“So should I cash out of the stock market?”
This is the question often heard from those liberal-leaning investors in the last few months. They are worried that the combination of high share prices and an erratic president mean that the only direction for stocks is down. They are considering shifting some of their assets into cash or bonds.
The short and safe answer is: “No one knows.” But there’s also a long answer.
Letting one’s political opinions shape investing decisions is a good way to lose money. Whether a given chunk of your savings should be in stocks, bonds or cash depends on your appetite for risk and when you’re going to need that money. It shouldn’t be shaped by whether you love or hate the current occupant of the White House.
We all have a tendency to fall for motivational reasoning. If you think the president’s policies are bad, there’s a natural tendency to think that this will soon be reflected in share prices. That could turn out to be true.
But politics makes us stupid. It can cause us to overweight the risks and perils we want to see, and underweight the possibility that, at least in terms of markets, things could go quite well. F
Much of the movement in stocks has little to do with what the president of the United States does. It would be silly to credit Bill Clinton with the dot-com boom that took place during his presidency, or to blame George W. Bush for the collapse of it.
But even when the action in Washington is driving markets, it is easy to be blinded by your political opinions. The response to the financial crisis by the Obama administration and the Federal Reserve in early 2009 succeeded at ending the recession and setting the United States economy on an expansion that continues to this day.
Conservatives tended to malign the stock market rally, but those who put their money into cash instead of stocks lost out on a 182 percent gain in the Standard & Poor’s 500 during the Obama presidency. Liberals are just as susceptible to this motivated reasoning.
There’s certainly no guarantee that the stock market will continue to rise under the current administration. There are ways that the outlook for investors could get better, and also plenty of ways for them to get worse. It’s likely there will be corporate tax cuts and deregulation, both of which benefit companies’ bottom lines in a direct and measurable way. It is optimism about those policy priorities that has driven the market rally since Election Day. Throw in some extra government spending on the military and public infrastructure, and you have a recipe for speedier growth.
There are, of course, darker possibilities. The president could spark a trade war that could turn into a global recession. Military conflict could break out with a major trading partner like China or could disrupt oil supplies in the Middle East. And a small crisis could spiral into something bigger because of Trump’s seat-of-the-pants management style. (Taken from Neil Irwin, New York Times, 2/13/2017)
Taking money out of stocks because you need it within the next few years and can’t stomach that kind of risk is one thing. But making a move just because you lack confidence in President Trump could be a case of letting ideology trump investing discipline.