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Do Politics Matter to Investment Returns?

15 Mar 2016 2:30 PM -

If you’ve spent any of your time listening to talk-back radio or reading discussions online you’ll know wading into politics can be a dangerous game. Hot-headed people escalate arguments at the drop of a hat over the fortunes or criticism of their side.

So when politicians wade into our own industry or our areas of expertise we tend to keep our commentary muted. Except to say despite their posturing, neither side knows much about regulating financial planning, and like everyone else who doesn’t own a crystal ball, politicians know absolutely nothing about economic & investment forecasting.

For the most part, beyond individual regulatory decisions for specific industries, politicians don’t have much of an impact on the wider share market or your returns if you’re properly diversified, yet it doesn’t stop investors wondering and politicians expecting us to believe otherwise.

The emergence of Donald Trump seems to have a lot of people nervous for various reasons and questions are being asked about any impact he could have on world markets. In a similar vein this week, government minister Peter Dutton told us “I think the stock-market will crash” under Labor.

Like any good investment newsletter spruiker Mr Dutton didn’t offer any clear reasoning, but he did get his intended headline. Maybe Mr Dutton has another career in mind, selling gold or alternative investments, where he has to talk the share-market down, but in this instance he’s giving Labor too much credit.

Similarly, Donald Trump has many people spooked, ascribing doom scenarios to his potential ascension to the US Presidency given some of his statements. However, flick through Trump’s 1987 book “The Art of the Deal” and you’ll be reminded Trump prides himself on attracting attention and manipulating the media. He argues it is part of his business strategy because a newspaper column (good or bad) was always cheaper than advertising.

Furthermore, talk of Trump being a loose cannon starts to fall apart when he’s already assembled an advisory team comprising former New York Mayor Rudy Giulliani and two members of President Ronald Reagan’s administration. Trump might be successfully selling himself as an anti-establishment politician, but it’s more likely just another Trump sales tactic.

Bringing us to share-market returns under political parties since 1980. Firstly in Australia from the time each political party took office, as measured by the ASX All Ords Accumulation Index.

OZPoliticalReturn

There is an advantage to Labor on the chart, but no one could truly suggest either side played a significant part in the returns they enjoyed, or suffered, during their governance. Both Labor and Liberal had to deal with significant meltdowns on world markets that flowed into Australia and impacted our market.

In the US, from the time each President took office until they left, as measured by the S&P 500.

USPoliticalReturns

In the US the returns are quite impressive for both parties, with double digit annualised returns under Reagan, Bush I, Clinton and Obama. The only outlier is George W. Bush who suffered from the collapse of the dotcom bubble, a collapse of the housing market and a major terrorist attack on US soil.

You’d have to be overly partisan to draw investment conclusions from either of these tables, so we’d suggest not to worry about who is in charge and just vote for the old favourites – diversification, asset allocation and taking the risks that are historically worth taking.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

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