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Discussing Investing During Political Turmoil with Ron Lieber (NYT)

Ron Lieber, at the New York Times, is one of my favorite personal finance writers. His commitment to consumers is unerring and his ability to make complex issues understandable and actionable is exceptional. Given my admiration for his work, I was especially honored when he reached out to discuss financial planning and investing during moments of political tumult for his recent piece Investing for the Future in the United States of Agita. The question he raised is enormously consequential. How should we take action when a major potential political change is immediate but the outcome is uncertain? In his piece, the presenting issue was the election, but there are a lot more moments of importance and uncertainty than just presidential elections. The right approach in moments of uncertainty in the world is to review an excellent plan that was hewn in moments of clarity and when emotions were less intense. Take that plan, review it, ask if your goals have changed since then. If they haven’t, make sure you are still on target. If you were going on a road trip, that would be the time to check the air pressure in your tires, consider an oil change, and maybe even get a tuneup. Likewise, check if your emergency fund is adequately funded and check if your asset allocation (percentage of your investments in stock indexes, bond indexes, etc) is within the target range. Ron was succinct and spot-on in his discussion of asset allocation in the piece and I suggest you read it if you haven’t already.

I’d like to expand a bit on a couple of quotes of mine that Ron included in the piece:

First, a maxim of sorts about our collective state of anxiety — whether you’re pulling for four more years or a new occupant in the Oval Office. “Emotions are really good at raising questions and really bad at answering them,” said Zach Teutsch, a financial planner in Washington, D.C. It’s true in life, and it’s certainly true with financial decisions. Try not to make any big ones anytime soon.

Emotions arise every day in our work, usually many times and I’ve thought a lot about how they help and hurt our ability to act in our best short- and long-term interest (however we define that). Just as I said, I think they are great at raising themes and not great at wisely navigating technical questions. For instance, feelings of anxiety can be very motivating. The way anxiety tends to gnaw at us, reminds us to make sure we are doing the right things to protect ourselves, families, and communities, now and in the future. The problem is that anxiety isn’t a very good tool to figure out how to do that. If we rely too much on anxiety, those with investments might end up putting too much of their portfolio into stability-oriented investments. The result would tend to be not having enough money later in life and possibly outliving one’s money (not having enough to donate along the way, etc). Accepting too much volatility in pursuit of long-term growth could also cause problems. Balancing these two priorities (long-term growth and stability) is a hard problem. Anxiety isn’t a great tool to mediate these complicated questions and identify the proper balance. The right answer has to consider those emotions and how they will impact the client’s long-term well-being and fulfillment but that is just one of several important considerations. Like with anxiety, guilt can doggedly raise important questions, causing us to feel we aren’t doing enough. It isn’t likely to be very useful to adjudicating between which uses of capital have the highest social impact. For instance, one could give more money away via tax-deductible or non-tax-deductible giving, accepting lower returns for social impact-oriented investments, making direct loans or gifts to people in need, or many other approaches. Guilt may weigh-in but is unlikely to have a very technically-sound contribution. I suggest that in these situations we thank the emotion for inspiring a robust and important conversation and invite it to continue to monitor the outcomes (it was going to with or without an invitation).

“After an election can be a great time to assess your social impact plan, especially around charitable strategies,” he said. “Because the world is going to need very different things depending on who wins.”

Thankfully, the election turned out in a way that will slow or reverse our movement away from democracy. But all is not well. People should squeeze to figure out how to help set a course toward a better more just world. We will be sharing a guide to giving soon, which is a bit part of most people’s social impact plans.