2024 Elections: Do election results influence your investment results?

In this conversation, Steve and Travis discuss the impact of presidential elections on investments. They provide historical context and data to show that there is no correlation between election results and investment returns. 

They highlight that over the past decades, the market has mostly seen positive returns, with only a few negative years. They also discuss the role of Congress and how it has changed over time. The conversation aims to provide listeners with a more informed perspective on the relationship between elections and investments.

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Transcript

Speaker 1: 0:07

Welcome to Ditch the Suits podcast, where we share insights nobody in the financial services industry wants you to know about. We're here to help you get the most from your money and life, so buckle up and welcome to Ditch the Suits. Well, welcome back to Ditch the Suits, steve Campbell. Here with Travis Moss, we're going to be kicking off a brand new I would say extremely timely conversation around current events, and none bigger than the 2024 presidential election. A lot of people out there you're on Ditch the Suit to get the most of your money in life. Huge component of that is what in the world to do with your investments, especially when you know if an upcoming event is about to be kicked off, being a presidential election. A lot of investors want to know kind of what should I do? Is there anything that I can do? So, travis, as people are thinking about a hotly contested debate it's all over the media how do we even begin to add context to the impact on our money?

Speaker 2: 0:57

Well, some people who are having these thoughts are just curious and some people are actually very, very afraid. So, like you said, this is very timely because hopefully we'll help to build some structural context around this so that we understand, from a historical perspective, really what happens with elections and the markets and the influences they're from. And, as we're getting ready to answer, the big question is what should I do to protect my investment funds during the election? I think that there's smaller contextual questions that give us a better foundation to really understand what's really quite a complicated discussion, and so those sub questions I guess are regarding the economy and investment returns. Do election results actually influence my investment results? So we're first going to look at when elections happen. Is there a correlation with what happens in my investment account? The second one is how do I prevent what is happening with politics from clouding my judgment regarding financial decisions?

Speaker 2: 2:08

So there we're looking at the outside influences and some of the hype around elections and things like that and sifting through the short term and the long term. It's kind of really more specific and then we're setting that really up and we're going to talk about you know, are you actually gambling with your money? And to help maybe put some perspective to. You know what investing for a lot of people has kind of turned into this game and a lot of people don't think it's a very fair game. So, and I think you know, when you go through negative cycles, which tend to be our election cycles anymore how, how do you how much of that is actually real and how much of it can you ignore? So hopefully we'll give people confidence when they're done with these three episodes and all the things that they're absorbing regarding the elections and the economy, and you know what it's going to do to their investments if they vote one way or the other and all that kind of stuff.

Speaker 1: 3:12

Yeah, and to kind of lay some groundwork before the big question is Travis and I are not here to bash one politician over another or one party over another. There's enough media outlets. If that's what you're looking for, you can go find. This is as much to give you contextual information that can help you. One of the series we did is how to bulletproof your portfolio yourself, your heart. That's what we're trying to do with this political conversation today and I think it kind of lays groundwork for the big question that we want to get into and why this is going to be an awesome series, because if you're new to DTS, we typically take series bit by bit to get to the big question. That's appropriate, and you can't do that in one, two hour conversations. You're going to have some bite-sized pieces. The big question is do election results actually influence your investment results?

Speaker 2: 3:55

Yeah, and I want to make sure that we're keeping in context the fact that there's a national election happening at the same time, that there are local elections happening. So you've got your state elections, you've got your town and village and city elections, and then you've got the national elections. It's not just the presidential election, it's also Congress Right, it's both. You know you got the Senate and the House of Representatives that you're voting for too, and there's a dramatic difference, I think, at the local and state levels. For instance, at the local level, people who are running for office you probably know, you may have even grown up with them, and so it's very common for somebody to say you know, I know most of the people in my community. You know, like most people are going to know the mayor of their town or have an opportunity to go sit with the mayor and have a beer. You know, go out to eat with them if they wanted to, that type of stuff. Most people will never have that experience with their state senator, or even their. I mean you might with your state senator for the state senate, but I mean your federal senator, let's say your congressional senator. Most people will never really have that experience there.

Speaker 2: 5:01

So, first and foremost, you know there's it's important to articulate the difference between some of our localized elections and then some of our federal ones, and again, the reason part of the reason for that is local rules matter too, and although they may not impact your investment portfolio let's say, like from a traditional sense, like your stock market investments they may impact your real estate portfolio if you own real estate. So it could be very, very important. And then you've also got the fact that, on a localized level, when laws are passed in your town, village, county, state, they tend to be very local and specific, so they can be specific to your neighborhood, your street, your socioeconomic status. They can be extremely specific, and those could have an impact, again, not necessarily on your 401k in the stock market, but on other things in your life that are risk and return related. So I think that it is very important to be aware, to be paying attention and to be asking questions.

