¶ Financial Planning Amidst Political Turmoil
Welcome to a Wiser Retirement Podcast . Before we get started with the episode , i want to tell you about a new e-book available on our website called Buyer Beware . Why do they keep trying to sell you that annuity ? This e-book covers the various types of annuities , negatives to owning annuities and better investment alternatives to annuities .
To download this e-book , you can click the link in the episode notes or go to wisere investorcom and you'll find it at the bottom of the page . Now on to today's episode .
Welcome to a Wiser Retirement Podcast . We believe the best financial advice should always be conflict free . I'm your host , casey Smith , guiding you to financial freedom . Today is my co-host , brad Lyons . Hey , brad , hi Casey . So we're already in our planning meetings .
We're already starting to get a lot of conversation centered around the next election , which is not until 2024 , but people are already getting amped up about it .
And also we have a mix of client base here that we have pro-trumpers already , we have pro-Biden and I don't know it's actually pro-Biden , but okay , with Biden , not Trump , we have that category And obviously there's people that have other persuasions that may not actually make the ballot list .
But we live in such a 24 hour news cycle now They're already filling it up with something that's going to occur in late 2024 .
So it just can . Obviously , elections are very important , direction to the country is very important , but our job is to do financial planning and manage portfolios And really Congress probably has more of an effect on planning than the individual president would .
But you , which is interesting because congressional approval ratings always like the lowest right , but they're voting on the group , not an individual , where the presidential approval is really based on one person , not , not , not .
It's thought that everybody says , well , my guy or my gal is okay , yeah , the rest of them are wrong . The rest of them are wrong .
But you know there's a lot going on , so I guess more recent news is the market volatility along with the debt ceiling right now , and you know , really , as investors , your risk is that the US , us bonds get downgraded or the US defaults on their debt , right , right .
On their debt payments .
Right , and they've been downgraded before , and you know what happened after that ? Absolutely nothing , right .
Well , I mean ?
I mean , initially there was , there was some thoughts of volatility , but you look back on it , what did it change ? It changed nothing , Right ? I mean , essentially , you're you're paying , you're paying people . I see S&P is getting paid to rate bonds , right , And it's by the very people that are asking to be raided , Right .
There's a conflict of interest in the whole , in the whole process . So so the worst case scenario right now is It looks like a debt ceiling deals gonna go through , yes , but the worst case to our portfolios is us defaults Doesn't pay its bills and their credit rating is downgraded and You know that probably they lose face in the international community .
And when we got a barrel , again , they have to borrow at a higher interest rate . That would be a bigger , yeah , that would be a bigger issue , exactly . But what's interesting is That there may be a winner here . Okay , and this They seem to have come to at least an agreement and , in concept , now it has to be voted on .
This is where we're at , you want , depending upon when our listeners are Listening , but there seems to be an agreement here , and If that's the case , you have to think who's the winner in all of this ? and this is where it starts to get interesting , in my opinion . Okay , it's my thought that The American public , you know , is much like the bell curve .
Great okay , the vast majority of people are somewhere in the center , maybe middle right , maybe middle , maybe middle left but underneath the flares of that bell curve is where the hardcore Ideologists exist . Okay , they're also the loudest Right .
They're the smallest but the loudest , and right now , both of them are objecting To this agreement , which means the middle is going to have the greatest persuasion on all of this now , and we have Something that we haven't had in quite some times we have the two sides actually meeting and talking to one another , and maybe they've come to an agreement and they can
use this as a foundation for coming together for other things pushing aside Both of the idea logs in the parties Okay right and bringing the center together to get things done in the country . So there may be a winner . It may be .
I think in the end . You know you have a debt ceiling because basically we're spending more . It's like a credit card limit . Yes you spent more than what your credit card can handle . So you call them up and say , hey , i need a bigger limit . Right there's no payoff plan here .
None whatsoever , none whatsoever . And when they , when they talk about these reductions , what they're really saying is that it's not going to grow as much as we originally projected the debt to be right . So they say that this will reduce the deficit by One and a half trillion dollars over ten years .
