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Election Year Investing
61 Plays2 months ago
In this riveting episode of the Uncommon Wealth Podcast, hosts Phillip Ramsey and Arron Cramer delve into the complexities of investing during a presidential election year. With the 2024 elections on the horizon, emotions are running high from both sides of the political aisle. The hosts aim to shed light on whether these emotions should impact investment strategies and how history has shown us otherwise.
Phillip and Arron specifically discuss the research and data provided by the Capital Group regarding market behavior during election years. They explore how social media amplifies emotional responses and the potential for market volatility. Yet, they stress that staying invested, and perhaps even taking advantage of lower prices during volatile periods, is generally the most effective strategy. They also highlight which market sectors tend to perform well around election periods and identify the types of investors who usually thrive in such conditions. This episode is packed with invaluable insights for anyone looking to navigate the stock market during election time without succumbing to fear or speculation.
Key Takeaways:
- Historical Market Behavior: Over the past 90 years, US stocks have generally trended up regardless of whether a Republican or Democrat won the White House.
- Volatility and Recovery: Markets tend to be volatile before elections but often rebound strongly after, especially in the first year following the primaries.
- Investment Strategies: Investors who stay fully invested or use dollar-cost averaging tend to do better than those who sit on the sidelines.
- Sector Performance: The energy sector tends to perform exceptionally well post-election, while consumer discretionary sectors fare well before elections.
- Psychological Resilience: Taking the emotion out of investing and focusing on long-term goals is crucial during election seasons.
Notable Quotes:
- "Do elections really matter all that much when it comes to investing?" - Phillip Ramsey
- "Markets are emotional, so it doesn't surprise me that people get hesitant to invest in an election year." - Arron Cramer
- "Investors that get nervous and go to the sidelines during election years don't tend to do as well." - Phillip Ramsey
- "The companies don't just sit back and take a break during election years; they plan through whoever's going to be in office." - Arron Cramer
- "Try to take the emotion out of investing in an election year." - Phillip Ramsey
Resources:
This episode is a must-listen for anyone looking to make informed investment choices during an emotionally charged election
Recommended
Transcript
Introduction to the Uncommon Wealth Podcast
00:00:00
Speaker
Everyone dreams of living an uncommon life. And the best asset you have to achieve your dreams is you. Welcome to the Uncommon Wealth Podcast. We're going to introduce you to people who are living uncommonly. We're also going to give you some tools and strategies for building wealth and for pursuing an uncommon path that is uniquely right for you.
The Complexity of Investing During Election Years
00:00:27
Speaker
Hello, everybody. Welcome to another episode of your favorite show, The Uncommon Wealth Podcast, where I'm your host, Philip Ramsey. And I'm Aaron Kramer. Thanks for tuning in. Today, we are talking about something that I know it is in a lot of people's minds, and it is how in the heck do you invest in an election year? Oh, my gosh. Presidential election, man, there is a lot of unrest. ah Biden tapped out, you know, all those things. oh yeah Trump is coming in hot. And it just seems like tensions are high. The pendulum keeps swinging very far both directions. And so I think that always cause for a little uneasiness in the markets, especially in election year.
00:01:09
Speaker
What would you think about that? Especially now that like the social media being so strong and everyone being so emotional about who they believe should be president. um And everyone's doomsday if it's not your guy. Yeah, that's right. It's fascinating. work out It's fascinating. Yeah, right. It's fascinating to me. Just the emotions that play into this and markets are emotional. So it doesn't. I guess surprised me that people get a little hesitant to invest in election year or they maybe hold their breath a little bit. So today we're talking about it.
Should Emotions Be Removed from Investments During Elections?
00:01:47
Speaker
How do you do it? What's the history show? um We got a really good piece from one of our vendors. And so we're just going to talk through kind of their findings. Aaron and I haven't gone and done all this research. I just want to like give credit where credit's due, you know?
00:02:02
Speaker
But I do think it's fun just to talk about, from an uncommon perspective, how to look at this, try to take the emotion out of it. And we're not huge components of set it and forget it. I think a lot of advisors say that. that could be To me, that's like the worst advice. You should never forget where your money is. But I do think the arch-like principle of that is like try to take the emotion out of it. And that's what our goal is here today in this podcast, is to try to take the emotion out of investing in an election year. so Let's talk about the vendor that we got this from, and then it gives like eight eight pages. It actually is a really good piece, and you can find it online. So I just want to kind of address that, and then we can dive into it. Sound good, Aaron? Sounds great. Let's do it. OK. So the first thing, yeah, so we got this from the Capital Group or American Funds.
Do Presidential Elections Impact Investments?
00:02:52
Speaker
um And it's it is that. It's just how do you invest in and kind of the research and an investment in an election year?
