Don't let your political views impact your investment strategy

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larryswedroe
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Don't let your political views impact your investment strategy

Post by larryswedroe »

http://www.etf.com/sections/index-inves ... -investing

Even I have been surprised at how much of an impact this has had on investor perceptions of market outlook.

Hope you find it helpful
Larry
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nedsaid
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Re: Don't let your political views impact your investment strategy

Post by nedsaid »

This is a good lesson for investors to examine their personal beliefs and biases. It is also a good lesson that markets often don't react to events as we would expect.
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Artsdoctor
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Re: Don't let your political views impact your investment strategy

Post by Artsdoctor »

I'm not surprised at the influence politics has on investing. However, it is a little difficult to tease out where political beliefs stop and market concerns start.

Many of us have aged during this incredibly long bull market (while some seem to have stayed perpetually young)! For some of us, we're much closer to retirement and our financial gains surpassed our expectations long ago. Does it make me nervous that this bull market is reaching its 8th year? Yes. So I take a good look at where my portfolio is and decide that I don't need such a high equity allocation. That's not necessarily because of the political climate, but because my goals have been surpassed and I don't need to take that much risk now. So there may be other factors influencing those survey results.

All of that said, I've heard more conversations with patients and acquaintances about moving assets to Zurich than I ever could have imagined, so your article could very well be on target.
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Re: Don't let your political views impact your investment strategy

Post by Sandtrap »

nedsaid wrote:This is a good lesson for investors to examine their personal beliefs and biases. It is also a good lesson that markets often don't react to events as we would expect.
Agreed. Well said, "nedsaid".
Personal beliefs, biases, and political views, feed the "ego" which clouds judgement and reactions.
Thanks for posting the article, "Larry". It's a good one to remember.
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Fallible
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Re: Don't let your political views impact your investment strategy

Post by Fallible »

No matter the cause or nature of our biases, the big challenge is how to deal with them. As you say, awareness is the first step:
Unfortunately, investors often make mistakes with their money because they aren’t aware of how decisions can be influenced by their beliefs and biases. The first step to eliminating—or at least minimizing—mistakes is to become cognizant of how our financial decisions are affected by our views, and then how those views can influence outcomes. Being aware of your biases and acting accordingly can help you make better investment decisions.
But the next steps, knowing "how those views can influence outcomes" and then "acting accordingly," has, for me at least, always been the hard part.

Thanks for the good article.
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Re: Don't let your political views impact your investment strategy

Post by nisiprius »

Another detail is that even if you're more or less right about everything, the time lag between public policy and going into effect and seeing the results in the financial markets is both very long, and very loose.
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Sbashore
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Re: Don't let your political views impact your investment strategy

Post by Sbashore »

I have seen the impact of people's political views on investing over the years. Sometimes not understanding something leads one to have a distorted view of economics and investing.
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flamesabers
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Re: Don't let your political views impact your investment strategy

Post by flamesabers »

Perhaps investing abroad helps to lessen the influence of political bias skewing one's investment strategy?

Home country bias I think is very relevant in this type of situation. I tend to think people aren't as swayed to change their investment strategy based on the politics of foreign nations as they are with their own country's politics.
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billyv
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Re: Don't let your political views impact your investment strategy

Post by billyv »

I think most of us would be healthier and happier human beings -- not just better investors -- if we could dial back the politics. Unfortunately, that's easier said than done, especially now that politics has become such a non-stop 24/7 spectacle.
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Re: Don't let your political views impact your investment strategy

Post by Index Fan »

Excellent advice. Thanks, Larry.
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yukonjack
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Re: Don't let your political views impact your investment strategy

Post by yukonjack »

Very timely piece with good advice. I would agree with artsdoc that it's hard to know if concern over investing is due to the long bull market or our unique political environment. Times like these make this forum even more important than ever.
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Svensk Anga
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Re: Don't let your political views impact your investment strategy

Post by Svensk Anga »

nisiprius wrote:Another detail is that even if you're more or less right about everything, the time lag between public policy and going into effect and seeing the results in the financial markets is both very long, and very loose.
I think the time lag from policy proposal to financial market reaction is nil. The market anticipates. The market today seems to have baked in all kinds of stimulative effects of the new administration's policy proposals. We run the risk of the market running ahead of reality and perhaps being disappointed if that reality does not shape up to expectations.

