Joe Biden. Donald Trump.
Controversial American presidents.
These days, just mentioning their names is enough to cause some people to suffer mood swings. Maybe even drive them into an intense rage.
That’s to be expected, isn’t it?
Republicans hate Joe Biden because they believe he’s a socialist.
Democrats hate Donald Trump because they believe he’s a fascist.
This is a highly emotive issue. And you can’t deny that we live in provocative times. Opposing tribes are clashing every day. On social media. On the streets. No holds barred.
They don’t call it a culture war for nothing.
Source: New York Post
But I want to look past ideology.
I want to look past grievance.
What really matters to me is this simple question: who’s actually better for your investment portfolio? Biden or Trump? Liberal or conservative?
Well, the answer might surprise you.
In September 2022, researchers from Harvard University and Washington University carried out a study on investment behaviour.
Here’s what they discovered:
- When Donald Trump ascended to the White House in 2016, Democrats were devastated. They started moving their money out of the stock market. They thought it was doom and gloom.
- Similarly, when Joe Biden ascended to the White House in 2020, Republicans were devastated. They, too, started moving their money out of the stock market. They, too, thought it was doom and gloom.
The researchers explain that this behaviour is rooted in subconscious bias.
You see, people tend to believe the future will be sunshine and rainbows if their preferred candidate wins an election. However, if that doesn’t happen, their kneejerk reaction is to believe that the future will be stormy and turbulent.
This has a direct impact on their investment choices.
People will buy into the market if they’re feeling joyful. And people will sell out of the market if they’re feeling depressed.
But by acting like this, are they actually doing serious damage to their wealth? And, if so, how bad is it?
Well, what’s interesting is that it doesn’t really matter who wins an election. Historically, the market keeps trending upward, regardless of whether it’s a Democrat or a Republican in the White House.
It’s not so hard to understand why. You must remember that the stock market has been with us for over 400 years. It’s become a highly evolved and finely tuned animal. A force of nature.
Because of this, the market has a primal spirit of its own. It hungers for yield. It hungers for growth. It must compound.
Source: City Index
Now, as an investor, you obviously want to maximise your gains. And the easiest way to do this is by staying invested in the market throughout.
You don’t blink.
You don’t flinch.
You don’t allow yourself to be led astray by your political beliefs.
In fact, if you sell out of the market just because you’re feeling negative, you might eventually come to regret it. And you shouldn’t assume that you can just buy back into the market at the right time either.
If you behave too impulsively, here’s what the long-term damage can look like:
Source: Visual Capitalist
The compounding effect is incredible to witness, isn’t it?
So, look at the big picture.
Joe Biden. Donald Trump.
At the end of the day, politics is a moot point. You will find that time spent in the market actually beats timing the market.
Warren Buffett has the final word on this: ‘The stock market is a device to transfer money from the impatient to the patient.’
Our opportunity for you
So, right now, here’s what you need to think about:
- Are you misreading the current cycle of history?
- Are you listening to prophets of doom making false prophecies?
- Are you forgetting that optimism will eventually win out over pessimism?
- Are you forgetting about the value available today?
- Are you ignoring the incredible assets being sold now at a sharp discount?
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(This article is general in nature and should not be construed as any financial or investment advice. To obtain guidance for your specific situation, please seek independent financial advice.)