Transcription:

Episode 35 – How to Navigate Market Uncertainty During Elections

13:19

Announcer 00:00:01 This is Blue Money, a finance podcast made for cops by cops. With us. You know your money safe. Retired Lieutenant Jim Donnelly of the Bensalem Police Department and co-host Kevin McGarry of Valley Financial Group come together to help protect and serve your financial needs. This is Blue Money.

Jim 00:00:20 I want to welcome everyone back to the Blue Money podcast. This is your host, Jim Donnelly. What’s up? Jimmy? I’m here with coach Kevin. Gary. Kev, I thought this episode we’re getting a lot of phone calls or anyone that we’re talking about. The markets, they’re worried about the election, the upcoming election. And, you know, should they all go to cash? They’re afraid who’s going to win the election and how the market’s just going to crumble. So obviously some feedback on that Kev. Yeah I mean.

Kevin 00:00:42 Right now we’re in an election year. And as we’ve been preaching for the whole year here, that election years typically are really good for the markets, historically since 1950. But people are still concerned.

Kevin 00:00:54 There’s a lot of, you know, volatile things happening in politics. You know Trump, almost getting assassinated. Biden bailing out, Harris coming in to be the candidate for the Democrats. So there’s been a lot going on.

Jim 00:01:09 Yeah, I mean, Election Tuesday will be here November 5th. I mean, the next debate is on ABC. It’s going to be on Tuesday, September 10th at nine.

Kevin 00:01:16 Are you going to watch it?

Jim 00:01:17 Yeah, watch. I’m looking forward to it. Can’t be any worse than the last one with, Yeah, that’s knocked him out.

Kevin 00:01:23 I mean, Harris hasn’t spoken yet. She hasn’t really given an interview. So, you know, her policies are starting to come out. So it is all interesting. But I think the big thing is, I mean, if you go back since FDR, I bet you if we took polls, like, through every decade, if they like the president didn’t like the president, you know what their ratings were. People have always had these feelings.

Kevin 00:01:47 You know, they everyone thinks it’s worse now. But history repeats.

Jim 00:01:50 Itself a lot. And also just the election, just not the president’s up for election, but also the 435 seats in the House of Representatives is up, and also 34 out of the hundred seats in the Senate right now. The sentence controlled. It’s 5149. Then it’s the Republicans that are, you know, 31 seats up there. So some other a lot of things that are going to have an effect, just not the president, because a lot of times, whoever the president is and their economic goals, and it still has to go through Congress, some of these tax cuts and everything like that, that they want to get passed. So just because they say it and it’s part of their platform to run one don’t mean it’s going to happen overnight. Yeah.

Kevin 00:02:26 Just on that note, I was looking at something that was put out a while ago. If, you know, if you look at how the markets reacted to when a president and Congress were the same parties, you know, you go back from 1937 up into 2023, there’s been 15 positive one year returns, 18 positive three year returns, 18 five year returns and 1810 year returns.

Kevin 00:02:54 I mean, so same parties. Did you know the markets did pretty well during that time? Average return in the S&P 500 index was 12%. And if you look at when it’s, you know, different parties. You look at it. It’s very similar to the overall returns around since 1937, around 10.17%. So not a big difference there. Historically, if there’s a president with the same party or a different party.

Jim 00:03:19 The one thing I kept reading about, I kept seeing the presidential election cycle theory. I never really heard about it until I started really reading about it. And what that is the first two years to say the market under the first administration will not struggle you up a little bit, but the next two really takes off the last two. And it goes to show you that like on the third year, the pregnancy is usually 16.3%. Right. So it made me look up Biden and Trump’s like, what were our numbers? Biden and his third year, he got 24.23% that the theory is working there.

Jim 00:03:48 And Trump was 26.9 in his third year. So there’s not, you know, not people. And people buy into that theory. Not really true. But when you look back at it, something look at that. It is amazing how many times the third year that the market does really peak under people’s administration.

