The Stock Market During an Election Year with Guest Jake DeKinder

Speaker 1 (00:00):

Hello everyone. Welcome to the Retirement Power Hour. I'm Joe Allaria. This is episode 28

Speaker 1 (00:11):

Today, I'm very excited. I'm gonna be joined by a special guest, Jake DeKinder. He is the head of client Communication with Dimensional Fund Advisors, and we're gonna be talking about the stock market in an election year. Something that I've been receiving a lot of questions about. The presidential election of 2024 is coming up and it's a topic that creates a lot of tension and a lot of questions. As I said, what should you be doing with your money right now? We're gonna get into that and we're gonna show you the historical evidence so that you can make an informed decision. But first, if you want to tune in and see some of our past shows and visit and view all of our resources from the Retirement Power Hour, go to retirement power hour podcast.com. There you can submit your own question directly to us and we will answer it and address it on a future episode.

Speaker 1 (00:59):

We'll get right back to you as well via email, and you can also schedule a consultation where you can schedule a call with me to see if we can help you to see if we're a good fit to work together. And you can do that all at retirement power hour podcast.com. Don't forget to go to Spotify, to Apple and you can watch us on YouTube as well. And we appreciate your reviews with that. Again, I'm very excited. I'm gonna be bringing on Jake Kiner to talk about the election this year. Jake, welcome to the show today. Thanks for coming on,

Speaker 2 (01:34):

Joe. It's great to be on here and uh, certainly appreciate the time. And listen, you're right. I mean, you're getting questions about this, I'm sure everybody's chatting about it. Election season's coming up. I used to joke and say, well, it's every four years that we have this conversation, but then you get midterm elections. It's literally every two years we have this conversation. But appreciate the time and happy to be on today. Yeah,

Speaker 1 (01:52):

Absolutely. Well, I've, I've watched you, you're, you know, all of the resources that Dimensional puts out and you're one of our main partners, uh, at Dimensional. So we, we use them, we've shared those resources with clients and I feel very privileged to have you on our show directly talking to our clients today. 'cause I think they're gonna get a lot of good information about a topic that is very important and does come up, like you said, every two years. I watched a video that you did two years ago on the same thing about the midterm election. So, you know, the last I remember back to 20 16, 20 20 as well, the elections seemed to be a little bit more contentious, but if we're being honest, don't they all kind of seem that way?

Speaker 2 (02:32):

Well, I'd agree with you on that. I think people are very good at, uh, remembering recent past and then saying it's different this time or it's more contentious than it's ever been. But I mean, look, if you go back through US history and US politics, we've had plenty of contentious elections. We've had plenty of divided views on politics here in this country. So, uh, while I would agree with you that it does seem very contentious, I think we, we've been there before and I think we can learn some lessons, uh, from the past.

Speaker 1 (03:01):

I wanted to get into some of that and just talk about the facts and, and look at the historical evidence about the stock market in election years, the stock market when Republicans are in office, when Democrats are in office. So I'd like to get into that, and we have a few slides here to cover this, but I wanted to ask you, how has the market done in an election year, since that's where we're at right now? It's, it's 2024. We haven't had the election yet, but how has the market done historically in an election year? Yeah,

Speaker 2 (03:31):

It's a great question and I think that's a big question that people want to know, which is, should I expect lower returns? Should I expect higher returns? And then we can get into the, the political party piece of it. But the bottom line is, is that you can't tell much difference between election years and all of the other years. They're not exact in terms of their returns, but let's also remember that we have a very, very small number of election years we're working with where we have stock market data. I mean, look, you got 24 election years, uh, that you can take a look at. In fact, if you go and take a look at, uh, some of those slides, I can pull 'em up right here. You know, these are our election years and we went back and say, we get the question, how's the market due in these different years?