Speaker 2: 6:11

We want to make sure, though, is that some of the angst around what I would call more doom and gloom type of stuff, maybe we're filtering that out a little bit more. And then also some of the promises, some of the you know the I remember running for president in my high school, my senior year, to be class council president or whatever, and promising a vending machine. You know like, do you even? Do people even have the ability to deliver on some of their promises, and what does it actually mean? So maybe we can put a little bit of that in context too.

Speaker 1: 6:45

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Speaker 1: 7:24

Yeah, and I think when you bring up the local governments, I don't think that there's too many people that are gripping to their 401k statement, waiting for the results of who's going to be the next mayor of their community.

Speaker 1: 7:34

But there's something about when it comes to US presidential elections and maybe because we're inundated when you turn on the nightly news every night talking about the character of individuals and their track records and the drama and the things that are associated with them that it begins to skew kind of how we see government overall, and so there are a lot of people that are out there worried about their money depending on what happens with the next election.

Speaker 1: 7:59

Who's elected, who's coming back. So this is very real. So we don't want to turn a blind eye to it and just say close your eyes for the next eight to 12 months At least. Just say, okay, we can't predict what's going to happen going forward, but we can at least look back over time and say let's look at history when it's come to years where there's been an election and look at kind of what has happened. So when you hear the market's going to crash if so-and-so gets elected, or it's going to crash if so-and-so gets elected, or it's going to take off if so-and-so gets elected, has that been true over time? So yeah, go right ahead.

Speaker 2: 8:32

Well, and there's an interesting thing that happens when you're staring at the news, and especially with the way that algorithms feed news to you these days on your smartphones and whatnot, or the channels are very politicized. When you are just sitting there staring at that politicized, when you are just sitting there staring at that, you know that any volatility seems huge, any issues seem huge. And when you're a fiduciary, when you're in charge of somebody else's finances, let's say and you have to take a much more measured approach the amount of events that are actually huge and of real long-term significance are actually a lot less. And that's the difference between being a professional and trying to handle your own personal stuff sometimes is your feet are in the fire because it belongs to you, every decision belongs to you. You know there's nobody to blame it on. Everything seems extreme. You've there's nobody to blame it on. Everything seems extreme. You've only got your own experience, you've only got your circle of friends, whatnot, and so there's an awful lot of pressure and a lot of stress that comes with. You know all this information that's hitting us anymore. And so, like you mentioned, let's start it with. Let's just talk about some of the numbers.

Speaker 2: 9:47

And did you know, steve, that there are only two presidencies and for the sake of our research today and our discussion, I only went back to 1952. Pre-1952. I don't know why you would compare then to now. So even 1952 is kind of a stretch, but it gives us enough historical context to say is there something that actually happens during elections? And did you know that since 1952, there's only two presidencies? So I looked at history in four-year blocks, so every presidency starting in 1952, going every four years, so 52, 56. So even if a president they may get through their four years, we're talking about that four-year block that they otherwise would have been president for. So there's only two times that the market ended negative over a four-year time period. So all this thing that people are like, oh my gosh, markets are going to go down and I'm going to be ruined and I'll never be able to see it come back there's only two times since 1952 that over a four-year time period so over the beginning of a presidency to the end of a presidency, a presidential term that the market actually declined, and those two times are 2000, under George Bush. So this is the second George Bush and interestingly he had an all Republican Congress, so not everybody was Republican, but the House and the Senate were controlled by Republicans. That's what we mean by all Republican. And the other time was Not any time recent. It was in 1972 under Nixon, and he had an all-Democrat Congress. So Democrats controlled the Senate and the House. So there's not really a correlation there.

Speaker 2: 11:42

And then you have September 11th in 2001. That certainly didn't help the markets at all. And then you have the Iraq war starting in 2023. So there's some significant events that happened between 2000 and 2004. I mean really significant events, so significant that it hasn't happened since. We haven't had a four-year run since where the market started and ended negative as far as aligned with presence. Now you could probably find four-year periods by shifting the start and end dates outside of these four-year parameters. But we're talking about does the president or does Congress make a difference to your investment returns? So in this regard, we need to stick to the actual time periods allotted to them. And then, just, we talked about 2000 for a second.