Maybe if the policy changes are enduring and effective, in the long run growth in corporate profits and thus stock returns might be higher than otherwise. But by then it will be hard to assign cause to the effect.
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Re: Don't let your political views impact your investment strategy

Post by Dead Man Walking »

Recently read that defense industry stocks have risen significantly more than the remainder of the S&P 500. May be a current example of speculation based on politics. TSM returns benefit without the risk of speculation.

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Re: Don't let your political views impact your investment strategy

Post by LadyGeek »

I removed an off-topic (political) post. As a reminder, see: Unacceptable Topics
Politics and Religion

In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
  • Common religious expressions such as sending your prayers to an ailing member.
  • Usage of factual and non-derogatory political labels when necessary to the discussion at hand.
  • Discussions about enacted laws or regulations that affect the individual investor. Note that discussions of proposed legislation are prohibited.
  • Proposed regulations that are directly related to investing may be discussed if and when they are published for public comments.
Please state your comments in a factual manner.
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munemaker
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Re: Don't let your political views impact your investment strategy

Post by munemaker »

Dead Man Walking wrote:Recently read that defense industry stocks have risen significantly more than the remainder of the S&P 500. May be a current example of speculation based on politics. TSM returns benefit without the risk of speculation.

DMW
I would not call this "speculation based on politics." I would call it "the market factoring in all known information and expectations."
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Re: Don't let your political views impact your investment strategy

Post by columbia »

I assume that a pretty common version is buying gold.
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Re: Don't let your political views impact your investment strategy

Post by SGM »

I don't let politics get in the way of investing. I do think politicians can have some effect on tax rate changes, interest rates and some other factors up to a point. Even presidents have only a limited impact on the markets.

Where else were investors going to go when interest rates were so low, but in the stock market. If corporate rates go down it is logical that more funds will be available to hire employees. But if rates go up then stocks will be less desirable. I am not trying to make predictions, just saying it is very complex.
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Re: Don't let your political views impact your investment strategy

Post by Tycoon »

This is excellent advice.
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Re: Don't let your political views impact your investment strategy

Post by abuss368 »

I learned many years ago (thank to Jack Bogle and the Bogleheads) not to let politics impact our low cost and index investing strategy.

Best.
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Re: Don't let your political views impact your investment strategy

Post by MathWizard »

larryswedroe wrote:http://www.etf.com/sections/index-inves ... -investing

Even I have been surprised at how much of an impact this has had on investor perceptions of market outlook.

Hope you find it helpful
Larry
I agree with the article, but I disagree with one of the supporting points.

In the article, you mention that those who sold after the election "missed the bull market" .

The problem is that this is really looking over a very short time span of just 4 months. Prices may be rising, but I don't see
fundamentals that would explain the rise.

The S&P 500 has risen by about 10%, but so has the P/E ratio. So the earnings have stayed the same, the price has just gone up.
That is just pure speculation.

I'm still buying, so I'm not sure I like that. I'm fine with prices rising when earnings rise, but not when they rise for no underlying reason.
Investors are assuming that future earnings will be higher, so that they are willing to pay more for equities. The only other explanation
is just unwarranted exuberance. (I won't say irrational.)
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Re: Don't let your political views impact your investment strategy

Post by rob »

I find this funny in a way... It never occurred to me to change anything in my investment plan based on the election. Maybe it just shows how little I think of politics or maybe I have figured out how to separate investments from current events. Good topic as a reminder though....
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Re: Don't let your political views impact your investment strategy

Post by Miriam2 »

More good clips from the article:
It’s important to understand that, if you sell, unfortunately, there’s never a green flag that will tell you when it is safe to get back in. Never. Thus, the strategy most likely to allow you to achieve your goals is to have a plan that anticipates that there will be problems, and to not take more risk than you have the ability, willingness and need to take. Lastly, don’t pay attention to the news if doing so will cause your political beliefs to influence your investment decisions.

