We are all about to get bombarded with political advertisements and news this fall during the election season. Here are 5 critical points to remember when contemplating your investments with politics.
The economy is much larger and influences markets much more than a certain political party in power.
Political parties and the media will bombard you with partial truths and tag lines to get you emotionally charged (so you will tune in and keep watching).
Investing based on news headlines, emotions or “expert” forecasts can be a very costly activity.
Recognize the difference between luck and investor skill. Guessing the right outcome is luck. Patience and discipline are fruits of investor skill.
Vote with your heart and energy, not with your portfolio.
As we enter emotionally charged presidential campaigns, we should prepare ourselves for an onslaught of pessimism. Election talking points tend to be more slinging mud about the other candidate than a candidate’s outline for future prosperity. Why do they focus so much on the negative?
The bottom line is that pessimism is an effective communicator. It results in a greater emotional response, which gets us to tune in and makes information easier to recall. You better believe politicians want us to tune in and remember their message – so really it is a way to be more effective.
Pessimism is also influential because it relies on more immediate need than optimistic viewpoints, which often take a longer time to unfold. “Policy XYZ must be changed right now or else something really bad is going to happen.” Any sense of urgency, even if it is just an illusion or “fake news”, gets us to tune in.
So, how can we rise above the negativity? There are two ways to help us avoid getting caught up in the pessimism and negativity we find all around us. One is an avoidance strategy; another is filtering the information.
We can avoid the negativity by simply turning it off. Taking a break from social media and avoiding sources that get you emotionally charged may not be easy but are effective “strategic ignorance” strategies.
We can filter the noise by changing our time frame. Since negativity and pessimism is most influential over short periods of time, we can filter it by focusing on long-term outcomes. Sure, we may make policy mistakes in the short term, but we will correct them and make adjustments to achieve prosperity in the long term. This strategy can help us remain mentally sane and financially rational.
Investors that are influenced by short-term market moves can easily get caught up in it all. Those who focus on the long term don’t care if the market goes down X% over the next few months because they are looking far beyond that. This is one reason why I implore you to take the longer view – it’s better for your psyche and encourages more thoughtful and deliberate financial decisions.
©2020 The Behavioral Finance Network. Used with permission.
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