Election season can be difficult for investors of all political stripes. Uncertainty abounds. It’s easy to tie a piece of one’s identity to a candidate or party. If they win, we feel like winners. If they lose, we feel diminished. As far as investing goes, however, our candidates’ fates have about as much impact on our fortunes as our favorite sports teams.
There is speculation every election season about who’s going to be in control. The color-coding of red vs blue that was supposed to be temporary has been branded into the country’s psyche, a Terrible Towel for your tribe to twirl. Proposals that are labeled anti-business are soon adopted and re-packaged as protecting American jobs. Negotiations between parties begin with the numbers. One side wants $1 trillion. The other wants $3 trillion. Only when the parties come close to agreeing on the amount of spending do they haggle over what the money is spent on. For such a backwards way of doing things, it can feel like legislation is make or break for American companies, but this isn’t the case at all. Churchill said Americans always make the right decisions… after exhausting all other options. To paraphrase another tired cliche, our way of doing things is the worst except for all the other ways.
An unscrupulous person can manipulate the data to show one party or the other is better for the stock market. So is it better to invest under Democrats or Republicans? Should we buy/sell in anticipation of the election? First, 2016 taught us not to predict elections. More importantly, Charles Schwab’s data shows that if you must invest according to politics, there’s only one way to do it:
If you invested $10,000 in 1961, but were only invested during Republican Presidencies, you would have turned that $10,000 into $86,397 by 2019. Not bad!
If you invested $10,000 in 1961, but were only invested during Democratic Presidencies, you would have turned that $10,000 into $376,010 by 2019. Wow!!!
So the lesson is D > R, right?
If you invested $10,000 in 1961 and stayed invested the entire time no matter who was in the White House, you would have turned that $10,000 into $3,248,612 by 2019.
We can do this with either house of Congress, both, or Congress and President and get some different answers. However, staying invested blows everything away in every case.
The lesson is that investing based on political party is a great way to screw yourself.
Control What You Can Control
You only get one vote (unless you’re buried in Chicago), but you have total control over several important investment factors. Investments with lower expense ratios tend to outperform more expensive funds. You don’t necessarily get what you pay for in the investment product world. You can control your taxes or at least the timing around recognizing gains and losses. Mike Tyson’s famous quote, “Everybody has a plan until they get hit in the mouth,” is true, but there’s another side to it. The fear of getting punched can be worse than the punch itself. This is where some investors are panicked into selling or buying during election season.
It’s difficult to stick with your plan in the face of change, even if you address change in your plan. It’s like a great baseball pitcher who “nibbles”. He’s afraid to throw strikes (what if the batter hits the ball?). Other pitchers specialize in throwing to contact. Hitters can put the bat on the ball, but with poor contact and the fielders scoop up routine grounders all day. Part of the game is that batters will get hits and will sometimes score runs. When this happens to investors, we can harvest losses, turning a temporary loss into a long-term asset. Keeping an eye on just these two items keeps more money in your pocket where it compounds.
We have control over the greatest hedging strategy of our lifetimes right now: wearing a mask in public. Super easy. Slightly inconvenient in exchange for extremely huge upside of not spreading disease.
One last item to consider is how we show gratitude to the important people around us. I’m especially reminded of this by the hard work our school administrators have been putting in and the sometimes over-the-top parents they have to deal with. Emailing a quick thank you to acknowledge their efforts makes a difference to them, but it helps bring things back into perspective personally. Twitter hyperventilation fades as I think of truly important things: my kids getting another year older, family members getting married, and the Houston Astros getting beaned.
Build a plan. Trust your plan. When you’re tempted to get caught up in daily headlines, look at the picture at the top of this post.