Kevin 00:04:04 Yeah. And then the election years, the market historically goes up. I mean, especially since 1950. But even looking at it like if you go back, you know, to FDR, you can look at the indexes returns, right? I mean, the S&P 500 goes up. You know, there are there over time I mean advance has been permanent. Declines have been temporary. I saw this other number. These numbers are pretty interesting going back from 1900 123 years to 2023. If you invested $10,000, 1900, right. And you stayed invested the whole 123 years, what do you think you’re worth today if you invested in the index? It’s going to be.

Jim 00:04:48 Astronomical.

Kevin 00:04:49 $9.9 million.

Kevin 00:04:51 Yeah. So now if you’re a Democrat and you say, you know what, I’m only going to invest in Democratic years. During that time frame, my ten grand would be around 528,000. And vice versa. If you were a Republican you put that 10,000 in and you’re going to get out when the Democrats win and staying stay invested when the Republicans win. You be worth around 181,000. So together they made money. Democrats outperformed the Republicans there. But over time, 9.9 million versus 528,181.

Jim 00:05:25 Big difference, huge difference.

Kevin 00:05:27 So the point of it is, is, you know, short term, you may have some volatility, right. it’s just it’s headline risk. I mean, if you look at the numbers it just says like stay in the game, stay diversified. Because even when ratings are low for presidents historically the market’s done well.

Jim 00:05:46 Absolutely. Yeah. You can’t time it. We talk about it all the time. And the two things that we see that Harris and Trump are totally the opposite.

Jim 00:05:54 The only thing that really Harris has talked about is the corporate tax cut. And Trump, when he first got in office it was 35%. And he got it down to 21% where it currently is. He’s trying to get it down to 15%. Where Harris is saying she’s going to bring it back up to 35%. So that’s a big number that people are watching because that’s that’s a huge thing for someone’s gonna have to pay that.

Kevin 00:06:13 Money, right. Did Trump cuts you know they come due at the end of 2025. And whoever wins you know Trump’s going to cut it. Like you said extend it and reduce corporate rate tax. And you know if Harris wins, she’s going to try to increase taxes over those who make 400,000 a year and increase corporate rate tax. So the point of it is, is there’s tax issues, and there’s always been tax issues. And the tax plan and tax code is always changed. And you try to diversify accordingly. But over time if you went back to FDR to now, I don’t even know how many times the tax code has changed.

Kevin 00:06:53 Probably a decent amount. Sure. I mean, listen, if you said to me, hey, they’re going to increase corporate tax to 20% from where we are. I think that would have an impact on on the markets and portfolios. But short term if they extended it maybe it could be longer, but it will have financial implications on it if something occurs there.

Jim 00:07:16 I know some people look at it and say, okay, if Trump wins, you know, should we start going heavy on like, banks, oil production? You know, that’s two things he’s big on. And you start worrying about his foreign policy, which were Nvidia is you know, a lot of chips are being made over Taiwan. Stuff like that could have an effect. So you put a lot of weight on that kind of looking at this different sectors.

Kevin 00:07:35 Think about it just again diversification. That’s what we believe matters. The numbers state that go back and use history right. There’s been wars. There’s been terrorism’s. There’s been bad behavior all throughout time.

Kevin 00:07:52 And diversification got through it rather than trying to overweight a sector. I mean, Nvidia is bigger than 5 or 6 sectors right now. So so the point of it is we believe diversification is the way we navigate this. And it’s not timing the market, but time in the market. Yeah, I think.

Jim 00:08:10 Another thing people need to remember, It really doesn’t matter who the president is and why. I say it is roughly 88% of the GDP. It comes from private sector, and that’s businesses want to maximize their profits. So they’re not worrying about who the president is. They all have one goal in mind that’s to make money for companies. So it doesn’t matter who it’s going to be. Trump, Harris I keep talking about it through his podcast. Don’t get caught up in that. Don’t get caught out what party you’re in. And should you sit on the sidelines? Because the one thing that I see when I have conversations with people, they’ll say, Maybe I’m just going to go to cash.

