209: Investing During a Presidential Election Year

Are your investments impacted by a presidential election? Join the guys as they explore the various implications that may or may not arise during an election year. Whether you’re a seasoned investor or just starting out, understanding these dynamics is crucial for making informed decisions about your financial future.

 

Main Talking Points

[1:57] – Are Investments Impacted Based on Who’s in Office: The Facts & Statistics
[4:43] – The Power of Compounding
[6:40] – Looking at Election Betting Odds Over Polls
[8:54] – Dad Quote of the Week
[10:03] – Should Your Investment Decisions Be Based on Political Beliefs?
[13:05] – Economic Sentiment & Politics
[16:14] – Should Elections Impact Your Financial Plan?

 

Links & Resources

Full Transcript

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey, hey. Welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. I’m Austin Wilson, co-portfolio manager at Hixon Zuercher Capital Management.

Josh Robb:

And I’m Josh Robb, director of wealth management at Hixon Zuercher Capital Management. Austin, how can people help us with our podcast?

Austin Wilson:

Subscribe if you’re not subscribed already. That way you get new episodes when they drop on Thursdays and leave us a review wherever you’re listening to us. It helps us to help more people and always remember, maybe you have questions about your financial situation, just want help, want guidance, needs someone to walk alongside you on your financial journey. Check out our website, check out the invest with us tab. We may be a good fit. All right, so today, Josh, –

Josh Robb:

Yes.

Austin Wilson:

We’re going to be talking about, I don’t know if you know this, in November of 2024,

Josh Robb:

Okay.

Austin Wilson:

There will be a presidential election in the United States.

Josh Robb:

Oh boy, that’s coming up, huh?

Austin Wilson:

And I did have a bold prediction in our, –

Josh Robb:

Ooh, yes.

Austin Wilson:

2024 predictions episode.

Josh Robb:

That’s right. That’d be the oldest.

Austin Wilson:

Well, that there yeah, that was one, but that there would be a presidential election.

Josh Robb:

Oh, nice. So you’re almost there.

Austin Wilson:

Well, I’ve lost a few years in a row, so I wanted some gimmies.

Josh Robb:

There you go.

Austin Wilson:

So that was my gimme. So let’s talk about today, –

Josh Robb:

Yes.

Austin Wilson:

The implications of investing in an election year.

Josh Robb:

Okay.

Austin Wilson:

Because I feel like this is a topic that people have very strong opinions on, politics in general, people have very strong opinions on, and a lot of times I feel like it clouds people’s judgment. So we’re going to,-

Josh Robb:

I mean, if you want an exciting Thanksgiving dinner, drop some politics in there and just watch what happens.

Austin Wilson:

So this is going to be a nonpartisan look,-

Josh Robb:

Okay.

 

[1:57] – Are Investments Impacted Based on Who’s in Office: The Facts & Statistics 

Austin Wilson:

At investing in an election year. So, let’s look at some stats first.

Josh Robb:

Yes.

Austin Wilson:

I love numbers. So, let’s go back 70 years.

Josh Robb:

Okay.

Austin Wilson:

Now we’re looking through the end of 2023, so that’s 70 years, which would’ve been 1953.

Josh Robb:

All right.

Austin Wilson:

That’s a long time. So this is going to be a good long-term way to think about this.

Josh Robb:

Yep.

Austin Wilson:

Suppose I give you Josh Robb, $1,000.

Josh Robb:

Yep.

Austin Wilson:

And you were alive in 1953.

Josh Robb:

Yep.

Austin Wilson:

And you put that $1,000 and invested it when only Republicans were president for that entire 70 years.

Josh Robb:

So, from 1953 to 2023-

Austin Wilson:

Correct.

Josh Robb:

I would take my money and put it in the stock market –

Austin Wilson:

Yep.

Josh Robb:

Only in the four years or whatever time period a Republican is in office and if they don’t, I would take it out.

Austin Wilson:

Correct.

Josh Robb:

Okay.

Austin Wilson:

So how much in dollars do you think that that $1,000 grew to?

Josh Robb:

Yeah.

Austin Wilson:

Because we’re assuming it grew.

Josh Robb:

It grew.

Austin Wilson:

70 years.

Josh Robb:

Okay. I’m going to let you tell me.

Austin Wilson:

Okay. It’s a lot.

Josh Robb:

It’s a lot.

Austin Wilson:

So it multiplied by 27 times. So that $1,000 turned into 27,400.

Josh Robb:

Okay. Nice. Yeah. Good return.

