We’ve traveled the gauntlet in a very short time during 2019 and 2020. We’ve gone from trade wars, to interest rate volatility, to the COVID-19 pandemic, and we are now rolling into a chaotic election. Without the right focus investors could find themselves making emotional investment decisions that have a lasting impact on their wealth.
So, how do you remain rational and what can elections teach you about your portfolio? Should you reposition? Should you raise cash or buy industrials? Does it even matter who wins the election? The truth is that no one really knows until after the fact.
At Archetype, our mission is to help families thrive across generations. We do this by helping you connect your money with your purpose. We have purposefully designed our process to provide the greatest impact to your financial life.
Part of our process relies on the principle, “Evidence not Opinion”.
In a world where decisions are increasingly made by algorithms with networks that have the power to shape entire cultures, it is crucial that we rely on evidence and data. So why not use this advantage to shape your own financial future? Evidence not opinion, keeps you focused. It helps you build a solid foundation by providing clarity on what matters most in each of the Four Quadrants that impact your wealth.
SHOULD YOU WORRY ABOUT WHO BECOMES PRESIDENT?
Is one presidential candidate's policies more harmful to your wealth while the other candidate's is not? Does the president in the White House impact the value of your accounts?
Would you be shocked to know that the president in the White House has a smaller impact on your long-term wealth than having clarity and a real understanding of what factors dictate your lifestyle?
Let me explain. Below is a chart that sheds light on the combined efforts and tenures of each of our past presidents.
Source: Jameson Lopp (@lopp) - twitter.com/lopp/status/1317074617752670210
While the data that follows suggests that it doesn’t matter who is in the White House, you will see that certain presidents performed better than others. It also shows that, regardless of party, you are likely to get about the same average return over the long run.
Yes, in the near-term, you might feel slight changes in your wallet, but over the long-term, it doesn’t really matter.
Your wealth is what matters most: Staying laser-focused on the things that impact your family's needs is more important than who is in office this term.
Are Your Investments Aligned with Your Risk Tolerance?
Having a better understanding of your wealth language, knowing what your balance sheet looks like, having a savings plan, and effectively managing your core living expenses are of greater importance than an outcome to a presidential election. So, there’s no need to keep arguing with your neighbor--unless you like doing that!
Here’s what you need to know about elections, their impact on the stock market and how you need to be invested…
Over roughly 231 years and 43 different U.S. presidents, the data says that who’s in office and what their policies are isn’t as important to your financial returns as you may think.
- Top 10 “best” presidents have average annualized returns of 10.34%.
- Top 10 “worst” presidents have average annualized returns of 4.66%.
The percentage gap seems like a big difference but here’s the deal: How will you know “best” from “worst”, or “worst” from “best” until well after the president's term in office?
Abraham Lincoln was rated the top president of all time. He had many failures prior to getting in office, I doubt anyone thought he would ever be the leader he was. Time proves opinions wrong.
What matters is knowing the primary factors that relate to your spending and savings habits. You need to know what your cash flow looks like, have a plan for your money at the beginning of each month, and have a specific set of family values. These are the decisions that have a greater impact on your wealth than which party is in the White House.
The colored chart above led me to research if there was something more telling than years in the Executive, Legislative and Judicial branch, or military service. I was looking at the data for “evidence, not opinion”.
We all have our own bias, but what computers, technology, and algorithms are teaching the world is that acting on bias will steer you off course more often than not. It’s an important point to know as an investor, and one of the reasons why we chose an investment philosophy that is simple and relies on evidence not opinion.
Our "Three Dials" investment philosophy keeps us focused on the data that generally leads to growth and positive uptrends within the financial system. This serves as a guide to help steer us from trouble and alert us of caution when prices get expensive. Regardless of who is in the White House, flip-flopping your investments to fit their supposed philosophies can lead to more effort and worry than needed and, possibly, lead to lower returns. We prefer an approach that helps us stay away from making big bets with our savings.
Your wealth isn’t created or lost within the time it takes a media company to run an ad that generates an emotional response. So, you shouldn’t expect your wealth to improve if you are trading based on every headline that comes across your screen. You should build a plan, stick to it, and continue investing in what matters most to your family and the legacy you want to leave for future generations.
In 2017, C-SPAN published a factor-based study by historians who ranked all previous U.S. presidents. Mixing this criteria with the government experience chart above, I created a table of the best and worst 10 U.S. presidents based on overall experience.
The data suggests that, regardless of policy or party, on average:
The “best” presidents
Have about 18.10 years of total government experience, spending 6.10 years in the Legislative Branch, 2.90 years in the Executive Branch, and 9.10 years in the military.
The “worst” presidents
Have about 20.70 years of total government experience, spending roughly 10.80 years in the Legislative Branch, 6.50 years in the Executive Branch, and 3.40 years in the military.
Looking at it from this angle strips out a lot of opinions and gets down to the foundation. Like The Three Dials, there are many unique market indicators that you focus on or combine, but we’ve chosen to look at the few indicators that matter the most: valuation, economic fundamentals, and momentum. We let the data guide us and focus on the metrics that matter.
The next "moneyball" question: Which presidents provided the best value and what was that return?
The Measure of a Plan provides historical market data going back to 1871. I applied this data to the 10 “best” and “worst” presidents (a handful had terms that were earlier than 1871, so they were replaced. There were five replacements on the “best” side and eight on the “worst” side due to lack of historical data) and discovered that...
On average the top 10 “best” presidents have an annualized rate of return of 10.34%
On Average the Bottom 10 "Worst" Presidents have an annualized rate of return of 4.66%
Though it may be polarizing, and even interesting, to banter about presidential candidates, over the long haul it’s not that big of a deal who wins the presidency.
Since you can’t guarantee that you would string together 3 or 4 of the “best” presidents, your probability of something statistically significant (as it relates to returns) is likely low. So, the data indicates that most of the conversation around elections is nothing more than noise.
Unless you make a bet and get it absolutely right, it likely won’t have a big impact on your portfolio over the long-term. Are you placing bets or making investments?
We prefer to keep it simple: Understand your tolerance for risk, focus on what works best for your family, and stick to a plan that will get you from where you are to where you want to be.
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Kane McGukin serves as Senior Data Strategist for Archetype Wealth Partners. He is passionate about technology, financial markets, and helping people progress. Archetype exists to help families thrive across generations by connecting their money with their purpose.
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.