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Investing During an Election Year: Remembering you are Investing in Companies

April 30, 2024


In another article in our series of Investing During Election Year articles and blog posts, we focus on remembering what you are investing in. During our series, we have tried to communicate that, in our opinion, the best way to invest is through a long-term plan and not try to do it based on current events. There has been no proven approach to emotionally invest based on the ups and downs of current events. This article is about remembering what you are investing in when investing in stocks and bonds, what drives the performance of those stocks and bonds, and other factors.

 

In my writings, I have referenced Nick Murray a lot. He is a writer and coach who coaches financial planners and advisors like ourselves. I believe Nick is in his 80s and a New Yorker. The reason is that he is a tough love kind of coach. In his newsletters, he can be very candid and chastise advisors for kowtowing to our emotions and not having the toughness to resolve ourselves to understand what it takes for long-term success in investing. As we have discussed, investing can be emotionally difficult during bear markets, corrections, negative news, recessions, and many negative events. It generally pays off not to let one’s emotions get the best of them.

 

One of the main things Nick communicates in his writings is for us to remember what we are investing in when we invest in stocks and bonds. People often associate stocks, bonds, and mutual funds with ticker symbols, numbers, or pieces of paper. Although there is truth in all that, what one invests in when investing in stocks is ownership in a company or in bonds one is lending to a company or a government. So, in both cases, when investing in a stock or bond, one is investing or financing a company. Most of our clients' investments tend to be in larger companies and, more specifically, the largest in the United States. Therefore, as an investor, you are most likely investing in the best-run companies in the United States, and we believe in the diversification and use of global and international companies. In summary, you are investing in the best-run companies in the country and the world.

 

What drives the performance of the stocks and bonds? In the long run, what generally drives the performance of those stocks and bonds, and mostly with stocks, is those companies' revenue. The key for the leadership of those companies is to continue to provide products and services that, in many cases, are essential to our lives, and we will continue to spend our money. The companies maintain their value and performance by continuing to raise their revenue. What makes Apple and Microsoft $3 trillion companies from their stock valuation is that we, as consumers, buy iPhones, iPads, and other Apple devices, or, in Microsoft’s case, Xbox and most businesses spend on cloud and AI products and services. Those companies aim to provide products and services that we will buy regardless of whether a Republican or Democrat is in the Presidency or controls the House or Senate.

 

As a proud American and capitalist, I believe we have the best-run companies in the world. Those companies have some of the best leadership and management teams. Concerning elections, those people are monitoring the political environment and how it may impact their business. They sometimes protect their businesses by getting involved in the legislation process. We may not like lobbying but those businesses have teams that help keep their business valuable. The leadership teams are often nimble and are doing their forecasting and making decisions to pivot depending on the political environment.

 

As you read this, we hope it helps you keep the big picture and not make decisions emotionally, particularly as your emotions are stirred watching political news when politicians tell you that if they do not get elected, the other team will run your investments into a ditch. Remember, keep the main thing the main thing. For us, a core part of this is the bucket plan and remembering to divide your money into the now bucket which is for money you need within next year, soon bucket which is also conservative and you need two to 10 years out, and finally the later bucket which is 10 years and beyond. Keeping that long-term perspective will help you from being emotionally driven and most likely will lead to better long-term performance.  If you need to talk, we are here.