Investing During An Election Year

Investing During An Election Year – Welcome to the Webinar (0:00)

Josh Glenn: Alright, well, why don’t we get started? Good afternoon, welcome everyone. My name’s Josh Glenn. I am excited to talk to you all today about investing during an election year. This has been a hot topic around the office with many of our clients, and we wanted to take some time to go over it today.

I have a few housekeeping items that I just want to go through to ensure you know what to expect during this webinar. This shouldn’t be super long. I think it’ll last about 20 minutes, so you can get some information and then get back to your day and whatever else you need to do.

We are going to have a Q&A feature, so you should be able to see that on your screen right now. One of my good friends and coworkers, Alek Johnson, one of our other advisors, will be managing that. We’re also going to have a Q&A session at the end where you can ask additional questions, and I’ll answer them for you.

This webinar is being recorded, and we will send that out tomorrow. So, if someone didn’t get to watch it live, they’ll be able to watch it tomorrow, or you can watch it again.

The last little housekeeping item is that we are going to send out a survey at the end. I would really appreciate it if you took some time to fill it out. We love the feedback. We always want to improve what we’re doing here at Peterson Wealth Advisors.

Before we jump in, I thought I’d take a second to tell you a little bit about myself. I always enjoy learning a bit about the presenter when I’m watching presentations, and I hope you do too.

So, this picture here on the left, that’s me and my cute wife Taylor from a few years ago. This picture in the middle is our baby boy. His name is Beckham. He’s currently seven months old and he’s been a lot of fun. You can see he’s got a little bonk on the side of his head. He’s reached the stage where he’s rolling around and crawling, so hopefully, he’ll learn to stop running into walls. But, we’re not sure.

And then, the picture on the far right is our puppy Louie, and he’s a good boy. He hasn’t been as good of a boy since we’ve brought Beckham home, but he’s cute, and we enjoy having him around.

Before we jump in, I want to give a disclaimer. This presentation is not intended to be investment advice. It’s really just meant for informational purposes. I don’t know everyone on the webinar, and I definitely don’t know everyone’s specific financial situation. Rarely in life is there one-size-fits-all advice or an approach that fits everyone. So before you make any major changes, I would recommend that you talk to your advisor.

Here at Peterson, we have clients who are living all over the country, and our clients have varying political beliefs. They’re on all ends of the political spectrum. We get questions about what’s going to happen to the market if this person is elected or that person is elected, or if a particular political event happens. We get those sorts of questions all the time from both sides. As we’re coming into an election year, as you may have imagined, we start to get a lot more of those. And both sides of the political spectrum are worried about what’s going to happen to the market during this election year and after the election.

So if you’re feeling anxious, just know that you’re not alone. There’s a lot of other people feeling that way too.

A recent study by Nationwide Insurance Company explored how investors are feeling about the upcoming election. According to their research, one in three investors believes the economy will plunge into a recession within 12 months if the political party with which they least align gains more power during this upcoming election. I thought this was interesting because it aligns with what we’re hearing from our clients. Almost a third of the country is thinking, “If so-and-so gets elected, we’re toast. The economy is in big trouble.”

So if you’re one of those people, know that you’re not alone. My presentation today is really going to focus on numbers. I want to look back at how the stock market has performed historically during election years. I will show you how the stock market has done under both Democratic and Republican presidents. I think you’ll find that the numbers will actually put you at ease. And I hope that after this presentation, you’re feeling more relaxed and comfortable with the election and the years to come.

What Has Happened In Past Election Years? (6:06)

So this is a great slide. All this slide is doing is comparing election years and non-election years. It simply looks at whether the stock market was higher at the end of the year compared to the beginning of the year. It’s pretty straightforward.

Since 1926, there have been 24 election years and 71 non-election years. Forty-nine out of the 71 non-election years have seen the stock market return positively, or 69%. Since 1926, there have been 24 election years, and in 20 out of those 24 years, or 83%, the stock market has also had positive returns.

When I was preparing for this presentation, this surprised me a bit. I expected them to be about the same or, honestly, maybe election years to be a bit lower. So, I was surprised to find out that 83% of election years see the market go up. Whether that was by 1% or 10%, it has gone up slightly.