Austin Wilson:

That seems great.

Josh Robb:

Yeah.

Austin Wilson:

So over 70 years, 27 X, if you were only invested when a Republican was president. Now take the other side of a coin.

Josh Robb:

Okay.

Austin Wilson:

Suppose you put your money to work 1953, 70 years ago, only when a Democrat was president for that same 70 years. So, in the other years you were holding cash.

Josh Robb:

Okay.

Austin Wilson:

What would that money have turned into, $1,000?

Josh Robb:

Well, you would think it may be close to the same amount.

Austin Wilson:

Maybe, but actually it’s a little bit different. So that would’ve turned into $52,100.

Josh Robb:

That’s a lot.

Austin Wilson:

Now, that’s almost double, but I would put the caveat that a lot of that actually can be attributed to the fact that there have been more years when a Democrat was the president.

Josh Robb:

The Democrats in office. Yep. So, it’s not apples to apples, it’s not split evenly.

Austin Wilson:

It’s not necessarily apples to apples.

Josh Robb:

Okay.

Austin Wilson:

But the point is it still would’ve grown 52 X, –

Josh Robb:

That’s great.

Austin Wilson:

But still pretty solid.

Josh Robb:

Yep.

Austin Wilson:

But here’s the kicker, Josh.

Josh Robb:

So that’s not the lesson learned.

Austin Wilson:

The lesson, no. The lesson is not that Democrats have given better stock market performance because that’s actually pretty negligible. But the kicker is that what would that $1,000 have turned into had you just left it alone,

Josh Robb:

All right. Just invested the whole time. So, 27 plus 52 $80,000.

Austin Wilson:

Ooh. Let’s take into consideration the effect of compounds.

Josh Robb:

Ooh.

Austin Wilson:

The eighth wonder of the world, according to Albert Einstein, unsupported and unproven by anyone. That $1,000 would’ve not turned into 27 or $52,000.

Josh Robb:

Or even $80,000.

Austin Wilson:

Or even 80. It would’ve turned into $1.43 million.

Josh Robb:

That’s hard to comprehend.

 

[4:43] – The Power of Compounding 

Austin Wilson:

And that’s the power of compounding. So one thing that’s key when we’re understanding this way of thinking is that compounding and to earn the effects of compound interest, which is a wonderful thing, you need to be in the market to have it. And if you’re not being in the market for part of those times, you’re not going to be able to capture the full part of compound interest there. So, you got to stay in the market even when you don’t like who’s in charge, right?

Josh Robb:

Yep.

Austin Wilson:

All right let’s talk about this another way. So, suppose this time we had $10,000. That’s a nice chunk of change. And we invested that $10,000 at the start of every single election year going back to 1936.

Josh Robb:

Okay.

Austin Wilson:

And then we looked at what that turned into 10 years later. So the 10-year forward return, putting that at work. What we have learned through this study, and there was a great graphic from Capital Group, but what we learned is that the returns between the two parties at the point of the election, and those 10-year forward returns were actually very similar. They were around 11%, 10.5 to 11.2% or so. So pretty much the same return no matter who got elected. But what we know is that a couple cool things happened. Number one, you made money in all but one 10-year period-

Josh Robb:

Oh wow.

Austin Wilson:

Following an election year.

Josh Robb:

Despite all of the things that happened from 1936 to now, wars, famines, droughts, oil crisis, high inflation, low inflation, all that stuff, Covid.

Austin Wilson:

Yeah.

Josh Robb:

Yeah. Just crazy.

Austin Wilson:

So, you made money in all but one. In that one, you were only down about 10% in that one, and that included the .com bubble and the global financial crisis.

Josh Robb:

And 9-11.

Austin Wilson:

And 9-11. So that is really, really incredible. I think that that also just points out that it doesn’t necessarily matter. Right.

Josh Robb:

Right.

Austin Wilson:

The market is going to give you market returns over time.

Josh Robb:

Yep.

 

[6:40] – Looking at Election Betting Odds Over Polls 

Austin Wilson:

And you got to be in the market as we talked about, to get those returns. Now, another thing to be thinking about and just keeping our mind on, even though we do not believe it necessarily impacts the markets and historically has not. So, it likely will not, is where the odds are for today’s election.

Josh Robb:

Yep.

