Beware: Political Season Pitfalls!

Friday, April 22nd, 2016

Unless you have been living in a cave over the last six months, you are very aware that we’re right in the middle of “political season”. And, quite possibly the most remarkable I’ve witnessed in my lifetime.

In keeping with past presidential elections, I’ve received well over a dozen inquiries about my thoughts on the election, and how I see markets reacting if Donald Trump gets elected vs. Hillary Clinton vs. Ted Cruz vs. Bernie Saunders.

Although the current landscape has provided great political discussion points which could keep us going for days, let’s stick with the potential impact on your personal financial world.

First, predicting market reaction to anything, especially election results, is impossible so I wouldn’t even wager a guess. More importantly, however, it’s of no value to you given your long term goals.

Investment policy decisions should never be based on elections or market movements.

If you go back and study market returns during various presidencies, or various mixtures in congress, you can’t find one common thread among them except that their results are mixed.

One of the big reasons for this is that what takes place before a new regime starts is critically important. And, when various policies get implemented and work their way into the economy as a whole.

Given this, using political results, or potential political results, as a tool for investment policy decisions is extremely dangerous.

Political Pitfalls

This leads me to the bigger point I’d like to make which is the political pitfall I’ve watched retirees fall into over the years.

During periods of intense political debate as we’re experiencing right now, I’ve noticed a very distinctive habit that all successful retirees have adopted.

That habit is making a clear distinction between which “hat” they’re wearing, and properly managing their “state” to match it.

Let me give you an analogy first.

In life, we all wear many hats. For example, a few of them for me are:

  • Father
  • Husband
  • Business
  • Retirement Coach
  • Brother
  • Son
  • Friend
  • Youth Sports Coach

To be effective, each of these roles requires me to have a certain mindset or “state”.

However, the correct mindset for one is unlikely to be the correct mindset for another.

For example, if I’ve been intimately engaged at the office all day, I had to have my “Retirement Coach or Business Hat” on in order to be effective.

And, that requires a certain mindset or “state”.

However, when I’m home with Caroline and Michael on a Saturday, for example, in order for me to be the father I want to be, I need to have my “Father Hat” on.

If I still have my “Retirement Coach or Business Hat” on when I’m home with them, how effective am I going to be?

For reasons I’m certain you can visualize, it’s going to be a disaster!

How Does This Apply to Today?

Let’s now carry that same analogy forward to another example.

In life, due to our experiences, education, and interactions, we all develop our own unique set of belief systems. And, over time, those belief systems morph into our own personal philosophies which, in turn, govern the way we feel about, and the way we react to various situations.

An example close to home is the presidential election we’re in the middle of right now. Each of us has a belief system about the way things “ought to be” when it comes to the role government has in our lives.

Let’s label this your “political” hat!

As such, when we sit back and watch political debates and listen to election speeches on both sides of the aisle with our “political” hat on, each of us has beliefs which form our opinions about each candidate.

Some more strongly than others!!

At the same time, each of us has developed an “investor” hat over the years. Hopefully, that is based on a very specific, rational, long term formula like we use in our Relaxing Retirement Coaching Program™.

And, in order to be effective, you wear that “investor” hat, and the proper mindset that comes with it, when making investment decisions.

Political Season

Now, here’s the distinction…..

When we’re not in the middle of an election season, and when things are good financially, i.e. no big crisis going on, cash flow is good, and markets are moving in a positive direction, it’s easier to make the distinction between which “hat” you should wear to be effective at which time.

It’s easy to be rational and look at the big, long term picture.

However, when presidential election season kicks into gear and things heat up a little bit, and at the same time, markets turn sideways, the financial media outlets pile it on thick, and our reptilian ‘fight or flight’ mechanism flares up, it becomes much harder to draw the line as to which “hat” we should wear.

The result during times like this is an inability to distinguish between which hat we’re wearing, and with it, the inability to be effective in any area of our lives.

For example, if it’s Super Tuesday during presidential primary season and you’re watching wall to wall coverage of the results on television, it’s highly likely that your “political” hat is on your head.

That’s normal and perfectly effective for the moment.

However, it becomes dangerously ineffective when all of the political emotions that come with it are carried over to your investment decisions.

And, that’s what happens to the overwhelming majority of retirees.

Everything is fine while markets move in a positive direction. However, when markets correct and temporarily move the other way during a period of time when a candidate from the other side of the aisle is the sitting president or a member of congress, their rational, educated, long term “investor” hat gets thrown out the window.

In contrast, the retirees who achieve the best results are those who make a very clear distinction between the two and are very conscious as to which “hat” they’re wearing at all times.

This allows them to make consistent, disciplined, and effective decisions that are in line with their carefully drawn out plans.

The Strategy

So, the Strategy is to be very aware and conscious of which “hat” you’re wearing at all times, especially during this heated presidential election season.

There’s nothing wrong with wearing any of them. The challenges come when you mix hats, or wear the wrong hat for the wrong situation.