00:02:58
Speaker
And I thought this first paragraph was cool, is presidential elections can be ah divisive and unsettling at times. and The fate of the world seems to be hanging in the balance. But when it comes to investing, do elections really matter at all that much? US voters will have their say in obviously November 2024, but by maintaining a long-term focus, investors can position themselves for a brighter future regardless of the outcomes of the voting booth. In fact, overreacting in a short-term volatility during election cycles can be determined or be detrimental to your investment returns.
00:03:36
Speaker
so And that's kind of a little idea of what we're gonna talk about. So they do start kind of walking out of like high level. They did a 90 year investment data over 23 election cycle. And this is what the evidence shows if you take the emotion out. So here's what they learned. Aaron, you can do the first one.
Historical Returns: Do Political Parties Matter?
00:03:55
Speaker
Yeah, I mean, so the US stocks have turned it up regardless whether a Republican or a Democrat won the White House. So, and this isn't on this form, but this is a fun fact. I was, I learned a while back, uh, when they look at who, what party was in presidential election, yeah who had the better overall returns. I did this once for our newsletter. I thought it was going to be totally Republicans and it's Democrats. It's Democrats. but by
00:04:26
Speaker
0.1%. That's right. So it's nearly a tie. It is. So i to add to that, like I want to make sure I say with this, you know, I remember an old advisor, a very smart guy telling me, he goes, and i when I was newer, cause I always got all up in the arms about the election thing. And he goes, Aaron, like you got to think all these publicly traded companies, CEOs and the teams, You think that they're probably a little bit smarter than our politicians and things they're planning through whoever's going to be in office. Yeah, that's true. They have their own goals, whether or not a Democrat or Republican gets in parties. So that makes sense. And I have heard that overarching in an election year, the it's majority positive, like
00:05:17
Speaker
that's that's where Remember when we did this at the beginning of the year, we were like, hey, let's predict what we think the S and&P is. You remember that? Yeah, we're coming up on that. That's fascinating. My sole reason for why I thought it was going to be positive was because we have an election year. so yeah And again, it's like, I don't know who's going to be elected. I just know that in normally in an election year, it is a positive swing. Yeah, cause they I mean, they try to ease up on things and policies. You know, every, like the current party, you know, if they can be reelected, which they can in this instance, like they're trying to like do things better to make themselves look better. Well, yeah, they always try to put lipstick on a pig at the end of like, look at everything's good. Everything's good. Vote me back in. So anyway, we'll have to go back to that. That's a fun thing. well All right, the second thing, um
00:06:08
Speaker
is that they ah they so they tend to be volatile before the election, but they bounce back right after.
Post-Election Stock Rebound and Strategies
00:06:15
Speaker
And this is from May 1st on, but stocks that return 11.3% in the 12 months following primaries compared to 5.7 and similar periods of non-election years. So I think that just goes to show you like, regardless of which president or which party gets elected, ah stocks tend to return well. the first year of a presidential election. So it's interesting. I don't know. We're just giving you the facts. Yeah. There was fun things. There's nothing exciting, but you know, like we always preach the next finding we found big, you know, discovery here is.
00:06:53
Speaker
investors that get nervous and go to the sidelines in the election years, they don't tend to do as well. So right because you when you get back in and all those things. That's right that right. But I say like that's a real statistic that I see. like There are people who are like, I don't know who's going to be elected until we do. I'm not going to invest in the market. yeah And it shows that that's not ideal. so no it's it's like I mean, I don't know. I'm a big believer. I know the president's important, but there's just a whole team behind him making decisions. It's just that one person isn't going to make like and break something. Yeah, no, I i think that's.
00:07:40
Speaker
That's true. And I think the point that you made up at the beginning of like, Hey, these companies don't just sit back and like, we need to take a break this year. yeah have an election This guy is going to do horrible things. I mean, even if you're conspiracy theorists, if you think like the do wealthy run the world or whatever, I mean, that's your big corporate America. So they're the ones funding these campaigns and and there's people on both aisles. So it's, that's why it's me. I'm like, the market's going to do it. does Yeah. Yeah. And I do think that there is some kind of excitement that comes with even like the party that's going to be there doing it another four years, there's an excitement level there. Then the other party is there's an excitement level that says like, well, but if we get elected, then we can change this whole thing. So both parties are usually pretty excited and that makes the bullish market. So, okay. So let's talk about sectors because we do some sector stuff.
Top Financial Sectors Before and After Elections
00:08:36
Speaker
in our portfolios. This piece is actually pretty interesting. Right. But and if anybody wants this piece, um again, please text us at the podcast number, our feedback line, 515-446-8158. And we'll get you this document. We'd love to send this to you so you can actually read it all if you want. But it's a cool piece. It just says which sectors have done the best ah in election years. So go ahead, Aaron. Yeah. So it's going over. The one year before the election and then one year after election, what sectors did the best and worst, you know, and the one that stands out the most right out the bat, when you look at it is energy. So yeah when you're after the election, energy just seems to do really well, uh, on average, but then financials 20 second. Yep.
