It’s an election year! Who’s excited?
Don’t worry, I’m not exactly “excited” for an election year either. I am, however, thankful for a country that allows citizens to express their opinions, regardless of how “broken” of a system it may be. There are definitely some not-so-good alternatives.
Okay, moving on.
Since we’re here to talk about the relationship between finances and politics, let’s dive in. In this post, we will cover 5 important truths about election years, what actually drives investment performance, and how to best position yourself for success in this coming year.
Know What Voice You’re Listening To
Here’s a shocking statement: the media is paid to get viewers, not to help improve your financial situation.
The media isn’t in the business of helping you – they actually really just want to use you. The more you tell your friends about the disgusting political story XYZ company just published, the more people will go check it out – which means they make more money. Politics is an extremely polarizing topic. If the media can get the ranks riled up for or against a topic, they’ve succeeded.
Knowing exactly the voice we are listening to is the key. If there is truth in something you are hearing, you may not throw it all out, but exercise care in taking in everything that you hear. Just as the Pharisees performed acts to get attention and recognition, so we need to be careful not to believe everything we see or hear. Matthew 23:14(NKJV) reads, “Woe to you, scribes and Pharisees, hypocrites! For you devour widows’ houses, and for a pretense make long prayers. Therefore you will receive greater condemnation.”
In contrast, Jesus spoke the truth in love: “The Word became flesh and made his dwelling among us. We have seen his glory, the glory of the one and only Son, who came from the Father, full of grace and truth.” John 1:14(NIV). When we know someone’s true motives, we can know when to trust them, or vice versa.
Market Volatility should be anticipated, but not with anxiousness
While it’s true that election years can be especially volatile, this shouldn’t be viewed as basis for changing your investment strategy. Just as a farmer continues to plant his fields regardless of the weather outlook, we need to be continually sowing in anticipation of a future harvest. While we want to continue to employ discipline around diversification, risk, etc., we don’t need to be fearful or worried.
Genesis 8:22(NKJV) reads, “While the earth remains, seedtime and harvest, cold and heat, winter and summer, and day and night shall not cease.” While the markets are unpredictable in the short term, we can see repeated patterns over long periods of time. Proper asset allocation, risk tolerance, rebalancing, and staying invested over the long term have generated rewarding results for disciplined investors.
Profits, not policies, drive markets
There is a saying that goes, “markets are not red or blue, they are green.” While this is true, it’s not very descriptive. What I believe we should focus on is what drives success for politics and markets. Politics, while they can have an effect on markets, are simply one part of the overall picture. Geopolitical events, taxes, interest rates, etc. all play into the overall market. The main focus of politics deals with people and government, ultimately gaining control of as many voting seats as possible and wielding more “power”. On the contrary, the main focus of the market is profits. Success for those investing in publicly traded companies means increasing the returns going back to shareholders in the form of profits, namely through consistently increasing earnings per share over time, and dividends.
Another item to mention when investing in ever-changing market conditions is the efficiency of our economic markets. Just like water finds the path of least resistance, money in a free capital market society finds the area of greatest return. Whether it’s investing in fixed income in a 20-year high interest rate environment, a record high home prices in spite of high inflation, or possibly even Bitcoin.
Money never evaporates from our economy, it simply takes on new forms with new characteristics. These typically come in the form of tradeoffs. Just as I mentioned in the example above, if you purchased a home 3+ years ago, you most likely saw your home increase in value since then. And in most cases, even if you’ve seen gas prices surge since that time frame, the majority of us have still seen the equity increase in our homes more than make up for the extra expense at the pump.
Even during turbulent times, our approach should stay consistent
A home builder constructs homes that can withstand storms. He doesn’t change his process or materials based on when the home will be finished or what the weather will look like that year. If he has done his job well, all of those factors are already built into what he has already selected to withstand all of those possibilities. In the same way, a durable investment portfolio accounts for changes and unexpected challenges to arise after the portfolio is constructed. A few of those elements are listed below:
Clear goals – are the purpose, timeframe, and amounts clearly defined?
The right amount of risk – you can’t have return without risk. Is the risk you’re taking matched with the return you’re expecting?
Assets in the right accounts – just like a sports team, are your best players in their best positions?
Focus on what you can control
Our final topic is probably the hardest to actually do. So many times, especially in politics, we get frustrated when something doesn’t go according to our original expectations. In investing, just as in politics, there will be many times that we won’t have any say in the outcomes that are likely to happen. In this case, the most productive course of action is to simply stay focused on what we can control, not what we can’t.
The Bible reminds us of this truth when we read about Jesus addressing his disciples in John 21:21(NKJV): “Peter, seeing him, said to Jesus, ‘But Lord, what about this man?’ Jesus said to him, “If I will that he remain till I come, what is that to you? You follow Me.” It was obvious that Peter was concerned more about John was doing than his own behavior. In financial terms, focusing on what we can control can mean shopping around for better bank interest rates, paying off high interest debt, or more closely watching spending patterns. Ultimately, these types of behaviors will lead to better personal financial outcomes than talking about our least-favorite senator’s latest TV interview.
This content is developed from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Evergreen Financial Group, LLC is a registered investment advisor offering advisory services in Montana and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision. All opinions and estimates constitute Evergreen Financial Group’s judgement as of the date of this communication and are subject to change without notice. Evergreen Financial Group does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk.