Now seems to be a good time to invoke Rudyard Kipling: “Oh, politics is politics, and investing is investing, and never the twain shall meet in my financial decision-making.” Or maybe that was from Dr. Seuss; I was never very good in English class. But the point stands: never let your political views impact your investment decisions.
Studies have shown that politics does impact financial decisions, and this applies to all of us. (If you think it doesn’t consider starting here and coming back later.) Further, Kempf and Tsoutsoura found that “The effect is more pronounced in periods of high partisan conflict and for [those] who vote frequently.”
Humans are bad at forecasting in general, but possibly one of the most interesting and relevant biases is that we’re bad at predicting futures we don’t want to see happen. And when we’re proven wrong, we tend to look for proof that the evidence is wrong instead of changing our views.
So regardless of which side of the aisle you sit on, or if you’re standing in the aisle, or if you’ve stood up and walked outside, keep these two tips in mind:
- Don’t assume you know what political outcome will occur – and be most wary if you project the outcome you want.
- Definitely don’t assume you know how markets will react to your projected outcome.