Politics and Your Portfolio
At a time when political issues are front and center, what is the best way to approach investing? Should you make changes to your portfolio to minimize political risk?
The race to determine who will be the next President of the United States is on and will dominate U.S. news at least until November. There is, as always, significant uncertainty about the outcome. Through polling, voters have expressed unprecedented levels of negativity towards both candidates. In addition, the uncertainty is not limited to this side of the Atlantic. A few weeks ago our political allies in the United Kingdom voted to leave the European Union, in what is often referred to as “Brexit.” Since this has never happened before, the effects are unclear, although generally considered negative in economic terms for both the U.K. and the E.U.
Market pundits frequently theorize about which sectors and/or stocks will do well under each presidential candidate and the 24/7 news cycle allows them to widely broadcast these views. However, these are just guesses and should not lead you to change your approach to investing. The basic principles of investing remain the same no matter who is in the White House: select an appropriate mix of stocks and bonds, build a broadly-diversified portfolio, and rebalance in a disciplined fashion. Studies have shown that politics generally don’t have a long-term effect on the market. The year 2013 is instructive in this regard: the U.S. government shut down for a while, yet the S&P 500 was up over 30% for the year.
To ensure a successful investment experience it is more important for investors to focus on the things they can control rather than those outside of their control. If you are in your working years, you can control how much of your income you save. Whether you are working or retired, you can control how much you spend. These actions, combined with investing in a prudently-managed portfolio with widely-diversified holdings, are the keys to financial wellbeing in the long run.