Welcome back to another round of Sound Retirement Radio.
One of the top concerns we’re hearing from clients regarding retirement planning and investment management is the potential impact of the upcoming presidential election on their investments. In today’s podcast episode, I want to provide some historical context by looking at what has happened in the days, weeks, and years following four of the last presidential elections.
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Articles, Links & Resources:
The Market & US Presidential elections
How US Stocks have performed in an election month
Transcript:
439 Investing Through Election Chaos
Announcer: [00:00:00] Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. And now here is your host, Jason Parker.
Jason Parker: America. Welcome back to another round of Sound Retirement Radio.
You’re listening to episode number 439. The title of this show is Investing Through Election Chaos. And I think you’re really going to love this episode. But before we get into it, I like to start the day by renewing our mind. And I’ve got a verse here for us from Philippians chapter four, verse eight.
Finally, brothers and sisters, whatever is true, whatever is noble, whatever’s right, whatever’s pure, whatever’s lovely, whatever’s admirable, if anything is excellent or praiseworthy, Think about such things. And then something fun for the grandkids. [00:01:00] Why did the pumpkin sit outside during the party? Because it didn’t want to get smashed.
One of the top concerns that we’re hearing right now from our clients has to do with the potential impact of the upcoming presidential elections on their investments in today’s podcast episode, I want to provide some historical context by looking at what has happened in the days, weeks and years following.
Four of the last presidential elections. Remember articles, links, and resources are available at soundretirementplanning. com. Just click on episode number 439. Before diving into today’s episode, I wanted to share a recent experience I had while hiking in the Olympic mountains. It was a short hike, only about two miles, but the elevation gain was intense.
We took it slow, and a friend had warned me that near the top of the trail, it gets pretty steep, with ropes to help you climb. Several years ago, I had a close call and nearly fell from a high spot. So [00:02:00] ever since then, I’ve been a bit nervous when there’s been a lot of exposure. As we approached the summit, there were steep cliffs on both sides.
And just before reaching the section with the ropes, I was scrambling up using my hands. And suddenly, my right hand slipped inward, and I began to fall toward the edge. I had my trekking poles in my hand, making it hard to catch myself. Fortunately, I managed to stop the fall. But from that moment on, adrenaline surged through me, and fear started to set in.
My legs grew weak, I felt lightheaded, my mouth went dry, and I knew I was battling fear and anxiety. And after climbing another 50 feet, I had to stop. I told my friend, I said, go on without me. I had reached my limit. And it was frustrating because I knew that fear was all in my head, but no matter how much I prayed or breathed or recited my memory verses, I just couldn’t push past it.
So we turned back and we were only about one 10th of a mile from the summit. That [00:03:00] night, as I lay in bed, I couldn’t shake the memory. Every time I closed my eyes, I saw that exact spot where I turned around. The sense of panic and frustration washed over me again, reminding me of my inability to push through.
Later, when people asked me how the hike went, I said, the hike revealed me to myself. I like to think of myself as strong and courageous, but that experience showed me that I am not as mentally tough as I thought. And it’s only in these moments that we truly see who we are. I wanted to share this story because the same holds true for investing and risk tolerance.
When markets are calm, we can sit with a client and ask, how would they feel if six months from now 40%? And most people respond with something like, well, I wouldn’t like it, but I’ve been through it before and I can handle it. And most of the time they can, but for others, turbulent times, negative headlines, or even election uncertainty can cause emotions to take over.
No matter how rationally we discuss their plan, some clients just can’t [00:04:00] shake the discomfort of potential loss. They may pray, breathe, or recite memory verses, but the fear lingers and they become frozen, unable to take another step. They feel as though something needs to change before disaster strikes.
In today’s podcast, I’m going to be sharing with you how you can overcome the urge to make a drastic change to your financial plan or your investment strategy based on external factors like elections. At the same time, I understand what it’s like to feel fear in moments of uncertainty. If you’re feeling anxious, Transcripts provided by Transcription Outsourcing, LLC.
I want you to sell everything until the election is over. Then just before Donald Trump was elected, another client called with a similar concern. Jason, if this guy gets elected, the whole country has gone down the tubes. Sell [00:05:00] everything. I want out of the stock market. In both cases, I tried to talk them out of making such a drastic decision, but unfortunately I wasn’t as convincing as I needed to be.
And both clients sold their portfolios. The problem with selling everything is that it’s never easy to know when to get back in. There will always be reasons to hesitate, whether it’s stocks feeling too expensive, the national debt being too high, troubling world events, or even an expert forecasting doom.
In fact, about a year ago, one of my clients sent me an article warning of an impending stock market crash that, according to the author, would be the biggest sell off since the Great Depression. My clients were understandably concerned and came to me ready to sell everything. This time, though, I was able to convince them to stay the course, and they did.
And as I sit here today, the S& P 500 is up almost 40 percent over the last year and more than 23 percent year to date. Imagine what my clients would have [00:06:00] missed out on had they let that fear driven article dictate their investment strategy. The real risk wasn’t just the potential short term loss from market volatility.
It was the lost opportunity of missing out on significant gains by playing it too safe. So how do we handle the uncertainty of the future while sticking to a good long term strategy? First, you need a solid retirement plan focused on cash flow with an emphasis on spending. While we can’t control what the markets will do, we can control how we spend.
At the end of the day, retirement is about ensuring that you have enough income coming in to cover all of your expenses. That’s why a retirement plan built around cashflow is so essential. Second, it’s important to understand your time horizon. If you only have a few years to live, your risk exposure should align with your shorter time horizon.
But if you’re planning for 30 or more years of retirement, your time horizon allows for a different approach. Time is the cure to the volatility of the stock market. The longer your time horizon, the more risk you can afford to take. The next thing you want to do is [00:07:00] consider a bucket strategy. The bucket strategy aligns your short term portfolio withdrawals with low risk money.
As you move further out on your time horizon, Each bucket can take on more risk based on your plan, withdrawals, and risk tolerance. The beauty of the bucket strategy is that it’s designed to manage worry. It helps you stay invested during short term volatility because you have time on your side. It trains your brain to think of your money in terms of when you’ll need it rather than thinking you’re going to need it all right now.
Another key element is avoiding unnecessary investment risk. One way to do this is by using low cost exchange traded funds. ETFs to create a broadly diversified portfolio across asset classes, sectors, and across the entire globe. This deep diversification allows you to participate in market risk without the concentrated risk of individual companies.
Diversification reduces your exposure to uncompensated risk, which is the risk of any single stock or company, while still allowing you to [00:08:00] benefit from compensated risk or market risk, which is the risk that you’re paid to take. In addition, There’s a body of evidence that shows that tilting your portfolio towards drivers of higher expected returns, such as price, size, and profitability, can provide you with improved outcomes in a long term investment strategy.
Your comfort level with risk is likely different than mine. You might feel completely at ease hiking to the top of a mountain with cliffs on either side. Well, I may be more comfortable navigating investment risk. The important thing is to tailor your financial plan to match your personal tolerance for risk.
You need to take enough risk to outpace inflation and ensure your money remains viable, but not so much that you put your entire strategy at risk. Striking the right balance is key. To long term success. Once you’ve established the asset allocation for each bucket, the next step is rebalancing.
Rebalancing ensures that you maintain your target allocation by periodically selling assets that have performed well and buying those that have [00:09:00] underperformed. And this totally seems counterintuitive. Most of us naturally want to hold on to the winners and sell the underperformers. The data shows that no single asset class consistently leads the market over time.
By rebalancing, you’re effectively selling high and buying low, which is a fundamental principle of sound investing. The process of rebalancing takes the emotion out of the decision making and helps you stay disciplined, simply following your predetermined schedule. Okay. So now that I’ve outlined a framework for building a solid plan, let’s dive into the history of how the stock market has responded to elections and the impact of both Republican and Democratic administrations, let’s look at recent elections and their impact on the stock market, starting with George W.Bush. Many of you probably remember how close that election was multiple ballot recounts in Florida, the infamous hanging chads. nonviolent protests, particularly in Florida, and then the Supreme Court ultimately deciding the outcome. Here’s what happened in the [00:10:00] stock market. The election was November 7th, 2000.
The day before, on November 6th, 500 closed at 1, 432. 19. On election day, the market closed at 1, 431. 87. It was essentially flat by November 30th. The S and P 500 had dropped negative 8. 19 percent when compared to the day before the election. In 2008, Barack Obama and Joe Biden defeated John McCain and Sarah Palin.
And this was an especially turbulent time with controversies about Obama’s birth. place, the ongoing Iraq war and the country facing a financial meltdown. If you remember, there was Joe, the plumber who questioned Obama’s tax policy, sparking debates about wealth redistribution and claims that Obama was a socialist.
Then there was the affordable care act or Obamacare, which ignited intense discussions about healthcare reform. Protests erupted. Including at the Republican National Convention, where over [00:11:00] 800 people were arrested for violence and property damage. There were also protests against the Iraq war and following Obama’s victory, the Tea Party movement emerged in opposition to the TARP bank bailouts.