Jim 00:08:39 You know, I’m just going to pull my money in the money market. But my question is, when are you going to get back in? Right. And there’s just no they don’t have no strategy when they’re going to get back in, say if Harris wins and then the markets take it off, are you going to get back in or you just know it’s going to fall and they’re just sitting on the sidelines while it’s running. And that’s why we’re always trying to say you can’t time the market. You gotta it’s a roller coaster. Go up and down with it. But if you jump off mid shift, that’s when you get hurt off that roller coaster. If you go to the end, you’re gonna look back. It wasn’t a great ride. It was exciting. It was fun and it was profitable for you Right.

Kevin 00:09:10 And when we say presidents don’t matter what we’re speaking about, essentially. You know, over time, your portfolio, if it’s diversified properly, should go up over time. If you stay committed based off history, if you try to time this, it can lead to a disaster in your account balance.

Kevin 00:09:28 And more importantly, you know, turn off the news. I mean, it’s great to be informed. it’s important to be informed. But, you know, the average viewer right now, they’re watching news non-stop. And if you turn on the news, the big story usually isn’t a happy good story. It’s usually negative or violent or something corrupt or not good because it sells, you know.

Jim 00:09:55 So another thing is like the market’s taking off right now. The very is report the earnings yesterday it was closed down a little bit yesterday. But then now the market’s wanted right now in day trading. It’s the highest ever been before. We just started this podcast. Now it’s it’s the highest. So it’s going in the right direction. There’s a lot of positive feedback y I mean one the Fed’s going to cut I mean it’s we don’t know. It’s going to be 25 basis points or 50 basis points. But we’re all pretty sure that that cut is going to happen. unemployment is still relatively low at 4.3 and inflation looks like it’s cooled off.

Jim 00:10:28 It’s at the Fed’s target date around 2%. So there’s some good indicators of going forward for the election coming up. Whoever wins right. That we should have a still a nice run for the end of the year.

Kevin 00:10:38 And like Jim like those those numbers are all important. and you know we’re always looking at the numbers here, but there’s always numbers that can go the other way. And that’s the point of this. The point of this is you’re going to have strong numbers report one day and and bad numbers next day. And people are going to say things about Harris and they’re going to say things about Trump. They’re going to get the fear all worked up. They’re going to get nervous. They’re going to want you out. Right, right. And then you get the phone call, hey, you know, can we reduce risks? Can we add more cash? And, you know, the interest rate environment? We don’t control that. interest rates go up and go down over time. we’re just making sure you’re properly diversified and navigating volatility to help you achieve your goals.

Kevin 00:11:23 I mean, that’s the way through this.

Jim 00:11:25 So let me get your own wrap this podcast up soon. So just give me a couple of things, maybe three things that you want the audience to listen to about the election.

Kevin 00:11:33 I think the most important thing for you to do is be informed, right? Try not to overdo the news because headline risk, you know, it makes the the most senior investor behave poorly. And that could be very costly in the long run. That’s the most important thing here. Stay informed but also stay diversified because politics and money you know the stock markets they don’t mix well.

Jim 00:11:59 No they never do. So that’s going to wrap up the Blue Money podcast. I want to thank all the listeners for listening. If anyone has any questions about this podcast or if you want a financial review, look at your portfolio, any questions, anything that you need answered, please don’t hesitate to reach out to Kevin and I. So thank you for listening and be safe.

Kevin 00:12:15 Be safe out there.

Announcer 00:12:17 Thanks for listening to Blue Money. To learn more about Jim and Kevin, or for a free financial assessment, visit Valley financial.com or click on the link in the podcast description or shownotes. Until next time safe investing. This material is intended to be educational in nature and not as a recommendation for any particular strategy, approach, product, or concept for any particular advisor or client. These materials are not intended for any form of substitute or individualized investment advice. This discussion is general in nature and therefore not intended to recommend or endorse any asset, class, security or technical aspect of any security for the purpose of allowing a reader to use the approach on their own before participating in any investment program or making any investment. Clients, as well as all other readers, are encouraged to consult with their own professional advisors, including investment advisors and tax advisors. Valley financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.