Austin Wilson:

Right. So, we tend to look at things like election betting odds rather than things like polls. Polls can be very, very skewed, very inaccurate, wildly inaccurate one way or the other. And depending on where you get it from, even more so. Now we look at election betting odds, which is people putting their money where their vote’s likely going to be. And those things swing very crazily between the couple years leading up to an election all the way to the election. And what we have seen is that Republicans hold a slight edge currently for the 2024 election in getting the party as the elected party. And former President Trump has a pretty good odd at this point, but those have swung very big in the past, but a pretty good lead in terms of actually winning the election in terms of what people believe with their dollars is going to happen. And that’s historically been pretty accurate over time. So those were the numbers Josh. What do you think about those numbers?

Josh Robb:

I tell you what, I love the fact that it shows you the apolitical nature of the market.

Austin Wilson:

Yeah.

Josh Robb:

The stock market does not care who’s in the office, like you showed all those different stats. It really is because it’s comprised of individual companies and we’re going to talk about that. But people’s emotions are the driving force. We’ve talked about this in all of our different investing podcast, is people react and invest based on emotion, which is not the way to invest. And politics is a way of bringing out emotion. And while there are strong reasons why you should vote for certain candidates and where you lean politically, that’s great. Investing should not be one of those motivating factors.

Austin Wilson:

Right.

Josh Robb:

The market will and has always continue to grow, innovate, and invest regardless of who’s in office.

Austin Wilson:

Absolutely. And we’re going to talk about that in a little bit.

Josh Robb:

We will.

Austin Wilson:

But you have a special, –

Josh Robb:

I do.

Austin Wilson:

Something for us this week.

 

[8:54] – Dad Quote of the Week 

Josh Robb:

I do. So, I have a quote from a former president that I thought was interesting.

Austin Wilson:

We’re not having a dad joke.

Josh Robb:

No, dad joke.

Austin Wilson:

Dad quote of the week.

Josh Robb:

Dad quote of the week. So Chester A. Arthur, president had a quote.

Austin Wilson:

Yeah, he was a dad.

Josh Robb:

He had just won the election and they asked him how he was able to do that. And this is his quote and it just sums up to me sometimes just the frustration level maybe of politics.

Austin Wilson:

Oh, yeah.

Josh Robb:

He said, “If it were not for the reporters, I would tell you the truth,” which is just interesting to me. And Theodore Roosevelt, also another president said when he was talking about the Senate, whenever they do roll call, the senators don’t know if they should say not guilty or present, which again, these are years ago, right?

Austin Wilson:

Oh, yeah.

Josh Robb:

Same problems, same politics, same thing. So just a reminder that there’s always been division and animosity and all that fun stuff between parties, between politicians and reporters, between everybody. And it is what it is. So dad quote from two different presidents.

Austin Wilson:

Dad quotes of the week.

Josh Robb:

Yep.

 

[10:03] – Should Your Investment Decisions Be Based on Political Beliefs? 

Austin Wilson:

All right. We talked a little bit about the numbers, talked a little bit about the statistics, but let’s just dig into a little bit and have a nice discussion about why it just doesn’t matter. So as we pointed out, historically speaking, market performance is not significantly correlated to the political party in power, whether that be President, whether that be Senate or House of Representatives. So what we’ve learned is if we let our political beliefs guide our investment decisions, that’s not really aligned with the evidence historically.

Josh Robb:

Yep.

Austin Wilson:

Right. So what do the markets actually focus on?

Josh Robb:

Right.

Austin Wilson:

Earnings.

Josh Robb:

Yes.

Austin Wilson:

They focus on fundamentals.

Josh Robb:

Yeah.

Austin Wilson:

And you hit on this a little bit, but companies are fantastic at growing earnings, growing revenue over time, and stocks move higher because of that. They don’t move higher because of what’s happening in Washington.

Josh Robb:

Yep.

Austin Wilson:

They move higher because companies are better at making more money.

Josh Robb:

Yep.

Austin Wilson:

And that’s all companies are really there to do. Their designed and their obligation is to you the shareholder, to earn more money over time.

Josh Robb:

Yep.

Austin Wilson:

And that’s what they do.

Josh Robb:

Yes.

Austin Wilson:

They do it in good times, they fix things in bad times and they do it even better.

Josh Robb:

Yep. And I mean, just look at any company that’s been around for 20, 30, 40, 50 years. Right. You have companies that have been around for 100 years, but they are in a different environment now than when they started. And they change and adapt what they do, what they make, how they make it to make money. That’s the whole point. And so you’re right, is that they don’t care about who’s in office, they do care about tax regulations, they care about policies, all that stuff, but they adapt to it.

Austin Wilson:

Yep.

