Updated: Oct 29, 2021
Every two years, we endure a constant barrage of politicians telling us if we vote for them, the economy will boom. It doesn’t matter what side of the aisle you are on, a vote for the other side will spell certain doom for your 401k, your job, and your investments. Is it bluster? What should we do with our investments to prepare for the political outcome?
A quick Google search of elections and stock markets will yield results all over the spectrum. The only thing one can tell with certainty from reviewing these articles is that there is a vast difference of opinion, of which election result will be best for the economy and the stock market. In essence, you can read several of these articles and not come away with a clear answer. I believe the answer lies in the inability to find a clear solution.
The very fact so many “experts” differ on the best political result to benefit the markets and economy suggests to me that these noisy politicians might not wield as much influence on the economy as they would like for us to believe. If we look at our own family as a micro economy, do we stop shopping for groceries and other items that we need in our everyday lives because of an election outcome? Of course not. We make our decisions based on what we think is best for our family regardless of who controls Congress or sits in the White House. Businesses, large and small, compete each day to deliver to us the goods and services we desire. Our individual decisions collectively determine the trajectory of the economy.
I do not want to completely discount the role of the government in our economic affairs. Policy can influence, through regulation or subsidy, our economic activities. As new policy is put in place, we respond to it in the fashion that we feel will benefit our individual circumstances. Once again, our activity is based on what we perceive will have the best benefit to us. As the political winds shift and policy changes, we individually respond and produce a collective result.
If you look back over political history over several generations, you will no doubt find policies most would now consider ill-advised. Both parties have their share of good and bad ideas. It’s important to note that over time, out lifestyles have improved greatly, new inventions have created new industries, and corporate earnings have climbed higher and higher as companies have rushed to service our needs. I believe that if we are free to invent and creatively solve our problems, this long-term pattern of improvement will persist regardless of any one election outcome. I know I want to participate in this arc of human progress. And I know I can participate by being a shareholder in many of the great companies throughout the world that work every day to better satisfy our needs.
So, what should you do with your investments? Ronald Reagan was president when I bought my first mutual fund. Four administrations later, including Democrat and Republican, the stock market has advanced by a factor of 10. I sit writing this article on a device that could not have been imagined back then. I cannot foretell what the future has in store, but if history is a guide, it will be full of advances that will improve our lives and create profit opportunity to those that choose to participate. While presidents and congresses will inevitably change, human creativity and our desire to improve lives is persistent.