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No, but geopolitical awareness should. I refuse to invest in China, for example. Not because of politics, but because of risk factors.
I agree with all the other answers. All have truth to them. However, we are ultimately bound to have a world view. I can think of one critical time I thought the market would tank based on an election result, and I couldn’t have been more wrong. Fortunately, a financial advisor convinced me not to trim my stocks. So, a huge dose of humility is required when reacting to any world event.
Having said that, sometimes we need to make values-based decisions. I won’t touch China or Russia with a 10-foot pole, partly on values but partly in recognition that foreign investors thrive at the discretion of autocratic leaders, and I can’t risk my money to their whims.
I don’t know if China or Russia will do well from here or not. But just count me out. If I miss out on big gains, so be it.
Political views should not influence how we invest.
In recent history, various prognosticators wrongly predicted that markets would tank after the election of presidents Obama, Trump, and Biden.
On the other hand, government policies (e.g., infrastructure investment, clean energy) may be taken into consideration since certain companies/sectors can be impacted for better or worse.
Probably not, but don’t they affect everything? One’s political views might largely track one’s values. Values should not be so easily discarded.
Politics have little affect on underlying businesses, their profits and growth (though some regulatory and tax policy can have small effects, but it’s on the margins in my opinion). Since our markets are comprised of businesses that grow in aggregate to comprise an index – absent a divergence from our capitalist system entirely – politics should not dictate one’s investment philosophy in index funds. That said, specific sectors and businesses can be deeply affected by politics (E.g., the rise of ESG and the fall of Chinese stocks as examples).