Episode #30- Don't Play Politics with Your Investment Strategy

Wealth Decisions Podcast Transcript for Episode #30- Don't Play Politics with Your Investment Strategy

Listen to this episode on Apple Podcasts or Spotify

Welcome to The Wealth Decisions Podcast, where each week I take 15 minutes or less to discuss crucial wealth decisions and mindset hacks to help you live a richer life.

I'm your host, Brian Muller, and I've been in the financial services industry for over 25 years, and I'm also a certified life and health coach.

And I have a passion for helping people make better decisions around their money and their life.

So, for the sake of time, let's dive right into it.

In today's episode, I'm going to be discussing one of my nine investment principles at Momentous Wealth Advisors, and that's don't play politics with your investment strategy.

Sometimes bringing up the word politics can create a little tension, but I want to explore the relationship with you between political parties and power and investment performance.

We're going to take a little journey through history, examining how the stock market and various sectors have performed under different administrations and political landscapes.

But before we begin, I just want to emphasize that this episode is purely educational and based on historical data.

It's not intended to be a political statement or a prediction of future performance under one political party or another.

As always, just remember that past performance doesn't guarantee future results.

So let's start with the big picture.

Over the long term, the US stock market has shown a clear upward trend, regardless of which party has been in power.

From 1926 to 2020, the S&P 500 has had an average rate of return of about 10%.

And this really just reinforces the idea that for long term investors, staying invested through various political cycles is often more important than trying to time the market based upon, you know, election outcomes.

During a president's term, there's often what is talked about is called the presidential cycle effect.

And this theory just suggests that the stock market returns, you know, follow a pretty predictable pattern throughout a president's four year term.

Year one is often the weakest, you know, as new policies are implemented.

Year two, there's generally a slight improvement.

Year three is typically the strongest, as, you know, incumbents kind of push for economic growth.

And year four is generally moderately positive.

It's influenced by election uncertainty, which we have this year.

This pattern is not set in stone, but it's held true in many cases.

And it's just important to note that there have been plenty of exceptions as well.

So let's just take a look back in history, and let's start in the 1950s through the 1960s.

This was the post-war boom.

During the Eisenhower administration, which was Republican, from 1953 to 1961, the S&P had an average annual return of about 10.9 percent.

This was the post-war economic expansion and kind of the rise of American consumers.

Then the Kennedy-Johnson years, which was Democratic from 1961 to 1969, had an average annual return of about 8.7 percent.

This era was kind of characterized by tax cuts, there were some increased government spending, and it was also the space race era.

Then the 1970s was kind of the stagflation era.

Those were the Nixon-Ford years.

From 1969 to 1977, there was some challenging economic conditions.

The average rate of return during that period of time was less than 1 percent, it was 0.19 percent.

There was oil shocks, there was high inflation, and there was the end of the Bretton Woods monetary system.

Then came the 1980s through the 1990s, the Reagan-Bush senior era, which was a Republican era, 1981 to 1993.

It was a significant bull market.

The S&P averaged about 10% during that period of time.

And that period was characterized by deregulation, tax cuts and kind of the early stages of the tech boom.

Then the Clinton years, which was Democratic from 1993 to 2001.

This was the.com boom.

There was an impressive run in the stock market and the market averaged about 17.41%.

It's definitely worth noting that that period ended with the bursting of the tech bubble.

Then came the 2000s.

That was kind of the volatility and financial crisis.

The George W.

Bush administration, Republican 2001 to 2009, definitely faced some challenges, including the aftermath of the.com crash and the 2008 financial crisis.

The S&P during that period of time averaged about negative 3.5%.

And the point of going over some of this is not to say that the market does better under one type of president or another.

Sometimes presidents inherit good economic environments, and sometime presidents inherit bad ones.

The Obama years came about, which was Democratic, from 2009 to 2017.

You know, saw a strong recovery from the financial crisis.

So the S&P actually did really well because it came out of a crisis situation.

And the markets during the Obama years averaged about 13.84%.