The 2008 election took place on November 4th. On November 3rd, the day before the election, the S& P 500 closed at 966. 3. By the close of Election Day, it had risen to 1, 005. 75, a 3. 92 percent increase. However, by the end of November, The market had dropped by 7. 25%. Next we come to Donald Trump versus Hillary Clinton in 2016.
The election focused on issues like protecting American jobs, immigration, and healthcare with Clinton supporting Obamacare and Trump promising to repeal and replace it. Nationwide protests followed Trump’s victory with the slogan, not my president, gaining traction. There were notable protests in Portland, Oregon, which escalated into rioting and [00:12:00] property damage.
Election day was on November 8th. 2016. The day before, on November 7th, the market closed at 2, 131. 52 and by the end of election day had slightly increased to 2, 139. 56. It was a modest gain of 0. 38 percent. By the end of November, the market was up 3. 16%. Finally, the most recent election took place on November 3rd, 2020 with Donald Trump facing Joe Biden.
The dominant issue was the COVID 19 pandemic. Trump was advocating for reopening the economy quickly while Biden favored a more cautious approach with government intervention, protest against lockdowns, the Black Lives Matter riots, and the January 6th Capitol protests all shaped the election atmosphere.
On November 2nd, 2020. The S& P 500 closed at 3, 310. 24. On election day, it rose to 3, 369. 16, a 1. 75 percent [00:13:00] increase. By November 30th, the S& P 500 had climbed to 3, 621. 63. Marking a 9. 41 percent increase from the day before the election. So now let’s step back and look at how the market performed during each president’s term.
During George W. Bush’s presidency, the S& P 500 averaged negative 3 percent per year. During Barack Obama’s presidency, the S& P 500 averaged 14. 31 percent per year. During Donald Trump’s presidency, the S& P 500 averaged 15. 89 percent per year. During Joe Biden’s presidency, the s and p 500 has averaged 13.66% per year through September 30th, 2024.
We had Apollo Escu on the podcast last year, and he highlighted an interesting point. From 1926 through 2021, there were 13 years where the Republicans had control of the presidency, the Senate, and the House. The average [00:14:00] annual return for the S& P 500 during those years was 14. 52%. During the 34 years when the Democrats held control of the Presidency, the House, and the Senate, the average return was exactly the same.
14. 52%. To the second decimal point, the stock market returns under Republican and Democratic leadership were identical. Of course, the stock market doesn’t tell the full story. Issues like leadership, wars, national debt, healthcare, inflation, immigration, jobs, energy independence are all crucial. But as far as stock market returns are concerned, History suggests that who gets elected may not have as big an impact on your 401k as you might think.
So while it’s important to vote at the ballot box, don’t make drastic changes to your investment strategy based on who wins. Stick to your long term plan. And here are a few quotes to consider. Peter Lynch said, Far more money has been lost by investors trying [00:15:00] to anticipate corrections than lost in the corrections themselves.
Jack Bogle, who is the founder of Vanguard, said, The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly 50 years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.
And of course, John Templeton once said the four most dangerous words in investing are this time it’s different. So in summary, have a solid plan in place. Invest according to your time horizon and risk tolerance. Segment your investments based on when you’re going to need the money. Embrace diversification with low cost ETFs.
Expect volatility in November. History shows market swings ranging from negative 8. 19 percent to 9. 41%. Use rebalancing to help you buy low and sell high and stay disciplined and don’t let the bad news knock you off course. Often [00:16:00] the biggest risk to your retirement investment success isn’t what the market does or who wins the election.
It’s how you respond to those events. Over the past presidential elections, we’ve seen a lot of controversies, turmoil, and social upheaval. However, historical data shows that stock market performance is not determined by which party holds office. Both Republicans and Democrats have seen similar average market returns during their presidencies.
And this underscores the importance of having a strong financial plan, sound advice, an investment strategy that promotes discipline, regardless of political or market turbulence. The key to long-term success is maintaining your course even when the world around you feels chaotic.
Announcer: Thank you for tuning in to Sound Retirement Radio.
For articles, links, and resources from today’s show, visit sound retirement planning.com. If you enjoy the podcast, share it with a friend and give us a five star review. Ready to kickstart your retirement planning [00:17:00] head over to retirement budget calculator.com. Need assistance with investment management, explore our services at Parker Dash.
Information and opinions expressed here are believed to be accurate and complete. For general information only, it should not be construed as specific tax, legal, or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program.
Parker Financial, its representatives, or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company. Investing involves risk.
Jason Parker is the president of Parker Financial, LLC, an independent fee based wealth management firm located at 9230 Bayshore Drive NW, Suite 201, Silverdale, WA. For additional [00:18:00] information, call 360 337 2701 or visit us online at soundretirementplanning. com.