Speaker 2: 12:36

But 1972, for those that don't remember, that was Watergate. So Nixon's elected and then the whole Watergate happens and then he resigns in 1974. And that's also at like the point of massive inflation kind of ramping up in the US, so there's some pretty significant events there too. That's a pretty dramatic situation. Again, it hasn't repeated itself. The reasons why the markets crashed for that four-year period and the reasons why the markets were crashed in 2020 for that four-year period are very, very different. So if you're just looking for a pattern, I think you also need to consider causation and say, even if you could say, geez, every 30 years, maybe this happens. What's the cause, though? You know there's a triggering event that actually makes it happen.

Speaker 1: 13:35

And I think adding that context and that's what I love is. I think it's helpful because, again, if you just turned on the nightly news, it makes it sound like, depending on who your party is, your candidate is, every four years there's such a shakeup and there's such a negative determinant, depending on who gets elected. That's the way that the story is sold to us. If so-and-so is elected, of course your money's going to crash. But then when you look back over this time period, which isn't like you know, you can skew a lot of data in your favor and look back only a short amount of enough time to at least provide statistics, but it doesn't really give you a good sample size Going back to 1952 and the number of turnover every four years. I know we're going to get into it.

Speaker 1: 14:15

Looking at the actual presidencies, it's interesting that it doesn't necessarily back up. I think, every night what you hear on the news and from storytellers saying, if so-and-so gets reelected or if so-and-so gets elected, that the economy is going to crash, your market's going to crash. So keep going through some of these instances because I think it helps even further. Tell some of the story. Hey guys, steve Campbell with Ditch the Suits, want to take one quick moment to make a big ask. If you haven't already, travis and I would love for you to subscribe to this podcast, but if you haven't, also we would love for you to leave a five-star rating and review. Your rating and review will let other podcasters know that the show is worth their time. So let's get right back to the episode, and thanks for listening to Ditch the Suits Podcast.

Speaker 2: 14:58

Yeah, and you know there's been 16 instances where the stock market has had a negative year. So this is a loss. So you started with $100, and you have less than $100 if you invested. And when we say the market, we're talking the S&P 500. So just to give us a broad market idea, and it actually for our numbers, we're only going back to 1957 because that's really when the S&P 500, I believe, was actually like a thing. So the first two presidential terms in our study here were Eisenhower's. So we're not talking I don't have the market data necessarily just because I was only using the S&P 500 for his terms. I don't think it necessarily matters for the point that we're making. So since 1957, there's been 16 instances where the stock market had a negative return and that means 77.5% of the time the stock market has gone up 77.5%. Now it sounds like it doesn't go up very often. It sounds like it's been. I mean, we just got done with 2022. 2022 was horrible. 2023 was kind of, like you know, icky all the way until the end. Then all of a sudden they came roaring back. This year's off to a good start. This is really interesting.

Speaker 2: 16:18

So in the 1950s there were two, two negative years In the sixties, three negative years In the seventies, three negative years Starting to form a pattern here right in the 70s, three negative years Starting to form a pattern here, right. And I think you could go back in headlines in each decade and you got people around the presidential elections talking about the end of the world. You know, inflation, this inflation that we're all doomed. Too much debt, blah, blah, blah. In the 80s, only one negative year. So you go okay, that's maybe an anomaly. In the 90s, only one negative year. In the 2000s only one negative year. In the 2000s, four negative years. You had 2000, dot-com issues and September 11th and the Iraq War and all that kind of stuff, and you had 2008, all in those early 2000s. However, if you kind of added those to, let's say, the 90s and divided by two, you'd be at two and a half.

Speaker 2: 17:15

And the first three decades in our study here was two, three and three. In the 2010s, one bad year 2018, that was the Trump-China tariffs at the end of the year, torpidated the market, which actually really set up 2019 as a much better year. At the end of the year, torpidated the market, which actually really set up 2019 as a much better year. And then so far, obviously this decade, one bad year, and that was two years ago. So it is actually fairly rare that there is a bad year.

Speaker 2: 17:42

Yet somehow, from the sound of it, doesn't it sound like we are doomed to financial disaster? I mean, and it ramps up on the. It ramps up on the midterm years and you know I didn't do any studies on the midterm years here because we're really focusing a lot more on the present, but you know it's it ramps up every time. The cycle is because you know it's the other side is going to take us down a path. And if and if we're not careful and they take us down that path, we can't come back. And the reason why that is is because bad news sells. I mean the, the, it's.

Speaker 2: 18:21

It's hard for people to turn off the bad news, right, it's scary too, and and you need a basically because this bad news is beyond your control as a regular person.