But you really have to kind of turn that and say it won't grow . It'll grow one and a half trillion dollars less .
Right then it would have otherwise right yeah , and in the end I don't know that , if that even matters , does it matter that we just keep borrowing and borrowing ? We ultimately control our own currency . We were told a long time ago that if they just kept happening , bad things would happen , but they haven't . But they haven't .
And at some point , you know , if you forecast out to like 20 , 25 or 2035 , you run the risk of like 70% of the budget just carrying debt and and All of our programs you know yes , but it assumes a certain growth rate in The GDP .
Yeah , and if we can exceed that , we can actually grow our way , not necessarily out of it , but through it , through it . Yeah , absolutely , productivity is important . Productivity is one of the most important things . If you can build more widgets with the same amount of you know cost as fewer widgets , you're gonna have higher profits and you know .
So I mean , ultimately , i think there's a big question mark on that . But You know , today's discussion is about the 2024 election . I think by the time we post this podcast , the debt ceiling would be handled . My prediction is it's It's going to be noisy , but it's going to .
Something will get passed Right and it will be through it , and then the vault market will probably get a little bump because of it , because that that volatility is now behind us and they'll find something else to worry about , right , um , you know , in prepping for this podcast , i I just did a google search on why is fear used so much in political campaigns
And I came across this great white paper , um , done by a Psychologist , and basically fear motivates people two times more than , uh , not using fear in a message , which is why we get so inundated , as advisors , from our clients
¶ Election Season and Rational Investing
. We get so inundated with messages of hey , did you read ? this article about us is not going to be the world dominated currency in the next , in the next 10 years ? and You have to watch an hour and a half YouTube video and then , in the end , it's all this fear , fear , fear at the end , and what do they want you to do ? I ?
want you to buy something . I want you to buy something .
Right saw that coming so it's um , uh , the same with with . You know articles , even in the wall street journal , you know they'll . They'll talk about how value is going to be the way for growth . Stocks can't sustain this , this bull market that they're in , and It's kind of find out . It's written by , uh , a value fund manager . There you go .
So in the end , um , they're using fear to say , oh , my gosh , what's been working for a decade is only going to work and therefore you get it by our product . Um , so it's , uh , it's sad that it's that way . You know , you'd hope that you could be .
You can run a presidential campaign that's built on hope in the future and how things are going to change , and , but no one really does that . They say you don't vote for me , your taxes are going to double your . You know , um , and , and , but that's just how the human brain is wired Um , um , it's our , it's our , uh .
I guess You know fight or flight mechanism .
That's what I was just thinking . It probably goes way back . Yeah , that's what I was . Always survived , you know , a long time ago .
Exactly , you know exactly . So you just have to understand that that that's why they do it . It's not , it's not necessarily because , um , uh , you know the candidates next to negative . Uh , it's just that's the message . It seems to move people to the polls to vote one way , one way or the other .
So now we , you know we're in a situation We've talked about this in podcasts before we were in a situation where , right now , trump's leading the um Um primaries for republican primaries by , uh , i believe the last time I looked it was it was over 25 percent um . Then You have an incumbent , biden , who says he plans on running .
So , essentially , right now , as we look at it today , we potentially have a repeat of 2020 , which was very chaotic , to say the least . Right , maybe , maybe the Republicans will see the light that , hey , all we have to do is , you know , produce a young person , a younger person .
I say young , someone in their seventies to be young Compared to these guys , right , and you get a shoe in pretty much . I feel like Same with in the democratic campaign , if they chose a different candidate that was able to complete a message , maybe , maybe that would be a shoe in for for that side .
It's one of these pretty clean right , but regardless , what happens is we get our , our motions , get wrapped up in all this And we start thinking , oh , if we don't elect my candidate , then the whole country's going to go to hell and I just got to be out of the portfolios . We've had this conversation with with someone earlier in the year .
You did , you know just only direction to this country and taking everything to cash , and it's just , it's not , it's not rational thinking You're not using data to solve any of your problems . You're you're simply using your emotions and nothing else , and that that's not successful . Investing , right , right , we talk about all the time in this podcast that you know .
