Can You Election-Proof Your Retirement Portfolio?

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In two recent articles (here and here), I wrote that consuming a politically unbalanced media diet could negatively affect your long-term investment returns. The more strongly people buy into the rhetoric of their political parties, the more difficult it is to be pragmatic about their investments.

I’ve witnessed this with every presidential and midterm election. A few investors always become fearful of an economic Armageddon if what they view as the “wrong” presidential candidate wins or the “wrong” party takes control of Congress. They typically want to liquidate their portfolios ahead of the political and economic disaster that will undoubtedly unfold, sit safely on the sidelines, and wait until “things are better” before jumping back in.

This year, I know of several investors who were afraid of the midterm elections ushering in widespread instability and unrest. Some believed if the Republicans flipped the Senate and House, that would cause the economy and stock markets to crater. Others believed if the Democrats retained control of Congress, that would cause the economy and stock markets to crater. Polarized investors are ubiquitously worried that if the candidate or party they oppose wins, it will be devastating for the markets and their portfolio.