Josh Robb:

Because a lot of these companies have been around in high tax environments, low tax environments, new regulations, old regulations, they still make money.

Austin Wilson:

They do.

Josh Robb:

So you’re right.

Austin Wilson:

Absolutely.

Josh Robb:

Businesses really do not care.

Austin Wilson:

And here’s something that I think more people need to get their mind around. Presidents, very important world leaders, right?

Josh Robb:

Yep.

Austin Wilson:

They are arguably some of the most influential people in the entire world. They have very limited control on the economy. They don’t write laws.

Josh Robb:

Nope.

Austin Wilson:

The House and the Senate may write laws, so they will ratify it.

Josh Robb:

Yeah, or veto it or whatever.

Austin Wilson:

Or veto it. They can go one way or the other. But they do not write the laws.

Josh Robb:

Right.

Austin Wilson:

They do not set the dictation of where the economy goes from a fiscal standpoint.

Josh Robb:

Right.

Austin Wilson:

Or from a monetary standpoint.

Josh Robb:

Yeah, they don’t control the purse.

Austin Wilson:

They even have less control over the markets.

Josh Robb:

Yes.

Austin Wilson:

They have no control over what the markets do.

Josh Robb:

No.

Austin Wilson:

So thinking that presidents have any influence over the economy of the markets really is a little short-sighted.

Josh Robb:

Yes, I agree. We tend to, and we do this outside of politics, but assign impact or influence on people more so than they really have. And I think presidents are one of those where you’re right, leader of the free world, lot of influence. But the economy is one thing, but we’re talking markets. The markets are comprised of a bunch of individual companies who really can’t be influenced.

Austin Wilson:

They have no control over a company.

Josh Robb:

So you’re right, keeping that in mind is key.

 

[13:05] – Economic Sentiment & Politics 

Austin Wilson:

So another thought is that political beliefs. We talked about how you can have strong emotions. It makes people get fired up in a lot of different ways. But what this sometimes can do is cloud judgment when you’re making your investment decisions, which would be investing aligning with your political beliefs or non-investing, that would be one example of that. So those are impulsive actions that can really hurt your long-term plan. So don’t do that. That’s what we’re saying. But another interesting study that actually came out, this is from J.P. Morgan. They said that through their research, they found that people’s feelings about the economy were strongly correlated to their political beliefs. So for example, if you were to lean more liberal and the president at the current time was liberal Democrat, so currently President Biden president, you probably have a higher belief in how the economy is doing than someone who’s more conservative because their party is not in the White House.

Josh Robb:

Yep.

Austin Wilson:

The truth of the matter is that it’s actually a lot less correlated to that in actuality. So the other would’ve also been true. So when Trump was president, if you lean conservative, you would have been more apt to think the economy is doing well than if you leaned liberal.

Josh Robb:

Yep.

Austin Wilson:

So the truth is that the economy swings a lot less big than people think it does, and it’s a lot more smooth of a ride. But our political beliefs give us bias in how we’re perceiving what’s happening in the economy at any given time. So that’s just a word of caution to not let those necessarily determine how you feel. Don’t let your beliefs determine how you feel, let what’s actually happening in the economy determine how you feel. And it’s pretty darn good as of right now.

Josh Robb:

That’s right. And I think of sports, right? If you’re rooting for a team, you’re more likely to look past their shortcomings and highlight their positive attributes. Right.

Austin Wilson:

Right.

Josh Robb:

Same is true with politics, is you kind of gloss over the downsides and say, look how great things are going. And it’s just normal bias, right?

Austin Wilson:

Right.

Josh Robb:

It’s just how we are as human beings. So if you can acknowledge and recognize that bias, it can help you avoid making that mistake or that emotional decision based on your feelings on how things are going versus how they actually are.

Austin Wilson:

Absolutely. Another thing to consider is that investments are influenced by things outside the US too. So if we’re thinking that the US election and US politics are really all that’s impacting our markets and our economy, first of all, we’ve just decided that historically is not the case.

Josh Robb:

Yes.

Austin Wilson:

But there’s also a bigger world. The US is the largest economy in the world and the largest markets in the world as well. However, there’s a lot of things going on around the world that have an impact on what’s going on in the economy and the financial markets that are even further disconnected from our politics, United States. So if we focus too much on what’s happening here, we may miss something that’s going on around the world that actually is having an impact as well. But Josh, kind of just break down a little bit how ultimately this really just is all about your financial plan.