So, when you dive into the numbers, a few things play into this. The research shows that the first half of a presidential election year tends to be somewhat flat or even slightly negative, but the back half of an election year, from June through December, is when the market has historically risen quite a bit. Many authors believe this is because after the primaries, investors have a better idea of who may win or at least the political ideologies and policies that might be in place. And that clarity tends to give the market a boost.

We know that, historically, 83% of election years have seen the market go up. But you might be wondering, “Well, how much?” That’s what this next slide is really about. It’s going to give you an idea of how much the market has gone up in the past.

A quick disclaimer for this slide: I did a lot of research and studying in preparing for this presentation. Depending on which source you looked at, the numbers were slightly different. But all the different sources I looked at told the same story: During election years, the stock market tends to have significant positive returns.

So now I want to dive into this.

During non-election years, the S&P 500 has averaged a 10.3% return per year. During election years, the S&P 500 has actually seen a slightly larger average return, at 11.6% per year.

This was also not exactly what I was expecting, but that’s why it’s good to look at the numbers, set aside your biases, and just focus on the facts.

Another interesting point to note is that the stock market typically performs better during the last two years of a president’s term compared to the first two years. In the first two years, a president is not worried about being reelected and might push less popular policies they want to implement. In the last two years, however, they push more popular policies, try to stimulate the economy, and aim to get voters feeling good about the economy so they can be reelected. This tendency might play a factor in why election years, which are inherently in the last two years of a president’s term, often see a market upswing.

What If My Preferred Candidate Loses? (10:49)

Now that we understand what has happened during past election years, the next step in our discussion is to consider what might happen if your preferred candidate loses. What about after the election year?

To help frame this discussion, I want to tell a story about Warren Buffett. Most of us are familiar with Warren Buffett. He is a billionaire widely considered to be one of the best stock market investors of all time. During the 2016 presidential election, Warren Buffett was a major supporter of Hillary Clinton. He advocated for her, attended some of her rallies, and was a significant donor to her campaign.

However, as we know, Hillary Clinton was not elected. It’s important to see what Warren Buffett did in response. Despite his support for Clinton, he didn’t sell all of his investments, he didn’t move all his money to cash, nor did he make drastic changes to his investment portfolio because the candidate he supported didn’t win.

Warren Buffett understood something crucial about the stock market: the presidency and political events, while impactful, are not the sole drivers of market performance.

How Do Markets Perform After The Election? (12:15)

This next slide shows how the stock market has performed under Democratic versus Republican presidents. During Democratic presidencies, the stock market’s performance is highlighted in yellow; during Republican presidencies, it’s highlighted in orange. The key takeaway here is that the stock market has performed well under both Republican and Democratic presidents.

It would be naive to say that the president of the United States or their political policies have no effect on the stock market. However, it’s clear they are not the main drivers of stock market performance. Thus, it doesn’t make sense to base your investment decisions solely on who is in the White House.

This is another really interesting chart, and it’s designed to encourage people to keep their money invested in the stock market regardless of what’s happening politically. It’s designed to show what can happen if you try to time the market based on political leadership, whether it’s a Republican or a Democrat governing the country.

This chart illustrates what happens if you took a thousand dollars and invested it in the S&P 500 in 1953. If you left that money in the market the entire time, without taking any out, that thousand dollars would have grown to over 1.6 million by now. However, if you only invested your money during periods when a Republican was in office, you would have less than $200,000. Similarly, if you only invested when a Democrat was in the White House, you would also have less than $200,000.

So, the data is clear. The market has had great performance under both Republican and Democratic leadership, and historically, it has been best to leave your money invested all the time.

What Does Affect Financial Markets? (15:00)

Now that we have taken some time to understand what has happened during previous elections and observed that the market performs well under both Republicans and Democrats, you may be wondering what does affect the financial markets. What really does have a significant impact on them?

There are three main things that drive financial markets: economic indicators, monetary policy, and corporate earnings.

Economic indicators are things you often hear about in the news. This data is released monthly or quarterly and includes metrics like inflation rates, unemployment figures, consumer sentiment, and consumer spending. These indicators help investors gauge the overall health of the U.S. economy, and they can significantly influence the stock market.

Monetary policy, managed by the Federal Reserve, involves measures like interest rate adjustments and money supply management. Whether the Fed is injecting more money into the economy or pulling it back can also have a substantial impact on the stock market.

