How Elections Affect Markets: Let’s Talk Politics
The number one, two, and three rules in my business are: don’t talk politics. I can insult your spouse, religion, children, or even Tom Hanks and Sandra Bullock, but don’t insult your political view. And let me tell you something, it’s true as the day is long. If you want to survive in my business, DON’T TALK POLITICS!
So, why am I about to talk politics? Because I’m craaaazzzzyyy!
Politics and Investments
Alright, I’m going to do my best to not insult every last client we have. But with the influx of calls, and the growing unease about the looming election, I feel it necessary to discuss ‘politics and the stock market’ at very least. (See how I am dodging a bullet here?)
Here are a few calls I’ve received recently on this topic:
“Andrew, should we go all cash in case Biden wins? I may stay in cash until he’s out of office!”
“Should we go all cash in case Trump wins again? Not only that, but I may give up my US citizenship!”
My far-left clients are petrified that if Trump wins, we’ll have Civil War, the pandemic will rule for four more years, and we’ll be thrown back to the stone age.
My far-right clients are fearful of 70% taxes, corporations no longer being able to function, and the end of our economy as we know it.
These are serious fears. A lot of it is one party scaring the next, and a lot of it is people’s core beliefs. You can see why I’ve always been advised never to discuss politics. But, how can I not? When people call with concerns, be it Covid, Brexit, or election, I have to give unwavering advice based on facts, not emotions or even my own personal biases. Because that’s what our clients need from us.
Politics and Economic Statistics
I’ll pepper you with a few stats. For starters, we can all agree that the very commerce and the tax-friendly Republican party is better for the stock market historically, correct? I hate to be the bearer of bad (or good) news, but statistically, that’s not correct. From 1929 through the Obama administration, Democrats’ average annual return of the US markets has been close to 11% a year, while a Republican lead presidency has been closer to 2% annual return (according to Bloomberg, Plancorp).
Since 1945, the top two presidents for market returns according to Y charts were… Bill Clinton at 210% return and Barack Obama at 182% return. Three was Dwight D. Eisenhower at 129% return and four, Ronald Reagan at 117%. Our current president is middle of the pack, at 43% return. Who was the worst? George W. Bush at -40%, followed by Richard Nixon at -20% (Forbes).
What is the best year of a president’s term? Almost always year three, and it isn’t even close. The average return is 16.4% vs. the next closest year at 7%, according to Schwab Center of Financial Research.
What do these statistics tell us (besides the fact that half of you are cheering me and half are cursing me)?
You ready for the truth? You sure?
To be honest, these statistics don’t actually hold much relevance. For starters, there isn’t a large enough sample size to draw conclusive findings. The other reality is the president doesn’t matter as much as you think (at least as it pertains to the stock market).
There are thousands of pieces of data that affect both the domestic and global stock markets. It’s why it’s so hard to predict where it will go next. It’s also why my advice is fairly easy and always consistent. Stop letting your personal feelings about politics interfere with your investments. I know this is really hard because it’s a very emotional topic. But you have to listen to me. The markets don’t care about your political proclivities. They simply don’t.
What would have happened if you sat out the Obama administration? Only a 182% missed opportunity. Heck, if you decided to sit out the Trump administration, it still would have been a 43% mistake.
Stop letting the president influence your retirement and investment accounts. Remember when I said don’t sell because of Covid? The same holds true here. Simply dial in your comfort zone from the get-go and quit letting these things influence your investments. If you let them, your investments will work for you. If you don’t they’ll work against you.
I’m not saying the president doesn’t matter for other reasons and can certainly have impacts on the stock markets. But when going to the polling center, take the stock market out of your vote and focus on the other things important to you.
Regardless of what side of the aisle you’re on, we’re approaching a pretty divisive election. It pains me to see it, as I truly want everyone to be happy. I can’t control much, but I can assure you, if you listen to my advice and do not get your politics involved with your finances, you’ll be much better off. Heck, you’ll be able to call me a friend.
Cue the music Carole, “Now ain’t it good to know that you’ve got a friend when people can be so cold. They’ll hurt you, yes, and desert you. And take your soul if you let them. Oh, but don’t you let them.”
Stay Wealthy, Healthy, and Happy everyone and know we’re here for you.