Politics and Investments

It’s June, 2024 and we have the most important election in the history of the United States.  Again.  The United States won’t survive if ______ (choose your name) is elected.  Again.  The market will crash if ______ (choose your name) is elected.  Again.  I need to make sure my investments are protected against _____ (choose your name) getting elected.  I can find statistical support for both sides of each statement.

This is not an article about politics.  In fact, if anything it’s an anti-politics article.  I have my own personal beliefs, and so do many/most adults.  So do account managers, hedge fund managers, individual investors, and even the Chairman of the Federal Reserve.  I don’t claim to know what those beliefs are, nor do they impact the recommendations I would give to clients.

And that’s my point.  Politics are like sports.  You can enjoy watching and even participating.  You can spend days poring over your favorite team’s statistics or run a fantasy team and only pay attention to individual players.  You can try to earn a couple extra dollars by betting or attempt to make a living as a gambler.  Maybe you just buy squares for the big game and complete a college basketball bracket every year.  In all these situations, the bottom line is that you can’t determine the outcome of the games based on your beliefs, preferences, or research.  You are completely at the mercy of the players in the game and the officials.  The ups and downs of this lifestyle is more than many people can take.

So, am I saying politics won’t have an effect on your investments, or that there is nothing you can do to improve your performance in an election year?  Not at all.  My point is that understanding your goals, your risk tolerance and your time horizon will allow Majestic Financial to help make sure your money is allocated in the best way for you.  And if your money is properly allocated, a short-term change in the markets shouldn’t lead to a long-term negative impact on your money.

For some clients, this may be all they need – continued long term growth with minimal volatility.  Some clients want to take advantage of the short-term volatility and political changes.  We can work with both, but these are two different strategies.  The first client may be well served by owning an allocation that is balanced towards growth, holding mutual funds and exchange traded funds that shouldn’t change daily, weekly, or possibly for months at a time.  There are set strategies within the funds that allow us to evaluate why that fund is appropriate for the client’s goals and risk tolerance.  It is not a tactical strategy.  As politics start to affect a company or sector, we are relying on the managers to adjust the holdings.  But our goal is to not make major changes because the funds are already holding quality companies or fixed income.  The second client may be an appropriate client for individual stocks and derivatives.  This might be a more tactical strategy that changes monthly, and even adds/eliminates positions based on the political changes/trends.  In this strategy, we may hold investments that we didn’t even look at 3 or 6 months prior, and we may not be holding them in another 6 months.  We may shift sectors based on the actions of politicians or economic conditions rather than the historical performance of the companies.  For the person who can’t handle their #1 seed losing in the third round, even if they can still win the pool, this may not be an ideal experience.

So, what’s the point again?  Don’t let the politics determine your investments.  Let your goals determine the investment strategies and either enjoy or ignore politics without worrying about mixing the two.
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
​*Disclosures: Any opinions are those of Sean Budlong and not necessarily those of RJFS or Raymond James. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. This material is being provided for information purposes only and does not constitute a recommendation. Expressions of opinion are as of this date and are subject to change without notice. Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly. ETF shareholders should be aware that the general level of stock or bond prices may decline, thus affecting the value of an exchange-traded fund. Although exchange-traded funds are designed to provide investment results that generally correspond to the price and yield performance of their respective underlying indexes, the funds may not be able to exactly replicate the performance of the indexes because of fund expenses and other factors. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.