The election may be over, but politics continues to dominate the headlines. It is also on the minds of many investors, judging from the questions I’ve received from IVA readers. Three (lightly edited) questions I’ve fielded several times over the past two weeks include:
You tell us not to mix politics with investment. Don't you think the current market (e.g., Tesla and Bitcoin) is a tad bit political?
What do you think Trump's advisors and policies will do to stocks? Should I hold more cash to protect myself?
Should I invest more in stocks to take advantage of the post-election bull market?
I’m sure there are more questions, but these are the ones that keep popping up. So, while trying to avoid stepping on the “third rail” of investment advice, namely mixing politics (or religion) into my commentary, here’s my take.
Politics Can Impact Markets…
When I say, “Don't mix politics and investing,” I'm not trying to say that politics never impacts stock and bond markets. It absolutely does.
Politicians (and regulators) set the rules of the game (so to speak), so policymaking can, of course, impact markets and asset prices. For example, politics has weighed on healthcare stocks from time to time. And, of course, energy or defense policies will impact those industries. Monetary policy also affects all kinds of investments, including bank shares and bonds.
What I'm trying to caution against is upending your portfolios based solely on which party won the election and some crystal ball expectations for what that means for your investments.