. . . The bottom line is that, just as you shouldn’t let the latest economic news cause you to abandon a well-developed financial plan and shift your asset allocation, you shouldn’t let the political climate do so either. As the “Oracle of Omaha” Warren Buffett stated in Berkshire Hathaway’s 1996 annual report, “Inactivity strikes us as intelligent behavior.”
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Re: Don't let your political views impact your investment strategy

Post by itstoomuch »

+1 @ artsdoctor,
Our high fee, VAs, have doubled since their late 2008 purchase plus I also taken out 5% in late 2016.
My primary trading account has more than doubled since 2012.
Health issues 2016 and into 2017.
I'm taking a breather to reevaluate. We have more than enough. 66/69yo. :moneybag but not enough to suffer a bad correction :annoyed
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Re: Don't let your political views impact your investment strategy

Post by bertilak »

MathWizard wrote: I agree with the article, but I disagree with one of the supporting points.

In the article, you mention that those who sold after the election "missed the bull market" .

The problem is that this is really looking over a very short time span of just 4 months. Prices may be rising, but I don't see
fundamentals that would explain the rise.
The market is priced on perceptions of future earnings. Those perceptions apparently have risen, as evidenced by the rise in prices. Perceptions can change much more rapidly than the realization of those perceptions.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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Re: Don't let your political views impact your investment strategy

Post by Johnnie »

nisiprius wrote:Another detail is that even if you're more or less right about everything, the time lag between public policy and going into effect and seeing the results in the financial markets is both very long, and very loose.
OTOH, the time lag between a market psychology/expectations swing - a' la' 11/8/16 - and big market move can be measured in hours or even minutes!

~~~~~~~~~

In the current moment fellow bogleheads should also be aware that the tortuous "sausage making" process of enacting big policy changes through congress is another source of big mood swings, predictions of doom, etc. You're seeing that on Obamacare now, and it will be the same on taxes pretty soon. Importantly in such events, those who are talking don't know, and those who know aren't talking - and they are all operating in an environment of deep uncertainty.

But you would be ill-advised to take counsel of the doom-sayers and assume it will collapse - it almost surely won't. One could apply the thing they say about democracy to this slice of it: The worst system except for all the others.
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Re: Don't let your political views impact your investment strategy

Post by MathWizard »

bertilak wrote:
MathWizard wrote: I agree with the article, but I disagree with one of the supporting points.

In the article, you mention that those who sold after the election "missed the bull market" .

The problem is that this is really looking over a very short time span of just 4 months. Prices may be rising, but I don't see
fundamentals that would explain the rise.
The market is priced on perceptions of future earnings. Those perceptions apparently have risen, as evidenced by the rise in prices. Perceptions can change much more rapidly than the realization of those perceptions.
Yes, but perceptions can be mirages.

If anything has changed economically, my guess is that the uncertainty in outcomes has risen greatly. This should put a downward pressure on equity prices. I'm not worried about the politics, I just want a coherent message. I'm not hearing it.
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Re: Don't let your political views impact your investment strategy

Post by Yohanson »

Good advice! I have very strong political beliefs but I have always been long term overall bullish on the markets. Even if I thought the party in power was going to be bad for the economy, I knew that it would soon pass. So, I keep putting money in every paycheck and have without fail for over 25 years.
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Re: Don't let your political views impact your investment strategy

Post by bertilak »

MathWizard wrote:Yes, but perceptions can be mirages.
Certainly, but the point is that they drive behavior, be they accurate or not. This is true everywhere, not just in the stock market.

The very title of this thread is a warning to be aware of this and to be cautious in your reactions. Mr. Market's perceptions may not be the same as your own and Mr. Market's perceptions are the ones that count.
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Re: Don't let your political views impact your investment strategy

Post by thevigilante »

Could just as easily have said "Don't let your political views impact your [anything but vote]" and been equally as true! Good article.

Even if you accept the position that the increased influence of one political party or another is directly beneficial to the market, you shouldn't be basing your personal financial decisions on who is elected. It should have been factored in to the risk you were willing to take:
It’s important to understand that, if you sell, unfortunately, there’s never a green flag that will tell you when it is safe to get back in. Never. Thus, the strategy most likely to allow you to achieve your goals is to have a plan that anticipates that there will be problems, and to not take more risk than you have the ability, willingness and need to take.
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