Speaker 2: 18:35

You can't walk into the Fed and say, fed, I want to change the policy. And somebody told me recently they said you've got decades of experience with this stuff. I've only been reading the newspaper off and on and maybe I've done that for 30 or 40 years, but I don't understand any of it Right? So you've got here, comes along, our politicians, which I think I saw a study one time, and if you were to actually test the average politician for the economic intelligence, they'd be at like a college one on one class, maybe even below intelligence, they'd be at like a college 101 class, maybe even below right. So here they come along and they say because of these other people over there, whatever side of the aisle you belong to, it's the other people. The world is going to go, you know, collapse around us and I can be your hero though. I can save us and you should trust me. So, basically, your favorite politician is going to be your hero and they are going to save you with fiscal policy.

Speaker 1: 19:37

Well, and it's interesting, it feels like too, whoever current party is in touts, that the markets have never been higher right which, when you look back over time, you could take snapshots of TV of markets hit record highs. So I think, again, adding this context is really helpful for the person who's out there, that I think the last thing, travis and I would want you to do is make an emotional decision off of something that maybe a talking head shared with you and again, it's just to provide you context. That's all we're trying to do is look back over time and say that is pretty fascinating when you look at the decades, how few times the market was actually down compared to, maybe, the experience that the media you know tries to push our way. So I think that as we talk through that, what about you know talked about the role of Congress and when houses and, you know, the Senate involved, what's kind of the story there?

Speaker 2: 20:29

yeah, and I think that this is important because this is where a lot of the the severe politics come in right, because it's the real battle in politics, the president's kind of the figurehead, but the the real battle behind the scenes is congress right congressional people fighting for their seats at the table and, um, and I know that this, this uh set of episodes that we're going to do for those that are politically, you know, hyper, this is really going to annoy them because, um, we're going to look at the realities of what each party does when they're in power and the financial ramifications of it, and I think that we're going to see that it's kind of messy on both ends. So did you know that Republicans did not control both houses of Congress at the start of a new presidency? And again, I'm not looking at midterms because we're trying to stick around the whole presidential debate From 1952 all the way until 1996, democrats were in charge of everything, except for the presidency, which was kind of waffled back and forth between Republicans and Democrats from 1952 all the way through 1996 in this study. So that was when Bill Clinton was selected or elected actually to his second term. Since then, republicans have been in charge of both houses four times on the presidential election years and it's been all Democrat once and it's been split twice. So either Democrats or Republicans were in charge of one house and the other party was in charge of the Senate. And again, it doesn't matter what your political affiliation is. Something materially changed in 1996. Something happened. And when you actually go back and you look at the statistics, when you look at the numbers of like House reps that were Republican and Democrat, it wasn't even close. If you go back into the 50s and 60s and the 70s, it was dominated by Democrats and then all of a sudden the Republican Party catches up. And this is why this is so important.

Speaker 2: 23:02

If I'm in a dominant position, if I'm the alpha and there's nobody who can challenge me, they're not even close. Right, it's me and a bunch of children. It's just we're not even playing the same game. If I'm the alpha and I'm dominating, I can be very fair and very good to you because I'm not threatened. What happens when another alpha enters the room and challenges me on every single thing, or challenges to take away things that I have come to assume are mine? All of a sudden and it's not just the alpha in the room that's going to feel like this, the alpha walking into the room is also looking at it, going. I deserve this, I am here Right, so these things should be belonging to me.

Speaker 2: 23:56

So we go from a situation where there really wasn't real competition, at least on the congressional level, at least by the numbers, to a situation where I am incentivized to make the other side look incompetent, to make the other side look morally corrupt, to make the other side look inferior. I'm looking for help. Now I'm saying, hey, you know what I'm battling? This other alpha who's going to come to my aid? Hello, lobbyists. And then what do I have to do for lobbyists? I have to reward them for coming to my aid, right? I got to make sure that they eat a little bit when I do win. And so it starts to change the discussion All of a sudden. Around 1996, I was there's a real incentive for people to start playing dirty because there's now two formidable sides. It's becoming more and more of a fair fight, which means less and less dominance and more and more feeling of entitlement on both sides. You know like, okay, we can actually do this. How are we going to divvy this up?

Speaker 1: 25:20

you know, like, okay, we can actually do this. How are we going to divvy this up? Well, I think, even even just getting to that idea that it was that long that it was a one sided affair I don't think probably many people in history kind of knew that. So even just even that context is helpful. So then let's, let's talk about maybe, as things caught up, or even more context that can help a listener kind of add some data behind it.

Speaker 2: 25:41

Yeah. So we're going to pick on just Congress a little bit here. To set the tone, I went back and looked at every presidential election again since 1952. We have 10 Republicans and eight Democrat presidents, or presidential terms, let's call it. There have been six Republican-led senates and the first one started in 1984. There have been five Republican-led houses, the first one starting in 1996. There have been 12 Democrat senates, 13 Democrat-led houses. There have been three instances where Congress was split. Again, this is just the presidential years. There have been three instances where Congress was split. Again, this is just the presidential years.

