In our day to day with clients it inevitably comes up. “The politicians scare me and they will screw everything up if given a chance.” Clients intertwine their portfolios with politicians since the dawn of time I suppose. Inevitably a client’s appetite for risk and reward dynamic changes if the party they are aligned with controls Washington. My party controls Washington, they think like I think, the country will be ok, let’s invest. That’s the general theory I see on a day to day. Here’s the thing though, that a terrible way to invest and build for retirement.
Capitalism is a dynamic and adaptable force that manages to side step many of the pitfalls of some of the more rigid economic systems of the world. It allocates capital and resources at the drop of a hat when it sees something in the market place change. This also includes anything the politicians can conceivably come up with. The simple fact is returns aren’t driven by Washington, they are driven by corporate America earnings and profitability.
If you weren’t a fan of President Obama and decided to play defense with your portfolio his entire presidency you missed out on attractive gains. At the same time, if you aren’t a fan of President Trump and are playing defense with your portfolio you are currently missing out on a good market. Returns and progress in your portfolio aren’t driven by policy papers, tweets, or proposed new legislation. Too many worry about politics and headline flow. Focus on corporate America’s earnings and profits. Your portfolio and has more to do with this than what the politicians are up to.
Politicians giving a major speech on upcoming legislation or the newest scandal is always more entertaining than an earnings report. However, that’s exactly where your focus needs to be when you are trying to build wealth. Taking investment advice from Washington is a losing proposition. Decoupling investment decisions from political discourse and rhetoric inevitably is difficult for clients to do. Focus your attention instead on corporate profit and earnings. Understand what is going on in the economy, not Washington for investment guidance and clarity.
We are currently in the reporting period for 2nd quarter earnings. This will come fast and furious in the next several weeks. If earnings generally come out above expectations, the market will reflect that. So far, they have. Over 200 companies will report in the next week or so. Over the next 30 days markets will digest these earnings reports and evaluate their value which in turn will be reflected in stock and bond prices. Focus on this, not political drama.
D. Scott Peterson, CEO and head investment manager for Peterson Wealth Management, may be reached at 775-673-1100/775-423-8007 or at www.PetersonWM.com.