On this Coach’s Corner segment, the team discusses investing during an election year. You can listen to the segment here or the full episode here.
Ep 104 elections
Meghan Tait: [00:00:00] So today we’re going to talk about, um, politics in your portfolio. Specifically, uh, we’ll discuss an article from Kelly Cox. Um, these days with meeting with our clients, we’re getting lots of questions, comments, concerns related to the upcoming election and whether or not there should be. changes or considerations within portfolios and investment accounts, um, due to the election in just a few months.
So let’s talk about that.
Yeah. I mean, it’s a question that comes up pretty much in every meeting, every four years, every meeting, every four years, like when you have that election year, we, every client comes in and says like, what, number one, what do you think, what do you, who’s going to get elected? How do you think that’s going to impact the markets and what should we do about it?
And I just, [00:01:00] I’m going to try not to like minimize it, but each side, Democratic or Republican, has their own kind of like economic philosophies. But just because that person is elected doesn’t mean that economic philosophy is going to impact the markets. It certainly can have variables. that impact markets, but there’s just so many variables that drive how the stock market returns.
It can’t possibly be driven by politics. Is that fair to say? I think it’s a lot more nuanced than that. I think Does it matter which party has not only the presidential administration, but the House and Senate really important to if it’s if it’s a sweep and I think you have a lot more, [00:02:00] um, change going on.
The market doesn’t like uncertainty generally. So if you have gridlock. The market’s happy with that
Meghan Tait: gridlock, meaning it’s not the same party that has both. Yeah, president.
Yeah. Yeah. Like Democratic Senate, Republican House, whatever. Um, but people always say like, Oh, well, we need like a Republican president or house and Senate because they’re, um, you know, market friendly and that’s going to drive mark, but there’s no, literally no evidence.
Of that being the case, there’s no predictable evidence that when republicans are in markets are good when dems are in Markets are bad. There is no consistent evidence of that. Correct. Am I or am I right or am I wrong on that? I think you’re generally right Um, and i’d say the reason for that is there’s way too many other factors that are driving returns or Corporate performance.
Um, and I think, I think generally as long [00:03:00] as you preserve you, they preserve capitalism, innovation, competition, incentives that have worked for, you know, over a hundred years here. Um, that’s the biggest thing that matters. If on the other you have a dramatic change to Those sort of elements and they somehow get, they go away then.
Yeah, I think, I think, I think this time would be maybe different. Like, like right now I think this is the most polarized we’ve ever been. I think it’s fair to say. And part of that obviously is because of the social media aspect of it and how in your face it is. Um, but you know, you’re talking about like price controls and some really, really radical.
Policies that I don’t think ever would be actually implemented. But if they were, then you have something that’s gonna impact markets. [00:04:00] I think that you have to have as an investor, faith and trust that the system itself is way bigger than whatever idiots are running around in Washington trying to, you know, buy votes.
That, that, that’s how I would sort of characterize it.
Meghan Tait: And we also have to recognize that it happens every four years. This isn’t a once in a lifetime event. So to think that every four years there has to be some dramatic change to your portfolio because there is this very known and predictable event happening.
I mean it’s completely, it’s the opposite of what kind of a passive and long term perspective. investor, right? It’s the opposite of what they would, how they would react to things by taking events again that happen in short timeframes and using those as an excuse to make changes to their [00:05:00] portfolio. Yeah,
it’s a good point.
There’s, there’s short term noise all the time, no matter what happens. And politics is no different. So yeah, you’ll have, if there’s like a fear of heavy regulation in a certain industry as a result of who’s in there, who’s, who’s, you know, enacting laws, then you’re gonna have what I would say is a short term reaction in the markets to that.
Um, but if you just widen the lens out, um, it’s, it’s just noise. It’s just noise. And so I think, um, I think it’s, it’s, it’s fair to say you should pay less attention than you’re maybe kind of Instinct is to uh, you have to tell them what’s going to happen in november if this happens or that happens. I think it’s It’s fair to try to temper that that Thought or temptation.
Oh 100. I mean, I remember when barack obama first got elected And speaking with a [00:06:00] client who was convinced That because he’s going to get elected Um, he was going to change like tax rates for everyone and, and it would be, you know, for the middle class and it would have been horrible. So the guy took a million dollars of their IRA money and converted it all to Roth IRAs in one year.
So paid 40 percent in taxes to convert it for fear of tax rates going up because of this person getting into office. And that was, I mean, I don’t even know when, when did Barack get elected.
Meghan Tait: 2008.
Yeah. We had that client in 2016 who came in the day after Trump won and took all his money and went home because he was convinced that the world was going to end or whatever it was.
And obviously the opposite kind of happened. I mean, the opposite always happens. Cause like you just said, there’s too many variables unless like what, unless yeah, there’s an end to capitalism. Yeah. That will affect our markets. Yeah. [00:07:00] But, typically, we don’t let radicals run our, run the country. I’m giggling as I say that.
They don’t run, I mean a radical may be like the head person. There’s some radicals. They may be the head, but they can’t just run the country. Slash capitalism because though the country needs to vote on that and there’s just too many sane people voting that won’t let it It just they won’t let it happen I know there’s a lot of insane people voting as well.
Meghan Tait: Sure,
but they just won’t let it happen and it sucks because Clients don’t want to believe that they want you whatever side they’re on to share in their fear and And what’s the term I’m looking for? Like justify or, um, when you’re looking for someone to agree with you, what is that called? I forget.
Doesn’t matter. Um, they’re looking for you to kind of empathize with [00:08:00] them and just agree with them. And yet we need to make a change because of that. And it’s just, I mean, the, the numbers show that you shouldn’t make a change because the markets go up regardless. Yeah, over time, over time. I mean, I’m looking at the chart in the, in the article that Meg referenced, like every party that has power, the market’s up during that timeframe, democratic Republican, like the market is higher.
You know why? Because the market always goes higher over time over long periods of time. And people just don’t want to hear that, man. They want you to just, Join in their fear. Yeah. So, and I’m a, I’m a big believer in the collective wisdom of the markets, right? So the, so we’re sitting at like all time highs right now.
The market’s anticipating collectively the future [00:09:00] and it is collectively suggesting that things are going to be okay, . Yeah. And companies are gonna continue to make money and, um. It’s like, it’s, it’s not that different than betting markets, sports betting markets where the spread ultimately kind of reflects.
It’s pretty, pretty much on both sides of the equation, what each side kind of thinks should be a fair point spread. Markets are kind of the same in that, in that respect. So, um, I mean, we’re all saying the same thing really, which is if you have a longterm horizon, Twitter or the TV or whatever and stop obsessing about the, the election.
There’s other reasons you can obsess about it, but not from an investment standpoint, I think. Agreed.
Meghan Tait: Yeah. Agreed. Anything else on that?
No.