Speaker 2: 26:21

Ten presidential terms resulted in the S&P 500 increasing by more than 20%. Start to finish over this time period. Ten, and again, I don't have the first two, I don't have a record for the first two. As far as the market goes, we're really talking about 16, a pool of 16 four-year periods. Ten of them. The market returned more than 20%. We know two of them. We had negative returns, right. Then the other four terms basically somewhere between zero and 20% return. Somewhere between zero and 20% return when we take out Eisenhower's two terms 50% Democrat, 50% Republican as presidents, right, and we talked about the makeup kind of with the House and the Senate. So in order of top performing four-year markets, all I've done, I've taken out the names, because I think people are stuck on the names a lot right, like who their favorite president was. If your favorite president is Clinton or your favorite president is Bush or something like that, like it doesn't matter.

Speaker 2: 27:34

In order the top performing presidentials, four-year periods by party Number one was Democrat, number two is Republican, number three was Democrat, number four was Republican. Number five and six were Democrat, seven was Republican, eight was Democrat, nine was Republican, ten was Democrat. Pretty damn random. So then I said, ok, okay, well, maybe there's a correlation with congress's, maybe the president's pretty much a figurehead because, remember, congress controls the purse. Congress's job is to approve the budget and give the president money and then say, president, you're supposed to administer our laws and, you know, make sure the money goes where we said it's supposed to go.

Speaker 2: 28:16

Um, and I've asterisked these because of pre-1996, remember there weren't any Republican majorities kind of across. It was very unheard of to have any Republican majorities on either the Senate or the House. It was more random or more rare. So the top performing market four-year period of all time started, at least for the first two years of the presidency, all Republican. Then it was a split, republican and Democrat. You know, one party in charge of the House, the other party in charge of the Senate.

Speaker 2: 28:52

Then with the asterisk, because it was pre 96, all Democrat, followed by an all Democrat, again, again with an asterisk, then a split, then a Democrat with the asterisk, then Republican since 1996. And then the last three were Democrat, but again, most of the instances before 1996 were all Democrat anyway, like so it's kind of a different. We're comparing apples and oranges a little bit there. So if I just took the top five, we have all Republicans split, democrat, democrat split. If I took the top five but took out 1996, actually I only have four samples all Republicans split, split, all Republican. It's random is what it all means. There is no way to look at the numbers and say if it's Republicans that are elected, we're going to have fiscal responsibility, and well, we're going to talk about that in another episode. We're going to actually get into national debt and monetary supply and stuff like that. But it's not like, oh, the market will take off if it's just the Republicans or if it's the Democrats, the markets will take off. There is no statistical correlation between the two issues.

Speaker 1: 30:06

So let's ask that big question then that we started at the beginning, and I'll let you bring it home with what you just said. So, travis, do election results influence my investment results?

Speaker 2: 30:17

Yeah. So the answer is I got ahead of myself there. There's not a correlation between political parties elected during presidential election cycles and investment returns over the following four years.

Speaker 1: 30:27

It's huge, and I think that's again okay. This could be a lot of data. If you're new to our show, maybe you were looking for something a little more sensational right out the gate. It's not our job to give you sensational information. Our job is to give you real data, to present a case and ultimately allow you to make a decision that you feel is right for your family.

Speaker 1: 30:48

If, in what we shared in this half hour together with you is that there really is no correlation based on what we were able to track from you know, these statistics back from 1952.

Speaker 1: 30:59

Able to track from these statistics back from 1952, well that might help you, as we get closer to this actual debate in election, to not make any moves, good or bad, because it is a gamble and we'll get to that in the last episode of this series Whatever you do has ramifications, good or bad, but at least you should be armed with enough information to know.

Speaker 1: 31:13

In this case, no matter what happens, looking back over a long period of time, there's only been so few negative years that have correlated over a four-year period, so I think that context is really helpful, because then in this next episode, we're going to get into how politics are clouding your financial decisions. This might be a little bit of a gut punch for you because, again, we're going to maybe bring some things to the surface that you don't want to hear, but we think that's helpful. So, as we bring this episode to a close, we do want to remind you that you can not only listen, but watch all of our episodes on our YouTube channel at NQR Media Not quite right, media you can stream not only these shows, but our three other flagship shows at NQR. Again, we're trying to bring you timely information that can help you get the most for your money in life. So, as always, thanks for stopping by. Ditch the Suits podcast.