Letting Emotion Cloud Reality
By: Sam Swift, CFA, CFP®
My wife and I were playing golf a couple weeks ago and were paired up with a very nice individual. He was a doctor who turned out to be extremely sociable and made our day on the links extra pleasant. At one point, though, he asked a question after he found out I was a financial advisor that stuck with me because it demonstrated a larger problem that afflicts many.
A little background: when I tell people I’m a financial advisor, I end up getting a lot of the questions that you would guess I get. To be fair, I’m sure many of the “what do you think about the market?” questions are just an attempt to make small talk. Depending on how much I enjoy the person I might dive a bit deeper into why that’s the wrong question to ask (at which point I’m sure they immediately regret having asked the question in the first place—problem solved!)
Anyway, the doctor asked a similar question that day with a bit of a twist: “So do you think this market will bounce back now that Obama is on his way out of office?” It’s not always political, but I do get similar questions a significant amount of the time and this line of thinking is a serious problem.
Questions such as these—regardless of the underlying issue causing the person stress—have two common threads:
- The issue cited (politics, environment, health care etc.) is emotional for the person
- The issue cited is out of the person’s control
This is a volatile combination and it can lead to horrible financial decisions if not checked. Let’s look at the problems in my golfing partner’s question. For reference, here’s what the S&P 500 has done since Obama took office:
That’s up over 150% since the President was initially sworn in for an annualized rate near 17.5%. Hopefully, he wasn’t acting on his political pessimism and keeping his retirement savings out of the market for the last six years! For an intelligent person to think the market even needed a “bounce back” shows how emotion—political or otherwise—can cloud one’s view of things tremendously.
(Just to be clear: the intent is not to claim that Obama is responsible for good stock returns. A politician’s impact on market movements is extremely overblown and Presidents in particular receive far too much credit for returns both positive and negative. Government policy decisions in the U.S. are one of thousands of factors that affect price movements and certainly not the major driver of returns.)
None of this is to say you shouldn’t be passionate about world events, but let this be a cautionary tale. Please don’t let issues outside of your control consume you emotionally and cloud your personal financial decision-making.