Is the Market Playing with Your Head and Your Heart?

Investing since the election has certainly been a whirlwind. Most growth investors have done pretty well. Retirement savers have had a little tougher go of it as bonds, which are supposed to be safe, have been beaten to a pulp. On the other hand, all investors have had trouble applying logic to the market’s rise primarily because of emotion.

Well I’m here to tell you that politics and investing don’t mix. Certain things go together like – chocolate & peanut butter. Remember those old Reese’s commercials? You got chocolate in my peanut butter! No, you got peanut butter in my chocolate! Love those things.

No matter which partisan side you’re on, your politics are killing you in the markets.

Having been in this business for over 30 years, let me tell you…while making good decisions can help your portfolio, avoiding bad ones is even more important.

The sad truth is that we humans make all the same mistakes, over and over again. It’s how we are wired, the net result of evolution. That flight-or-fight response might have helped our ancestors deal with hungry saber-toothed tigers, but it drives investors to make costly emotional decisions.

As humans, we are naturally emotion driven. It’s not just partisan politics either; you can see it everywhere. Look at sports fans. I grew up in Boston, a devout Red Sox fan. It was required. I think when you are born in Boston they stamp your heart with that Boston B.

Being a Red Sox was heartache, let me tell you, but it applies here the same way. Every year we all convinced ourselves that this would be the year to break that 86 year drought, even though if we truly analyzed the situation, we would have seen how unrealistic we were being some years. Yeah, you Cubs fan know what I’m talking about.

The problem is that anyone with a heavy emotional interest in a subject systematically loses their ability to observe it objectively: each of us selectively perceive almost all events. We disregard facts and or data that oppose our main philosophy. We even selectively retain what we believe in, and cover up thoughts that might conflict with reality.

Take a look at these statistics from a recent CNBC survey of Democrats and Republicans on portfolio politics and the U.S. economy. With a Republican now in office, tell me if it surprises you.

  • Republicans are twice as likely as Democrats to believe the S&P 500 will go up in 2017 (77 percent vs. 38 percent).
  • 72 percent of Republicans predict a stronger economy. Only 15 percent of Democrats feel the same way.
  • Almost three times as many Republicans plan to invest more in equities (28 percent) than Democrats (10 percent).
  • 22 percent of Democrats are decreasing their equity allocation.
  • Democrats are twice as likely to increase short-term investments (25 percent) compared to Republicans (12 percent).
  • 79 percent of Republicans anticipate a personal rate of return to be 4 percent or higher in 2017 compared to 52 percent of Democrats.
  • 55 percent of Republicans anticipate their household assets being invested higher in 2017 compared to only 31 percent of Democrats.
  • Republicans are twice as likely to decrease precious metals holdings (13 percent) compared to Democrats (6 percent).
  • Democrats view government dysfunction in 2017 as a much bigger threat (45 percent) to their personal wealth than Republicans (21 percent).
  • 56 percent of Democrats believe the deficit will increase a great deal under Donald Trump compared to only 7 percent of Republicans.
  • Only 27 percent of Republicans believe inequality of wealth in our nation is a problem compared to 88 percent of Democrats and 56 percent of Independents.

Be the expert or hire one!

The bottom line is that those who can remove emotion from investing will succeed while those who don’t…or can’t, are doomed to fail. If you need help, work with a Retirement Advisor that understands what it takes to be successful.

 

Cheers,
Keith

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