Speaker 2 (04:14):

Um, and I think the first thing is, is that positive versus negative, would you expect to see more positive versus negative years? And if you take a look right here, it leans a lot more towards the positive side versus the negative side. And, and by the way, I mean it's not exact. If you look at all other years, you know, 'cause it's about 75% of the time you get a positive year in any year and 25% of the time you get a negative. So if anything, presidential election years actually look maybe even a little bit better in terms of positive versus negative. Um, and then, you know, just so that we have some numbers here, you do still get a widespread, here's your highest return, 1928, here's your lowest return, uh, in 2008. So that's similar to what you see really in any other year as well. So I don't see something in election years that stands out to say I should expect really good returns or really bad returns or different from what I see in other years. Yeah,

Speaker 1 (05:07):

That's a huge point to me because almost every meeting that I have where this topic comes up, the assumption is the market can't go up this year. It can't be a good year with the election coming up. But this, this right here, this goes back to 1926, you mentioned we've had some very contentious elections in the past. This is not a new thing and there is no evidence to show that, hey, in an election year we should maybe get on the sidelines. But the more important question, Jake, that people wanna know is in those election years, has the market done better when a Democrat was elected or when a Republican was elected?

Speaker 2 (05:44):

Yeah, no, I mean that's, that's the logical next question. <laugh>, I align with X party and therefore I view that the market's going to do much better when that party's in power. Sure. Take this same data right here and you can start to cut it up by political party. Um, and I mean, look, you know, I don't see anything that jumps out to me here that says somehow the, the Democrats are all the negative years. The Republicans are all of the positive years. If you look at the average return when Republicans are in charge or Democrats are in charge, uh, I shouldn't say that. The year that they get, uh, elected, which is what we're looking at right here, you really can't tell much difference there. The Republicans are slightly higher, but again, you're dealing with 24 years of data. This is not a ton of data that you're working with right here.

Speaker 2 (06:27):

So, you know, I mean, you, you might take a look at this and you might say, well, you know, those democrats, I told you they maybe weren't as good, and I see that they've got the three blue dots there for the negative years and, and they had the lowest return. Right. And, uh, you know, that that's gotta signal something. You know, we went and took a look at all of the presidents here and I think this is the bigger one, you know, because take a look at sort of how people do during different administrations, right? And again, I'll ask you, do you see a pattern? Um, and I don't really see a pattern when I look at this data right here. I mean, if anything you would say, well actually the Republicans aren't as good, uh, looking at Nixon and looking at Bush, but bottom line is there's just noise in stock market data.

Speaker 1 (07:06):

Yeah, absolutely. I, it's hard to see a pattern. You might hear someone like you said, say, well, I only see two that are negative and they're Republicans. So that, that kind of lends to another big question is, is it really the fault of the political party for certain market declines? And, and I can see in George w Bush's era there, we had two different financial crises during that period of time. So you could say that, you could say Covid, you can say the interest rate increase of 2022 under Joe Biden's watch. Was it really the the political affiliation that causes these declines?

Speaker 2 (07:42):

It's a great point there. You know, I mean, was Bush responsible for the great financial crisis? Was Clinton the driving force behind the tech boom of the late 1990s? I mean, there's just, there's so many other factors that are affecting stock market prices beyond who's in the White House or even who's controlling Congress now. Does it have an impact? Sure. And so does millions of other things every single day affecting companies here in the US and quite frankly, all, uh, around the world. So I'm not here to say that the president doesn't have some impact or that, you know, we don't need to pay attention to it. But there's, there's a bigger question to me. And, and when I talk to investors about this, I try to be very clear and say, listen, make sure you separate your views and your feelings as the citizen of a country versus the decisions you should make as an investor. Because when you start letting that carry over to your investment decisions, you can get whipsawed pretty fast and you can miss out on some really, really good returns. So I'm not telling you don't care about the country or politics or get passionate about that stuff. I mean, look, I got views just like Joe, I'm sure you got views, but when you start to let that carry over to your investment decisions, you can get yourself in some trouble.

Speaker 1 (08:54):

Yeah, a hundred percent. I, um, saw a quote, I'm gonna steal it. I'm gonna beat you to the punch here because, uh, I liked it so much, but I think it was David Booth who said, vote with your ballot, not your life savings. And it's a great point. You know, I think we should vote, should let our voice be heard, but not to place bets with our life savings. And this is just some of the data. There's more on this too, Jake. Uh, and it, it kind of brought up a question for me of, in these different environments, even different political environments, is it fair to expect companies to continue to increase their profits just regardless of the political environment? And is it fair to expect companies to increase their profits, period?

