Politics and Investing: Our Thoughts

The 2016 race for the Presidency has much in common with investing in stocks: both are difficult to predict.

This week provided another great example.election 2016

No political forecaster that I know of accurately predicted before Tuesday morning that both Ted Cruz and John Kasich would drop out of the Republican Presidential race by Wednesday.

It can be very difficult, or impossible, to accurately predict the future.

As the Presidential candidates are now clearer (I didn’t say better!), some will begin to ask what impact the candidates will have on the stock market. Some may ask if Hillary or Trump wins, what would be the impact to their portfolio? What actions should they take, based on either Presidential candidate winning?

As we have stated many times in conversations with clients and in this blog, you should not develop your investment portfolio based on predictions of the future. Regardless of your political views about either candidate, you should not base your investment policy on political changes.

We adhere to a philosophy of rational optimism. We recognize that there are many challenges facing society, our country and other parts of the world. We believe that in the long run, many of these challenges will be dealt with and progress will continue to be made. There are companies, sectors and regions which are doing well, and others which are struggling. Over the long-term, progress will prevail.

But in terms of future stock market performance, specific future outcomes are impossible to consistently identify over a long period of time. The stock market frequently surprises. When many people anticipate that a specific President will be bad for the economy, the stock market may act in the opposite manner. Viewed retrospectively, this has frequently occurred.

This political season has been quite unpredictable and the only certainty is the unknown. We strongly recommend that you continue to focus on things which both matter to you and which you can control.

As we continue to be rationally optimistic, we believe the long term trend for stocks is upward. However, in the short run, we also know that periods of downturns will occur within most years (as occurred last summer and in the first 6 weeks of this year). We know that significant losses tend to occur at least once every 5 years, on average. The key is that if you do not panic, and adhere to your financial plan, these losses are only temporary on the long-term path to higher stock levels.

 

On a personal note, I’m proud to celebrate tonight my son Scott’s graduation from Michigan State University with a degree in media communication. He plans to start his own video marketing business this summer.

As a reminder of thinking long-term, when Scott was born in October, 1994, the S&P 500 closed at 472 at month end. Today, 21+ years later, the S&P 500 is at approximately 2,050. That is the benefit of a wide-angle lens perspective.

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