 

[16:14] – Should Elections Impact Your Financial Plan? 

Josh Robb:

Yeah. And really what I want to point out were two main things out of this is one, your investment decision, we talk about this all the time, is really driven by your end goals, is should you make a change, should not drive around who’s in office, should I make a change drives around. Did something change within my plan? Did my goals change? Did my situation change? The reason why you should make adjustments is because something dramatically changed within your plan, not from a political standpoint. The second thing is, from the very beginning, compounding time, that’s the most important factor of anything here, is if I just give the market time, historically it’s been the best place to compound and grow my investments.

And so reducing anything that would cause me to change that plan is very important. I need to be aware of what are the factors that I am subject to that may cause me to want to pull money out, even if it’s just temporary, which you saw has a huge impact. You went from 30 and $50,000 to 1.4 million if you just let it go.

Austin Wilson:

Yeah.

Josh Robb:

And that’s huge. And I think getting that point across is time in the market versus timing the market. You’re never going to win with timing.

Austin Wilson:

Right.

Josh Robb:

Time in the market wins every time. And that’s the key to all this, is when you look at politics to say, yeah, there’s reasons for me to vote for A or B, that’s great, but investing should not be one of those reasons, nor should the end result force you to change your investments either.

Austin Wilson:

Well, I think to build on that a little bit more, something that we’ve seen over the last year or so is record high cash balances.

Josh Robb:

Oh, yeah.

Austin Wilson:

So people have been scared. We just got out of a bear market recently, but people have been really scared about investing. Inflation’s been high. We had a bear market in the stock market, a really bad market in the bond market.

Josh Robb:

Yep.

Austin Wilson:

People have been scared and stacking up cash, and that’s actually been not as bad as it has in the past because you’ve been able to earn 45% of your cash, which that’s not so bad. But historically speaking, now is the time to get off the sidelines with your cash. And this is not related to this election at all, but for the studying that we’ve done, we’ve seen that following peak interest rates, which interest rates probably peaked in the fall of 2023 for the cycle. Following peak interest rates, both stocks and bonds outperformed going forward. So what we can take from that is this is not, the election aside, this isn’t time to be holding cash.

Josh Robb:

Yeah.

Austin Wilson:

Holding cash is not going to help you fulfill your financial long-term plan. We’re not talking about short-term.

Josh Robb:

No. Emergency funds, all that stuff.

Austin Wilson:

Emergency fund, things you need for checking and savings and short-term stuff. That’s fine. Cash is great for that. We’re talking cash is not an investment period.

Josh Robb:

Don’t look at it as an investment piece.

Austin Wilson:

Exactly. So any other final thoughts, Josh?

Josh Robb:

I just remind you that everything we talked about isn’t saying you’re not going to experience volatility this year.

Austin Wilson:

Absolutely.

Josh Robb:

Election years do tend to have volatility, especially through the summer months when everybody’s campaigning and all that stuff. What I am saying is don’t let the short-term volatility adjust your long-term goal, especially if you’re not needing the money this summer.

Austin Wilson:

It doesn’t matter.

Josh Robb:

Just ignore it. Let that volatility play itself out because over the long run, again, time is more important. And so, elections tend to impact the market in the short term because the market doesn’t like uncertainty. And one thing you don’t know is the outcome of an election until it happens. But that short-term volatility is irrelevant when you look at those 10-year periods, 15, 20, those long-term periods, those little short-term volatilities not important.

Austin Wilson:

And looking back at election years in the past, markets have actually averaged positive returns during election years. There’s been some bumps in the middle,-

Josh Robb:

Yep.

Austin Wilson:

But positive returns. So if history is any indication, which it’s no guarantee of future results, we obviously know that, but it doesn’t have to be bad. So I yeah, totally agree. I just want people to be educated on this. We have our own political opinions,-

Josh Robb:

Yep.

Austin Wilson:

But as long as we don’t let those impact the way we are planning for the future, because again, we’re thinking long-term, we’re long-term thinkers here, everything’s going to be fine. Your financial plan is already set up to incorporate election,-

Josh Robb:

If you’re following those rules and on track. Yep. As long as you stay on track, you are good.

Austin Wilson:

All right, well thanks for listening. Please share this episode. Maybe you had someone talking about being scared about investing in an election year. Hey, share this episode with them. Email us any ideas to hello@theinvesteddads.com. We’d love to hear from you. And until next episode, have a good one.

Josh Robb:

All right, talk to you later.

Austin Wilson:

Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe and don’t miss the next episode.

Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.