00:09:28
Speaker
It would be interesting to see what technology would do, because right now, technology with AI is just going guns and blazes. And it's there, too. So I don't know. Yeah, but the first one, you're right, is energy. The second one is financials. Shout out to the financial world out there. I know. But then the year before, though, it's just kind of like across the board. It's just not anything crazy, as we were talking about. It just kind of stays pretty stagnant. who um but I mean, I guess consumer discretionary. Yeah. Before, but yeah, it's a, it's a cool little piece. You know, you see little sectors cause we do take that stance. Like you can't ever like blow anything away. There's no silver bullet, but there's a little tweaks and changes you can make to your portfolio to lean one way or the other. Right. Hang on with the marketing economy is doing. Yep.
00:10:25
Speaker
So then the the next piece that just said which which type of investors did the best in an election year and they have through like basically three
Best Investment Strategies During Elections
00:10:35
Speaker
personas. so The one that's fully invested that just keeps contributing and just keeps going. The person that just puts a thousand dollars ah for the first 10 months of kind of dollar cost averaging and then the person that sits on the sideline. and The fully vested person that has $10,000 in January 1 has the most money at the end of this versus the one that dollar cost averaging at $1,000 every month for 10 months. um and Then the last one was the person who's sitting on the sideline, didn't have as much money. so
00:11:04
Speaker
ah in election year, it sounds like it's the best to have your money in it because studies show that it's actually a positive year. So that makes sense. You have more money, longer to ah catch the run up. the But I would say systematically, Aaron and I believe that dollar cost averaging is your best bet to actually gain positivity in the market and gain like return just because you're buying low when the market's down, and then you get to contribute, and there's you just take the emotion out of it. Yeah, I mean, even look at this, they're talking about a one-year like segment, and they're contributing over a 10-month time. Yep. The person doing that ends up $105 less in the market, but that's one year, but like they're starting with a lot less in the market, and they're catching up. like they They didn't end, but
00:11:56
Speaker
They didn't fall much behind. Right. And again, like this money is emotional. So like we're talking about this, like, oh, it's not emotional, but it is. And that's why I think our charge is to try to like, how do you take the emotion out of it? So if there's anything you heard, here's the key takeaways when investing in an election year. One, I do think that there is chance for, like you said, headline news or Facebook, that you know election results can be very volatile. They're going to be emotional. But results have shown that there's very little impact on long-term investors, no matter Republican or Democrat. So, continue to invest, I think, is the play.
00:12:35
Speaker
um Yeah, so there's one key takeaway. What's the next? Yeah, markets have been more volatile during primary season, but tended to rise strongly thereafter. So yeah, volatility of the market can go up. But if you're someone that is you know, investing on a monthly basis or doing that dollar cost averaging, that's a good thing for you. That's right. Good point. And then investors are set on the sideline during election years because of their fear and uncertainty. That tends to be a very, or like you can't win with that strategy or rarely win with that strategy. So again, it's just puts all this emotion into it. So you were just putting emotion in your money. Not a great combo.
00:13:17
Speaker
Yep, which leads straight into what I was just getting and talking about.
Maintaining Level-Headedness in Emotional Investments
00:13:22
Speaker
Investors who were fully invested or made monthly investments did better than those who stayed on the sidelines of cash. so Yeah. I mean, it just it doesn't i don't know it does it's not rocket science, but sometimes it is harder. Sometimes the easiest thing is the most simple thing that I think is the hardest thing to do. so Yep. I mean, when we're talking about emotions, it's really hard. Like, it's like, oh, I mean, I don't know, being Philip, up we both like sugar and we like food. and I mean, think about that. It is so easy and common sense. Don't eat a lot of junk food, you know, and you don't get fat. Yeah. But yeah. Well, it didn't only put a cookie in front of my face, you know, when the pancakes are on the table. Yeah. Get a little emotional and the math starts watering and you're like, well,
00:14:07
Speaker
That's good. So if you're stressed about where we're at in the market um Hopefully this puts a little ease in your life, but yeah reach out to reach out to us Give us feedback reach out as the email. We'd love to hear from you ah Thank you for listening always being a listener. Thank you for Devouring our content the way that you are. We really appreciate it. ah You've been listening to on Commonwealth podcast. I've been your host Philip Ramsey And I'm Ann Kramer. Until next time, take the emotion out of it and go invest uncommonly. That's all for this episode brought to you by Uncommon Wealth Partners. Be sure to visit uncommonwealth.com to learn more about our services. Don't miss an episode as we introduce you to inspiring people who are actively pursuing an uncommon life.