Politics and Investing Are Like Oil and Water...They Don’t Mix

Transcript

Election years are the worst!! Without fail, every four years we have the most important election in history, or so it seems if you turn on the news outlets and talk radio. So, should politics play a role when it comes to making investment decisions? I mean, most of us would assume that whoever is in control of the White House will have a major impact on the economy and stock market, so it must be important to follow this stuff super closely; right?

Welcome to the first season of Invested Poorly: Sad Tales of FInancial Fails, a short-form podcast designed to help everyday investors make wiser investment decisions by learning what NOT to do with their money. Host Jeff Harrell shares timeless stories from his former life as a financial advisor, about the poor—and irrational—choices he witnessed investors make that disrupted their journey to financial independence, or FI. Your ability to recognize, and avoid, similar mistakes could make all the difference for you along your path to reach FI.

Check out the “Introduction” episode for more background on Jeff, why he created this podcast, and how it can guide you to becoming the hero of your own investing story. Now, on with show.

First, I want to be very clear here to acknowledge that politics, and especially the presidential election, are a big deal when it comes to the direction the country is headed. But what I can tell you from countless experiences, is those who let their politics influence their investment decisions, pretty much always regret it in the end.

So, one phone call that I will never forget happened right after President Trump got elected.  A client called me up and immediately started ranting and raving about how terrible this was and he couldn’t believe our country would elect someone like Trump. He thought things were going to get so bad that he wanted to liquidate his investments and let them sit in cash for four years until the next election. This was his solution to his anxiety??

I honestly barely said a word during the entire call. I pretty much just let him vent and get it out of his system. Finally, after at least 30 minutes or more, he paused, took a deep breath, and asked me a very simple question, “Do you think I’m making a mistake?” I remember exactly what I said after that. I told him that “I have no idea what the next four years is going to bring and that he totally could be right. All of his fears could be realized and come to fruition."

But what I also told him was that I had taken numerous calls like this over the years, and I didn’t have a single story of a client who made a decision like this who was happy they did so 12 or 24 months in the future. Although he was very appreciative of my candidness, he couldn’t get over his fears and decided to liquidate his portfolio. Needless to say, his decision cost him dearly, as the stock market did extremely well over Trump’s term in office.

So, now let’s fast forward to the next election and it was like DeJa’Vu, but with the opposite party affiliation. When President Biden got elected and the Republicans were crying foul after the results, I took a call from a client who was, let’s just say, “terrified” of the possibility Biden was going to be the next president. He started the call with his usual pleasantries, but quickly moved into what I think can best be described as “doomsday speak.”

This phone call was not nearly as heated as my previous example, but the feeling of dread and despair in the tone of his voice was off the charts. I mean, he genuinely felt like the world was coming to an end and wanted to do anything he could to protect himself from it. He kept saying, “Jeff, it’s time,” “Jeff, I think it’s time,” meaning he wanted to get everything out of the stock market. He thought that would make him feel comfortable.

I tried to talk him out of this decision, but ultimately, I always left the decision up to the client because at the end of the day it’s their money and they have to sleep at night with their decisions. Somewhat to my surprise, he allowed me to come up with a compromise.  We agreed to liquidate his most aggressive portfolio and then talk again after the Thanksgiving holiday. I told him if he still felt the same way at that time as he did now, we could do more.

So, what happened after Thanksgiving when we spoke again? His attitude had completely changed. For one thing, the stock market was up, and he no longer wanted to sell everything and go to cash. You know, his political views had not changed at all, and he was still very worried about the election results, but he was now able to see that mixing politics with his investments was probably a bad idea. He actually thanked me for allowing him to think about his decision a while longer, and then told me to put that account back to the way it was invested before.

So, these are just two examples of politically-motivated investment decisions that didn’t work out, but seriously, I have countless others.  As I previously mentioned, what I don’t have, and I’m dead serious, what I don’t have, is a single story of a politically-motivated investment decision that worked out well for a client. I don’t have a single one, with over 20-plus years in the industry. Not one. So, all I’m saying, is to think about these stories before you make one of these decisions in the future because, I’m telling you, the odds are stacked against you.

And if you need a little visual proof, be sure to check out the episode description to view one of my favorite charts of all time. It shows the performance of the stock market over the past 100 years with blue illustrating when Democrats have held the presidency and red for the Republicans. I know you can’t see it because this is a podcast, but what it looks like to me, is a chart that just keeps going up over the long-term, regardless of who’s in the White House.

I always like to point out: this chart includes The Great Depression, it includes World War II, it includes the massive inflation of the 70s, it includes the dot.com and housing bubbles, it even includes a global pandemic!! So, I really hope you check it out when you get a chance because I’m sure you will agree that it just goes up, and up, and up. Hopefully, the visual of this chart, combined with the sad tales you just heard will remind you to “never let your politics derail your investments.”

I sure hope you enjoyed this episode of Invested Poorly and will be able to take something from it to improve your decision making as you navigate the twists and turns of your personal investing adventure. Be sure to check out my website at AreYouFI.com (that’s A R E Y O U F I dot com) where you can find resources and show notes with the charts and graphs I mention during the episodes. These are like little treasure maps that can help you choose more wisely along your quest to reach FI, or financial independence.

Never forget, in the short-term the stock market is unpredictable, and as my mischievous little nephew likes to say, “things just happen”! So focus on the long-term, by controlling your emotions, simplify your investments, and always… ignore the noise.
I’m your host, Jeff Harrell. Thanks for listening.

Invested Poorly: Sad Tales of FInancial Fails was created for informational purposes only and should not be relied on for specific tax, legal, or investment advice. You should consider consulting a qualified professional to review your situation before engaging in any transactions. Investing involves risk, including loss of principal and past performance is no guarantee of future results. 

This podcast was produced by Ted Cragg. Learn more about creating podcast mini-series like this by visiting QuickEditPodcasts.com.