Speaker 2 (09:38):

Yeah, I think, um, I think it is. I mean, it'd be weird to me that if this coming November you had Biden stay in the White House and Amazon stopped delivering packages, or Ford stops making cars, right? I mean, I just, you really have to take a step back and say, listen, these are for-profits seeking entities. That's what businesses do. They find a way around, regardless of who's in the White House, who's in control of Congress, different regulations, different tax environments, they have to find a way around. And if they don't, then they go outta business. And that's okay. That's capitalism. So again, it, it, sure, I mean, policies that come out from the White House and from Congress and from others, they can impact the profits and maybe regulations hurt one company or one sector and help another one. But at the end of the day, these companies are gonna find a way to make money. Sure. And remember, like that's what you're investing in. You're investing in the companies and the innovation and the hard work and all of the good ideas and technology, not necessarily who's in the White House,

Speaker 1 (10:37):

Right? I can guarantee we will continue to get Amazon packages to our house <laugh>, we get about three a day. So, um, but what do you say to people that make the, the comment or have the notion of, you know, I just dunno how this is gonna shake out. I think now is the time to maybe get on the sidelines or at least move some money over on the sidelines, in other words, out of the market and just kind of see what happens. Or maybe they, they do so because their political party of choice is not in power. What do you, what do you say to, to folks that make that comment? Yeah,

Speaker 2 (11:13):

I, I attack that, I shouldn't say attack. I address that comment in a couple of different ways. I say, let's remember one thing, the fundamental reason that you get a return as an investor is that you're willing to bear uncertainty, uh, in some form. Um, if you don't want that, you get literally the TBI rate short-term loans to the government. That's why they call it the risk-free rate, right? So you have to be willing to bear, um, uncertainty. And that is, well, I don't know how this president's administration is going to play out. I don't know the rules that are gonna come out from Congress. I don't know what's gonna happen with inflation. I don't know if we're gonna go into a recession. I don't know what's gonna happen with different conflicts around the world, right? So that to me is this fundamental thing that you have to, you have to appreciate.

Speaker 2 (11:59):

Now, the question to me is why do people continue to play the game of getting in the market or getting out of the market? Yeah, I mean that's 'cause let, let's be honest. I mean that's really the argument that's there. It's, I don't like this party or this president and therefore I don't think the stock market's gonna do well and I'm gonna get outta the market, or I do like this president and I'm gonna get in the market. I'm gonna te I'm gonna basically get the good returns when I can and get the bad returns, uh, right when I can't. Let me give you some data real quick. And this to me is why it continues to exist. And quite frankly, I think a little bit comes down to fear and greed, uh, is what it is. So let's, let's lemme move past this one.

Speaker 2 (12:39):

'cause I think we know what happens right here. Look at this right here. This is what I call the perfect market timing game. So let's imagine this, you only have two investments to pick from. Yep. You can be in that treasury bill, the risk-free rate, or you can be in stock. So this is basically in the market or in cash is what you're looking at right here. Now, if you invested 10,000 bucks over this time period, you can see 26 to 23 here, this is what your money would've grown to. That's a really good return. You $145 million, great return on stocks, right? But let's play a little game right here. Here's the rules of the game. So you can only pick from these two investments. Those are the only two investments that you get to choose from. You pick on January 1st, which one will do better, and you get it right and you get it right every single year, every January 1st you nail what's gonna do better cash or stocks.

Speaker 2 (13:27):

You gotta stay invested for the whole year. And then every January 1st you repeat the same exercise. Now if you just stayed in stocks, it turned into 145 million. Wow. If you got it right every single year, this is ultimately what it would turn into $20 billion. I mean really that's billion with a B. Yeah. And to me, this is why people kind of play the game. We, we love this idea of we can kind of see what's gonna happen in the future. We can say what's gonna happen with our money and what's gonna happen with stocks. But I think a big part of it is, is that if I, gosh, if I just get it right and if that president is just, you know, impactful enough to drive stock market returns, I can turn, I can make so much money,

Speaker 1 (14:08):

Right? And that's very hard to do at the same time, uh, which I think probably you're leading to is, is that someone might watch this and say, okay, $20 billion, why wouldn't I try to go after this? 'cause that's a lot more than 145 million. Again, I've had conversations like this and people have the impression that this is, this is the easiest thing in the world to do time. The market shouldn't, at least they think that it should be easy for me, Jake, they may not find it easy, but a financial professional financial company, shouldn't we be able to predict, well what, what is the downside here?

