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Politics and Personal Financial Planning

The political votes we cast can influence our –and other people’s — finances.

But the influence should usually not be allowed to flow in the opposite direction. That is, personal financial planning decisions should, in most cases, not be influenced by our political views.

For instance, I’m a vegetarian treehugger atheist liberal snowflake. And if you’re a steak-loving truck-driving devout evangelical conservative, a portfolio of actively managed funds with high expense ratios would be as bad an idea for you as it would be for me.

If for some reason your marginal tax rate is lower this year than you expect it to be in the future, a Roth conversion is probably a good idea. The math is the math, regardless of where you sit on the political spectrum.

We might disagree about what tax rates should be for one particular group or another (or for one particular type of income as opposed to another). But if your finances and my finances are similar, the tax planning decisions that make sense for you make sense for me as well. The likelihood of a particular legislative change occurring and effecting us is the same, regardless of how we feel about that potential change.

The insurance coverage that you need has nothing to do with who you plan to vote for in November. (If anybody is dependent upon you financially, you should have life insurance.  If you are dependent on your income from work, you should have disability insurance. And so on.)

If you do or don’t like the person in the White House, and you begin to let that feeling make you think that you can predict what the stock market is going to do over the next month (or 48 months), you’re in for a rude awakening. No one person has that much control over the stock market.

Of course, there are some exceptions — some cases where your political and other views will (and should) inform your financial decisions. Most obviously: your charitable donations. And some portfolio decisions could reasonably be influenced by political views, though as I’ve written before I sincerely think that the most common version of “ESG” funds are unhelpful and likely detrimental to the very causes they ostensibly serve.

In most cases though, as soon as you let your political views begin to inform your personal financial planning decisions, you start to make worse decisions. And you open yourself up to manipulation.

Many products (financial and otherwise) are sold based on fear. If somebody can tap into your political fears, they’ll have an easier time selling to you. You political fears may be well founded, but as soon as you notice that somebody is trying to sell you something based on those fears, your level of skepticism should be at its maximum.

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