’m not putting in a dime.” If you dive into the details, there’s much more to the picture—so much, in fact, that it’s quite evident that regardless of who is the sitting President, the stock market is driven by well-led companies who create investment value—not by who’s in the White House.

Stephen’s verbal tirade was enough for me to know we would not be a good fit.

I declined to work with him; his thinking was far too restrictive and unproductive. Not only was that a wise choice for me personally (I cherish my freedom to work with clients who think rationally and value my advice), but Stephen’s theory would not have delivered professional value either. At that time, Stephen had all his retirement assets in safe, interest-bearing money markets and treasuries paying about 4%. Since that meeting more than 12 years ago, interest rates declined to 1.8% on 10-year treasuries. Assuming Stephen stuck to his guns and stayed out of the market, his average return over this period would have been just 2.9%. The Dow average closed at 10,173 on August 31, 2003, and jumped past 17,000 this past Monday on March 7, 2016. That’s an annual gain of 6% plus 2% for dividends or a total of 8%. Stephen’s decision to restrict investment options influenced by politics caused him to lose out on returns that might have been 250% better.

Separating our financial heads from our political hearts is a difficult challenge for most of us.

We’re not alone. We’ve all seen one business sector or another spend massive amounts of money to promote a specific candidate because they believe that candidate’s agenda will have a direct impact on their particular industry or the economy overall. But clearly they’re not paying attention to the data either.

Even in the most heated political climate, and regardless which party holds office, the markets seem to function pretty well. In fact, historically, the markets have tended to do quite well during political gridlock—the most recent illustration being that the DOW has doubled since the bottom of the Great Recession in 2009. So despite all the dysfunction and animosity filling our political system, the economy seems to be operating by its own rules.

Thank goodness, considering that our political history has been contentious since its beginnings. On July 11, 1804, in a duel after a long and bitter rivalry, Aaron Burr, the sitting vice-president, killed Alexander Hamilton, the former secretary of the treasury. And both men had been in duels before—Hamilton himself having participated in at least 10 known duels before the one that ended his own rather contentious history.

Of course, I’m not espousing dueling pistols to resolve political conflicts.

But I do recommend taking a lesson from Stephen: no matter who you’d love to see in the White House next January (and I urge you to vote with your heartand your head), keep your investments out of the picture. Invest based on economic reality—not on media speculation about who may be running the country and what that supposedly means for the economy and the stock market. Your portfolio will thank you in the end.