26 May Investing Based on Politics: Is it a Wise Idea?
There has been a whirlwind of news about possible political policies and changes, coupled with the potential impact they could have on the economy.
As an investor, it can be tempting to start investing based on politics because of these upcoming shifts. So, is it a wise idea?
Read on to learn more about investing based on politics:
Paying attention doesn’t always pay off
In most aspects of life, the more you pay attention, they better off you’ll be. Investing is one counterintuative area where the more you watch the news, the worse off you can get. More often than not, the short-term noise can distract you from your long-term goals. For instance, if you’re investing so you can retire in two decades, one policy change is highly unlikely to affect your investment portfolio. Keeping your financial goals in mind (and having an investment policy statement) can help you assess whether that news is just static, or something that will actually impact your big-picture goals.
We aren’t in a vacuum
As much as politicians would like you to think that they control everything in the economy, there is a plethora of factors that can affect the stock market’s performance. It’s impossible to predict whether one policy or person in office will make the market move up or down. When investors attempt to make a concentrated bet based on one person or event, they’re often sorely disappointed as a result.
If you’re thinking about investing based on politics, it’s also worth noting that around half of the world’s investable stock market opportunities lie outside the United States. Diversifying internationally can have a plethora of benefits, and one of them can be the ability to experience uncorrelated growth in foreign markets while domestic ones are down from political noise.
Adjust your risk tolerance
Political changes and corresponding market volatility will likely continue to happen, no matter who’s in office. So it’s vital to realistically assess your reactions to this turmoil. While everyone feels some degree of worry from political changes, these emotions shouldn’t seep into your decision-making.
If your current investment plan leads you to make rash, short-term decisions, it might be worth it to revisit your asset allocation with a trusted financial advisor. While you shouldn’t switch to all-cash, you can adjust slightly to less-risky investments (like municipal bonds) to ensure you actually stick with your long-term plan.
Learn more about investing in political news
At LexION Capital, our investment strategies are strictly focused on the math and science of the markets. We don’t let temporary political volatility sway our careful attention on our clients’ long-term goals. If you’d like to learn more about how we can help you become a more successful long-term investor, let’s have a conversation.