Lastly, corporate earnings are crucial because when you invest in stocks, you’re essentially buying a portion of these companies. Stocks tend to rise when companies are performing well, are profitable, and are growing. Conversely, stocks tend to fall when companies are not performing as well, with shrinking profits.

These are the main drivers of the stock market. While politics can affect the market, it has not been shown to be a significant driver in the past.

What Should I Do? (17:00)

So now, what should you do with all this information? I want to share a story about a great experience that my family and I had while whitewater rafting, which I think has valuable lessons for investing during an election year. I’m being a bit sarcastic here—it wasn’t a great experience, but it was enlightening.

We were camping in Wyoming, near the Snake River, and very spur-of-the-moment, my dad suggested we go whitewater rafting. None of us were very experienced, but we were all on board. We got to the river, we had a guide, and he told us they had released a lot of water from the dam that day, making the river faster than usual. He assured us we would be okay if we followed a few fundamental rules.

He explained that as we approached a rapid, we needed to keep paddling. He said many people get scared and stop paddling, but it’s essential to keep going because paddling helps steer the raft to hit the rapids head-on, preventing it from flipping. Despite this advice, as we approached the biggest rapid of the day, many of us stopped paddling out of fear. Consequently, we hit the rapid sideways, and our raft flipped. We all ended up in the river. I popped up quickly and found it somewhat amusing initially, but soon, I realized some of my family members were having a tough time. They had been pulled underwater for longer and found the experience quite traumatic.

This experience taught us that deviating from the fundamentals during critical moments can lead to undesirable outcomes. It’s similar to how people might react to the financial markets during an election year—out of fear, they might make hasty decisions that deviate from their investment strategy.

Elections can be anxiety-inducing, and it might be tempting to react hastily and change your investment course. However, historical data and fundamental investing principles suggest that maintaining a steady course is often more prudent. Just as my rafting guide instructed us to keep paddling to navigate the rapids safely, it’s wise to stick to your investment fundamentals during turbulent times.

So, stick to the fundamentals. Money that you might need in the next five years should be invested conservatively, perhaps in savings accounts, CDs, or conservative bonds. Money that you won’t need for ten years or more should be invested more aggressively, in stocks or a mix of stocks and bonds. This way, if the market does dip during an election or a recession occurs, you will be positioned to ride out the storm without needing to access those funds immediately.

Lastly, diversify your investments. Don’t put all your eggs in one basket—spread your investments across different assets to mitigate risk. And keep your politics separate from your investment decisions. Our discussion today has shown that while politics can influence the markets, they are not the main drivers of market performance. Making investment decisions based solely on political outcomes is not a strategy supported by historical data.

Question and Answer (21:30)

Thank you everyone for joining us today. If there are any questions, I’ll hand them over to Alek to moderate the Q&A session.

Alek Johnson: Yeah, Josh, actually, most of the questions that have come in so far have been more about the data itself, just kind of more individual questions.

Josh Glenn: Awesome. Well, we can hang out for a few more seconds, but if there are no more questions, we’ll wrap it up. If you have more specific questions, it would be great to talk to your advisor, where you can get answers in a more personal setting that takes into account your specific circumstances.

Alek Johnson: I haven’t seen any others come in, so I think you’ve covered most of it.

Josh Glenn: Great! If there are no further questions, I’d like to thank everyone for joining us today. Remember, if you have other questions or need more detailed advice tailored to your personal situation, feel free to reach out to me individually or contact your advisor. We’re here to help you navigate not just election years but your entire financial journey.

Alek Johnson: Just before we close, Josh, there’s one last question that’s come through. “What’s the minimum investment amount for Peterson Wealth Advisors to manage investments?”

Josh Glenn: That’s a great question. Generally, our models are designed to be most effective for portfolios that are $500,000 and above. However, we are flexible and always willing to discuss options for different levels of investment. We understand that everyone’s financial situation is unique, and we strive to provide personalized advice that reflects your individual needs and goals.

Alek Johnson: Perfect. Thanks, Josh. I think that wraps up our webinar for today. Thanks again to everyone who joined us, and don’t forget to fill out the survey we’ll be sending out shortly. Your feedback is invaluable and helps us improve these sessions.

Josh Glenn: Yes, thank you all. Stay safe, and take care. We look forward to seeing you at our next webinar. Goodbye!