Speaker 2 (14:47):

Well, here, I'll show you the downside. I mean this is, if you get it perfectly wrong right here, which is your, your 10,000 bucks turns into 1600 bucks before inflation. This is not adjusted for inflation. So that's, that's some real destruction of wealth. I think you bring up a good point there, Joe, that you know, people feel that financial professionals somehow have the ability to look into their crystal ball and say what's gonna happen in the future? And then that's where we need to have our money, uh, invested. I do think that there's that, that notion that's out there and <laugh>, it's funny to me because <laugh> and I say this about myself or about financial advisors or other asset managers, you know, professional money managers, it's like, look, if we could really do that, if we could really predict the future and say when to be in the market and be outta the market and tying this thing perfectly, why would we need to manage any of your money?

Speaker 2 (15:30):

We would literally just, we would have the secret sauce and we wouldn't tell anybody about it and we would just do it on our own. And if you go and look at the data for professional money managers, um, it's not that easy because, you know, the average money manager that's out there doesn't even keep up with their benchmark. A simple buy and hold strategy. So it seems simple on the surface to your point, but when you look at the data of how even professional money managers can do it, the idea of being able to time markets and predict interest rates and, and really predict the future, it's an incredibly challenging thing to do on a consistent basis.

Speaker 1 (16:08):

Jake, I think you would really like a show that I do every year. It basically is market predictions for the upcoming year, but most of the show is actually looking at the previous year. I name names. Um, but this is all public information. I have links, so I'm not trying to throw anyone under the bus, but every major financial institution comes out and, and puts a, an s and p 500 target for the end of the year. So they, they all do this and it's public information. So I just go out every year, I, I get everyone's target and then at the end of the year we look at what actually happened. And last year, for example, in 2023, the so-called financial experts were off by an average of 17% depending how you look at it and how you're measuring this math wise. But you know, the average assumption was the market was gonna go up about oh eight, seven, 8%, something like that, which is generally always the average.

Speaker 1 (17:08):

And, and the market went up about 24% two years ago. The average again was about six to 8%. The market was down 18%. So they were down about 25%, not a single one. Got it. Right last year. And really none of them were even close. And my whole point in that is people make real decisions based off of these assumptions that these major institutions make, even though they're wrong year after year, after year after year. And they're way wrong. And we just keep trying to listen. But not to digress, uh, you should again go check that show out. I'm sure you'd appreciate it. As someone who spends a lot of time in this, it's fun for me to, uh, pick on those guys. <laugh>

Speaker 2 (17:45):

Just real quick on that. I absolutely love it. Yeah. Um, I have actually, I listened to that one of yours. Absolutely. I I really did love it. I've done something similar in that I'll read an article and says it's a stock picker's market. Yeah. And I actually think that's a completely true statement because in any given year the total market return is only driven by a handful of stocks. The question for you is can you pick them ahead of time on which ones are going to deliver the return? But like you said, Joe, I like to read it at the beginning of the year and everybody thinks it's a stock picker's market and they've got predictions and then you read the ones at the end of the year and then they tell you why it was wrong. But they're gonna give you the one for next year <laugh>.

