Four years ago, I wrote about investing during a presidential election because people were saying they would buy/sell their portfolios based on who wins the election. I hear the same thing today, so it’s time to address this topic again!
This election is a near repeat of the last one—Biden has stated that he will increase taxes, and Trump has said he will keep taxes low. It is assumed that if Trump wins, the stock market will increase, and if Biden wins, the markets will remain roughly the same. Based on these assumptions, people are adjusting their investment strategy—this is an unwise investing strategy.
Before diving in, I need to clarify something—making investment decisions on a binary outcome is gambling, not investing. Investing is where you purchase assets that have a high probability of returning your money with some gains. A good investor can make money in most environments and under every President.
Here are four reasons why it is a bad idea to gamble on the outcome of presidential elections:
- People believe that political policy will dictate the business’s profitability—this is simply not true! Most businesses grow DESPITE the government, not BECAUSE of the government. While presidential policy can add new challenges, good companies find a way to thrive regardless. Since businesses are the foundation of most investments (including the stock market), the market may have a short-term blip based on the election outcome, but it will have no long-term significance.
- If you’re already invested in the stock market, selling all of your investments based on who wins the presidency can be very foolish because you will end up paying taxes on all your gains, and those taxes will likely cost you more than any market hiccup caused by the outcome of an election.
- While some people have made fortunes from day trading, most fail because they buy high and sell low—to make money, you need to buy low and sell high! Trying to time the effect of an election on markets is a fool’s errand that will likely end in disappointment.
- Unless you’re a prophet, you cannot predict the future with 100% certainty. If you recall the previous election, Hillary Clinton was expected to win, but she didn’t. If you had bought/sold stocks assuming that Clinton would win, you would have hurt your portfolio returns and owe a bunch in taxes all for naught.
To sum up, I recommend creating a sound investment strategy and stick to it regardless of what happens in politics. Do not allow singular events to cause you to start gambling with your future! No matter who the President is, follow your long-term goals.