And then during the Trump era, which was Republican, the stock market did very, very well.

It averaged about 16.3% during Trump's presidential term.

And then during the Biden years so far, the markets averaged about 12.5%.

But the year is not over.

And we don't know exactly what that return will be during that entire four year period of time.

But when you look at the difference between one president or another, a lot of people put a lot of weight on the stock market performance and whatever president is in term.

The fact is, is that politics have very little to do with your investment strategy.

And that's why having a principle of don't play politics with your investment strategy is so important.

Because when you look at the overall market performance, it can be interesting to look at how different sectors or the markets perform under various administrations.

But having a diversified mix of investments for your particular situation and your particular goals and risk tolerance and time horizon is going to be more important in the end when it comes to your overall success investing for your future.

Sometimes individual investors will try to time the market or position their investments, trying to predict who the next president will be.

And some typical types of strategies you might see people take is if they think that a Republican president is going to be elected, they might go into defense stocks, because typically Republicans will increase military spending.

You might even see someone try to overweigh health care stocks because of one political party or the other may come into office.

They might try to overweigh energy.

Often under Republican administrations, you'll see favorable regulatory environments for fossil fuels and things like that.

But however, renewable energy has seen a little bit more growth under Democratic administrations.

And they might overweigh technology because they think a certain president might get elected because it might be more favorable for that sector.

Or they might overweigh financial services if they think Republican policies will maybe favor deregulation or some type of situation like that.

And while it's tempting to try to align your portfolio with who you think is the next president is going to be, it's really tough to draw direct correlations between political parties and market performance.

There's many other factors influencing the economy and the markets, and they're beyond any administrations' direct control.

For instance, there's global economic conditions.

There's an interconnected kind of nature of the global economy, and that means that international events can have a significant impact on the US markets today, more so than 20, 30 years ago.

Number two, you know, federal reserve policy, the Fed's decisions on interest rates and monetary policy have generally a more immediate impact on the markets than really any political decision.

Number three, you know, there can be technology advancements, you know, innovations like the internet or smartphones or what we see today with AI can drive economic growth regardless of who's in office.

Number four, there can be demographic shifts, you know, long-term trends like the aging of the baby boomers can influence economic patterns over multiple administrations.

And also, number five, there's unexpected events, you know, natural disasters, pandemics, geopolitical crisis, or war can dramatically impact markets, kind of overshadowing really the influence of domestic politics.

As we've seen, you know, over the years, the relationship between political parties and investment performance is complex, and it's often, I think, misunderstood.

Today, there's quite a divide in our nation, and there has been, you know, some observable trends over the years, but it's dangerous to make investment decisions solely based on, you know, which party is in power or which party is going to be in power.

Just always remember the stock market over the long term has been in an upward trend, you know, regardless of which party has been in power.

Yes, there's been periods of time where maybe a president inherited a bad economic environment, or we've had high inflationary environments or disinflation or deflation, and it's been challenging, regardless who was in power at that time, would have probably had a difficult time navigating that period of their term.

You know, both parties have presided over periods of strong market performance and economic challenges, and many factors beyond, you know, political control, influence, you know, the markets.

It's just important to have diversification across all sectors and asset classes and remain disciplined over time and keep your strategy intact for your particular situation, regardless of your politics.

Try to stay focused on your personal goals, your risk tolerance and your investment time horizon, rather than trying to time the market based upon political cycles.

While a president can influence the economy through policies and economic agendas that can impact the stock market, the president gets a little too much blame or too much credit when the stock market goes up or down.

Macro events will drive sentiment and returns over the long term.

So that's it for today's episode.

Don't play politics with your investment strategy.

Listen to this episode on Apple Podcasts or Spotify


-Brian D. Muller, AAMS® Founder, Wealth Advisor

Momentous Wealth Advisors in a fee-only fiduciary advisory firm

Disclaimer: This material is for informational purposes only and should not be construed as investment advice. Past performance is not indicative of future results. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

Investors should understand the risks involved in owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.

Always consult with a qualified financial professional before making any investment decisions.