Financial , financial success is intentional . It's the mindset setting goals , it's it's not just hoarding money , it's learning how to build wealth . Right , and that . That's that's the part that you know .
That's the part that said , okay , let's go ahead and and throw this out there now to put the back of people's minds is , as we approach election season , let's look at data . What does the data say about who's in charge of the country ? which ? which um , which party ? Right Cause , again , we're only looking at it from an economic standpoint .
We're not looking at it from from a um morality standpoint .
From political standpoint , or yes , correct , yeah .
We don't care about abortion , we don't care about any of these other things that you vote for when you go to vote . We're only focused today on economics , and so my question is if you're a Democrat or Republican . There's differences in taxation , obviously , but how do ? how are tax revenues generated By , by companies , or it's an ?
income made by companies and individuals . Yeah , right .
So someone's got to be making money , right , or else what is it ? What does it even matter at that point ? That's a very simplistic view of it , and obviously there's . You know , how do we tax the top one percent in the country ? There's always those debates Tax rates could could obviously jump to be higher .
Those are all things that you vote for , but we're only talking about economics . Your portfolio , right , right , and there has been high tax rate decades where the markets did just fine And there's been low tax rates where the market has done well . It goes back and forth , right . There's so many factors that go into , to go into this .
And that brings up a good point , as we , as we have this discussion , you know , it's just a single factor , it's just some data on a very narrow slice of investing , okay , and we're not saying that decisions need to be made exclusively with this data , right . We're not saying that data can be collected and arranged in such a way that you can make a point .
Okay , and that's what we're going to talk about here .
So let's kind of hop into it .
¶ Presidential Election Year Cycle Theory
There's a what they call the presidential election cycle theory , so we're only talking about presidents right now , not who controls Congress , correct ? So what did you explain this ?
to me . Brad Well , an author by the name of Yale Hirsch , came up with this .
He , he , uh authors of book uh , he's gone now That his son has taken over but he authored a book called the stock market um Almanac , and what he did is collected data over years and years and years and years on the stock market and then created , based upon dissecting that data , looked for trends and then back-tested them and then produced the hypothesis in
much way , you go through an experiment and then has created these different types of theories that exist in the stock market today . The one that we're going to talk about is the presidential election year cycle . Other ones were the Santa Claus rally .
You've all heard about it .
Yeah , I'll talk about that .
Yeah , this was developed by Yale Hirsch as well in the stock market almanac .
So in the presidential year cycle , election year cycle , yale looked at these different years in administration the first year , the second year , the third year and the fourth year Wasn't concerned necessarily about where we're at in the election cycle , but rather in the administrations itself And what he found through looking at stock market data exclusively related to the
S&P 500 . So that's the limit . He was not talking about balanced portfolios , he was talking about individual stocks . He's talking about an index of 500 companies that he could use the data to look to see if there was a trend related to in a presidential cycle And what he found .
And this was very interesting and it's been used from time to time for a conversation's sake . According to his theory , after entering the Oval Office , the chief executive has a tendency to work on their most deeply held policy proposals and indulge the special interests of those who got them elected .
So in the first year or two of an election excuse me in administration they're working towards putting together proposals and enacting legislation that they ran their campaign on , and it tends to be the most what should I say ?
interesting as the word , what would be the right word here , not , but rather controversial , okay , leaning towards one party or the other's value system . And during that time period there's some uncertainty that's caused by this . It's uncertainty in the taxation , uncertainty in regulations and so on .
So as businesses and individuals begin to work through this cycle of new proposals and new legislation , that uncertainty causes for investors to have less confidence in the market And the returns over time . The data long term going back to 1933 , show that in the first two years of a presidential administration the returns are lower .
In the third year of a presidential administration what happens is the president begins to recognize that in order to get reelected and if he's in the second term , in order to get a member of the same party reelected they begin to introduce new legislation and new spending programs to stimulate the economy , to enhance the value of the stock market , to generate more
jobs and increase the feeling of we're better off now that we're in this type of administration cycle here And so in the third year of an administration , historically we see the best returns . I'm going to go through these in a second .