Speaker 1 (18:21):

Exactly. Why wouldn't we continue to listen? Right. I guess just kinda wrapping things up here, you know, we talked about returns in an election year. What about returns after an election year? Is there any data or pattern that shows that, you know, if we just, again, hang on, next year, most likely will be better because everything will be sorted out. Is there any data or pattern that shows that

Speaker 2 (18:46):

You, there's really not, you're gonna see something very similar to what we have seen in, uh, election years. Remember you're only working with 24 of those as well, so not a ton of data, but there's nothing that you see, I mean, overall you're gonna have more positive than negative overall, your average return in those years is gonna be similar to sort of the average return in any given year. Yeah. So the theory would be, well, markets like certainty and now once we know who's going to be in the White House for the next four years, now we have certainty and therefore we're gonna have a big year the year after. And that's just not the case because look, the next major event, the next crisis of the day, the next whatever you want to call it, is going to pop up. It's not like the world just takes a break for a year and markets just are off to the races. Um, yeah. So it's comforting in our minds to say that's the case. It's not what the data shows you.

Speaker 1 (19:36):

Yeah. And I wonder if, if you wouldn't mind to, uh, as we end to leave it on the slide that shows the, the mountain of the market and the climb up despite each political party and, and the president that's in

Speaker 2 (19:51):

Power. Lemme go back to that real quick 'cause it's a good one. It's right here. I mean, it's, it's basically this one right here. And as I always say, listen, what do markets do? They tend to go up into the right over time. Um, and I think that's a good thing to remember that regardless of who's in the White House, control of Congress, all of these things markets reward investors who are willing to stick the course markets, reward investors that are willing to bear that uncertainty and stick to the game plan. Yeah. So again, nothing wrong with having political views, but no, you let that carry over and you, you're gonna, you're really gonna miss out on some, some great returns and you just don't know when they're gonna come. You know, you look at something like 2020, I mean, we're in a pandemic. It's a contentious election. Election. There's a lot of nervousness all around the globe for many reasons. And I don't think anybody thinks that, uh, or thought that the week following the US election you were gonna have one of the strongest returns you've ever seen in markets in that week following the election. So you just don't know when these returns are gonna come. You gotta be in your seat.

Speaker 1 (20:52):

Yeah, absolutely. Yeah. We had a video that we put out or we produced at least earlier today with all of our advisors. I posed the question to them, how many quarters when you, you stood at the beginning of the quarter and you looked out at the environment and you said, it's a no-brainer, the market's gonna go up this quarter. Uh, it feels like with the investor sentiment and the headline, uh, exposure, it always seems like there's a crisis going on and it, it never really seems like it's a no-brainer that, oh hey, this is a great environment and the market's just gonna take off. But here is the evidence of what has actually happened over time, despite the political party, despite all of the other factors that we have to deal with, like inflation, like geopolitical risk, which we didn't get to today, but this is what the market has done in the face of all of that. If clients are asking, should we be doing anything different? For me the biggest takeaway is stick with what we're doing. You know, stick to the plan, maintain your allocation, stay in your seat like you said. And with time, historically, we've seen good results.

Speaker 2 (21:59):

Yeah. Spot on with that. I just love your comment there about you stand there at the beginning of every single quarter and you see the headlines and you see what's going on and it seems like, man, how is the market gonna continue to go up or there's a lot of uncertainty that's out there. Yeah. One of the things I actually like to do is I've gone back and I've looked at major headlines year by year, and you go back and you're like, oh, I forgot about that. Oh, that's right. I remember we were stressing about that. Oh my gosh, that was the biggest deal at the time. It seems like the biggest deal. And then a couple of years removed, people forget about that crisis of the day. So remember that when you're standing there at the beginning of every quarter, every year and there's the major headlines a couple years down the road, you're barely even gonna remember 'em.

Speaker 1 (22:43):

Yeah, absolutely. Well, Jake, thanks so much for your time today. Uh, this was, as I expected, a lot of good information. I think it'll be very helpful for our listeners. And, uh, appreciate your time,

Speaker 2 (22:56):

Joe, thanks for the time today. Great to talk with you

Speaker 1 (22:59):

And for everyone else that's watching, don't forget to go to retirement power hour podcast.com and check out all of our other resources. Leave us a review on Spotify, on Apple, or on YouTube, and we will see you next time on The Retirement Power Hour where we hope listeners invest wiser and retire better. Take care.

Speaker 3 (23:16):

Thank you for listening to the Retirement Power Hour podcast. All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal or investment advice. Investing involves risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an investment advisor representative of Carson Allaria Wealth Management, a registered investment advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable, but Carson Allaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.