Newspaper article News Sentinel

Knoxville Viewpoint; Don't Let Politics Influence Your Investments

Newspaper article News Sentinel

Knoxville Viewpoint; Don't Let Politics Influence Your Investments

Article excerpt

Obama or Romney? Which would be better for your investment portfolio? I'm relatively certain that you have an opinion, perhaps a very strong opinion! Professor Dan Ariely, the author of "Predictably Irrational," says, "In politics as in other arenas of life, our beliefs exert a powerful influence on the decisions we make."

Indeed, studies indicate that investors are more confident about the stock market when their political party is in power. And the opposite occurs when the preferred party is out of office. Today, imagining that the United States is politically divided in an election year it would seem to present a conundrum for investors. Should I buy? Or, should I sell?

At the heart of the matter is political risk, the real or perceived risk of losing money because of changes in a country's government or regulatory environment. A new government will make new policies. Sometimes these policies can be seen as good for business, and sometimes not. Some policies may lead to changes in inflation and interest rates. Political initiatives on taxes and funding for social and educational programs can influence business decisions to hire employees or to expand capital spending. A sweeping new piece of legislation or a military coup are examples of political risk that can have an impact on a country's economic environment and investor perceptions about a country's prospects.

In the global economy of the 21st century, we can invest in the farthest reaches of the planet, with exposure to varying degrees of political risk. In the time it takes to drive from Tennessee to Florida, in a foreign land you might drive from a democracy to a dictatorship; or from capitalism to communism. …

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