Here And then in the fourth year , the president generally has to take his eye off the ball a little bit and he goes out and does a lot of campaigning And as well now there's uncertainty back in the market because there's an election coming up .
We don't know who's going to be in the White House the following year , so that uncertainty causes investors to have less confidence again and stock market returns are not as high . So in the year after an election , on average since 1933 , the year after an election , the stock market has gone up 6.7% . These are actual data .
In the second year it's up 5.8% on average . In the third year we see a bump , on average 16.3% return in the S&P 500 . And in the fourth year we're looking back at a again a less confident investor base in a return of 6.7% . So it appears that there is indeed a bump that occurs in that third year and is generally explained in the vernacular .
It's just , it's the power of the purse . President and Congress can act , work together to get their person elected ready for the next election cycle , and so they're releasing as many funds as they can into stimulate the economy . Now these are just stock market returns .
So let's see , compare it to , regardless of presidential likes and cycles Since 1933 , the stock market and we've talked about this on pocket is up 7 out of 10 years , or 70% of the time . Right , okay , but let's take a look at those particular years . Let's look at that third year . In that third year it's up 82% of the time .
So it increases above the average , not just the average return , which outsized returns can move the average . Now the average of positive years in that third year is higher than the average of all years .
So in a couple of different ways we can look at this and say you know , in the third year of of the presidential's term , there may be , you know , an opportunity for investors to take advantage of that . Now , every year is different , every year is circumstantial .
So we'll just kind of have to see That's taking . that's taking just the S&P and comparing it only to the election cycle . That's correct .
Where is really going to causation versus correlation ?
Yeah , Has nothing on economic growth . Interest rates , productivity , innovation doesn't count for any of that , right ? Nope , it's just data , just yeah . So is it actually correlated ? Is that third year actually correlated ?
perfectly Not really , Because I you know .
Even I think in his , in his article or in his book , he even said that there's outlying factors that will happen .
And there always will be . And really did it cause ? did the ? did the administration actually cause that third year to be better in the other year ? So is it causation versus correlation ?
You know , it's just a pattern that someone saw . It's a pattern someone saw , okay , and in the end it doesn't mean that that pattern always continues , no , or ?
and we're certainly not going to use it to make investment decisions .
No .
But this is what some of the things that get floated out there that people hear about you know , it just reminds me , like my mind .
You read that you go oh , that's interesting . But I go back to the saying . You know it's time in the market is more important than timing the market , right , right , so it's , it's your overall time that you have money invested .
You know , because I go back to you know , investing for one year and the S&P 500 just kind of it's kind of dangerous really , absolutely Five years is a lot better . 10 years is never lost money . 20 years is the worst case scenario . I think it was in 5% rate of return .
And this is you know , this data occurs only in an all equity portfolio . Yeah right , you know . and , and who ?
does that ? Yeah , that's true . Well , vanguard Vanguard chimed in on this as well . This is the data that I that I pulled down for today And you know , basically , you know they're saying in a balanced portfolio that presidential elections don't have any long-term effects on on portfolio performance .
Uh , and that data goes all the way back , you know , more than half a century Um , and actually they say that U S equity volatility in the months preceding and following a presidential election has been lower Um then experienced during non-election years . So they don't see any correlation .
Now , this is this is only referring it to market volatility , not rate of return , necessarily , but just how volatile the markets are . Um , you know , i remember when Trump was elected in 2020 , the futures tank features down over a thousand points . Yes , uh , i literally remember car icon on Fox news .
He was being interviewed and they say Hey , mr Icon , you know , the futures are down a thousand points . And he was . He was like , oh , i didn't know that , not just been enjoying the evening and and , um , he's okay in the interview , cut out and uh .
Later I saw him interviewed again this couple of years later And uh , he says uh , you know , mr Icon , you know this . Uh , 2020 election is is uh , uh , that would be the uh 2016 . Yeah , 2016 election is 2016, . uh , you know , lecture and I were approaching 2020 and he says uh , you know , how do you plan on profiting ? So I've already profited .
