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Politics and Portfolios Don’t Mix

[/fusion_text][fusion_text]Are you tired of the political drama that invades our daily lives? If so, I have good news. As far as your portfolio is concerned, it doesn’t matter. Most of the political news is short-term noise. The parts that aren’t short-term noise are still unpredictable and out of your control.

It may surprise you to learn that stock market returns are virtually identical no matter which party controls the White House. Vanguard compared the returns for Republican presidents and Democrat presidents going back to 1853. The average annual returns for both parties’ presidents was 11% per year.

One reason for this is because the president has less control over the economy than we naturally think. There are so many other factors that influence company profits (the real long-term driver of investment returns) like the natural business cycle, consumer confidence, Federal Reserve policy, and congressional legislation. Remember too, we have just two major political parties in our country. So for every person who is excited because the party they voted into power is in control, there is another who is terrified because they voted the opposite.

The mistake that some people make is to allow their political opinions to affect changes in their long-term investment plans. People who reduce their risk when their political party is not in favor only end up hurting themselves. It will lower their returns, but only because they reduced their risk, not because the available returns were any lower on average. I believe we call that a self-fulfilling prophesy.

Feel free to watch all the latest updates from Washington for a myriad of other reasons, but don’t do it on account of your portfolio. And don’t change your portfolio based on what you hear.[/fusion_text][separator style_type=”single” top_margin=”” bottom_margin=”” sep_color=”” icon=”” width=”” class=”” id=””][fusion_text]

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. ASA gathers its data from sources it considers reliable. However, ASA makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.