And he stole the story . He goes well , i learned from you guys on the air that the futures are down , so I went and bought a bunch of futures . I ran home and bought a bunch of futures and he made he made a lot of money that night . So , but , but time the market actually opened , it didn't . I didn't .
Uh , if you look back at history , you know , on the timeline , it didn't open a significant up or down the next day . Um , so you know it's uh , really , you know , when it comes down to all , this is when you're in investing . You just have to have clear goals . I don't know that a portfolio strategy built on politics , um is ever a good goal .
Um , you're usually working toward something longterm rate of income , uh , income in the future , or you're trying to just maintain your wealth for the next generation ? Um , you want to make sure that your portfolios are well diversified , so we use um ETF portfolios . Here We hold about 6,700 stocks , about 10,000 bonds .
We're not worried about going to zero , um , but we can control volatility by how we , how we move around amongst those asset classes . Uh , you want to keep your costs low . Average costs of our portfolios here are 0.08 of a percent per year . Uh , that's very important , i think .
In this day and age , uh , all portfolios are to be less than 10 basis points , or or one 10th of a percent . If not , you're paying too much , um , and then you have to take a long-term view . So you , it's frustrating . It's frustrating probably you know to open up a statement and see loss after loss after loss , which seems like it's going to last forever .
But we've talked about this before in times of crisis is that when you're going through something , it feels like you've been through it forever . But that's not the reality . The reality is it's just a season , right , and election year is just a season , exactly .
It happens , uh , like winter every , every single year Um but it is season and I feel like 24 is going to be more nasty than in the past .
Um uh you know I Trump has some really good and implemented some really good economic policies , but what I'm most disturbed about is his ability to just be flat out rude and and target people And then now that has become a constant in politics , you know , people just say the meanest , nastiest things about each other .
¶ Investing and Politics
Um and uh , that's okay now , and it also detracts .
It detracts from the conversation that needs to be had between politicians so that the voting public can discern and make a decision , because they're just distracted by the , the comments , right , yeah , right , and the behavior .
Um , you know , Brad , you put it off this great diagram here . Uh , yeah , i love that , yeah , yeah , I love that . Yeah , basically it's a diagram of , of Republican and it's . So it's an elephant and it's a donkey and basically a potential outcomes . So you have house , senate , white house .
So if , if it's a , uh a , if it's split , so you have donkey and an elephant , everything's split . We have a divided government , uh , which the implications are policy gridlock , but it's market friendly . Markets do well during pa ?
uh periods of split government , they do So that during the Clinton years actually , Um , if Democrats control or Republicans control everything , either one , uh , you have policy consensus , but you get a lot of short-term volatility because there's probably a lot of change happening all at one time .
And it's difficult for investors to keep up with it all .
Yeah , And the bottom line is you should never build a portfolio that is built toward one particular um uh government's policy , with whoever's in charge , whatever the government .
Probably right now you know there's uh with Larry Fink , uh , and all the black rock people that are in the white house now , uh , working for , working for Biden and pushing through the black rock agenda . Um , you know , the big thing was ESG , esg . Probably it was not dead on arrival .
People still have millions of dollars in these things , although there's been a consensibly large withdrawals from from ESG funds , because people realize they're paying five times for the same performance and holding the S and P 500 with the same stocks . It just doesn't make any sense .
Um , if your financial advisor is using ESG funds , i would run They're not they're . They're just pandering to maybe what you asked for , but they're they're . They didn't tell you the truth . They didn't tell you the whole thing was a scam . The SEC starting big investigation on that too . They are .
So many funds are saying ESG but they're not ESG , right , You know yeah , they're represented through their name , but they're not actually performing the task of an ESG manager .
There is a kind of quiet lately .
It's kind of interesting And as we're moving into the selection cycle that ESG is kind of quieted off just a little bit .
It's no different than low volatility funds , which became more volatile than the S and P , is no different than all the other funds that pop up Great marketing people , people buy into it and then it all kind of fades away . Yeah , the classics are still here , still making money , that's it .
Um , you know , esg branding reminds me of , uh , there's this little airline , i don't know if they still in existence or not , but they'd fly a Cessna care van with a turbo prop engine , so as a propeller and it , you'd board it at Hartzfield and you would fly it to Chattanooga And they went to , like Columbus , georgia , i mean some other little short runs
Holds a 16 people , you know , two pilots , no flight attendant , and on the side of their plane because people see a prop and they see a single engine prop They kind of freaked out . Right , they had the perfect marketing play . On the side of the plane They wrote echo jet , echo jet , that's a prop .
It's a prop it's a turbine .
It's still a turbine , much like a jet engine , but but to make people feel better , they go Oh it's , it's a jet , it's an echo jet with prop on the front . You have no idea what they're talking about . That's what ESG is . Esg investing is pretty a different label in the S&P 500 and and charging five times as much and Yeah anyway .
So yeah , the bottom line is , as we approach 24 , just remember that the portfolios could be more volatile , but you're a long-term investor . You're focused Well past whoever you're electing as president .
Your money has to work longer than that , right , right , and I always tell people to that if , if capitalism is on the ballot , then We'd probably be thinking how to hedge , how to hedge that right , but capitalism really has never been on the ballot . No one's ever said We're not gonna be the company , the country that people come to to start businesses .
We're not going to Be a free enterprise . No one has ever said that . You know , there's Education systems in other countries are probably way better than what we have in the US , but yet our free market system wins every single time .
And I think , ultimately , that that's what you have to focus on , because in this next cycle is going to be very polarized , with a lot of nastiness , i believe .
I Think it's inevitable that it'll be one of the more nasty cycles . We've kind of devolved into this and I think that election Politicians recognize that it's they can do this and get away with it , because , yeah , in the past couple cycles They've gotten nastier and nastier , but somebody still gets elected . Yeah , yeah , exactly .
And a lot of good people . Unfortunate , a lot of good people sit on the sidelines .
That's a whole , nother conversation . I agree with you completely . There's no incentive .
There's just no incentive to become Someone working for the people right now . Thanks for listening today's episode . If you're interested in learning more about wiser wealth management , i want to schedule a consultation to meet with one of our fiduciary financial advisors .
You can do so by going to wiser investor comm or you can click on the link in the episode notes . A couple things to remember . We have a YouTube channel called a wiser retirement , and our episode notes was also . We've linked to a Video on how to be a long-term investor . What's the right time to invest in the stock market ?
There's a two great videos That . The second one there , brad , is not what you think it would be . You would think that you'd have to time your entry , but I was amazed to see that Vanguard report stating that doesn't matter when you enter . You just got to be in it . Yes , so much , so much of investments is derived by income . Ah , paca , other podcast .
You might want to download . Five principles to successful investing this episode 165 , and then episode 89 . One My favorite active versus passive investing . This is episode 169 .
Amazing , i remember the first one .
That's right .
Yeah , you and I , we're here , we are again .
That's right , all right , thanks for listening . We'll see you guys next week .
Great Thanks for listening to a wiser retirement podcast . We hope you enjoyed today's episode . Make sure to subscribe wherever you're listening . That way you don't miss any new episodes . We'd also appreciate if you could leave a rating and review . If you have any questions about anything that was discussed today , that's a wiser investor comm , reach out .
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¶ Investment Disclaimer and Advice
Ken Hopefully . This podcast is strictly for informational purposes only And is not to be considered as investment advice or solicitation to buy or sell any financial products , securities , digital assets or any other investment vehicles or a basis to make any financial decisions . Wiser wealth management Incorporated is a registered investment advisor with SEC .
The host and or guests may personally own securities , digital assets or other investment vehicles mentioned on this podcast . Neither the host nor guest of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients , listeners Or similar interests .
Investments involve risk and , unless otherwise stated , are not guaranteed . Be sure to first consult with a qualified financial advisor , tax professional , insurance professional and or legal professional before implementing any strategy discussed here , and past performance is not indicative of future performance .