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The Smart Take:
Biden or Trump? Republicans or Democrats? Who will be better for the economy and your investments? These are questions many are asking with the election quickly approaching.
Many let their political beliefs influence their investment strategy, but should they? Hear Kevin discuss what the evidence shows and how our political beliefs may influence our perceptions of reality. Get ready to check your alternative facts at the door and get real.
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Timestamps:
6:24 – Keep Politics Separate From Investing
10:47 – Pew Research Poll
14:33 – Perception Becomes Reality
19:49 – Peter Schiff Making The Right Economic Call, But Not The Right Investing Call
29:39 – We Have Beliefs, But 200 Years Of History Is More Insightful
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The Host:
Kevin Kroskey – About – Contact
Intro: Welcome to Retire Smarter with Kevin Kroskey. Find answers to your toughest questions and get educated about the financial world. It’s time to retire smarter.
Walter Storholt: Hello, and welcome to another edition of Retire Smarter. Great to be with you. Walter Storeholt here alongside Kevin Kroskey, President and Wealth Advisor at True Wealth Design, serving you in northeast Ohio and southwest Florida. Find the team online at truewealthdesign.com. And we’ve put lots of great information in the show notes section of today’s episode, so it’s easy for you to get in touch, say hello, ask any questions that might be on your mind.
Walter Storholt: Kevin, great to be with you this week. How are things going for you, sir?
Kevin Kroskey: Walter, it is always my pleasure to be with you, my friend. Truth be told, today was a bit of a stressful day in the Kroskey household. It was the first day of school. And where last year we had this little board and my daughter on the front stoop taking pictures of her first day of kindergarten looking so cute, today was WebEx hell, as my wife would probably call it.
Walter Storholt: WebEx hell, is that what you said?
Kevin Kroskey: Yeah. It took a while to get going, as to be expected. I mean, it was probably going to be a tough day, and I think it was tougher for my wife and my daughter. But I talked to my daughter, she just wrapped up with school about an hour or so ago, and just asked her how it went. She was like, “Great. I really like my teacher.” And just had a nice, chipper smile on her face. After earlier in the morning, having crocodile tears coming up. So she finished on a positive note. But I’m sure there are all kinds of parents that are going through this, and grandparents hearing about it through their kids and their grandkids. No doubt is going to be challenging for everybody. But I popped in, and I was able to solve a technical issue that my wife couldn’t fix.
Kevin Kroskey: I was just really impressed with how my daughter was navigating around on the laptop. She’s only six, she’ll be seven here in a couple of weeks, and she’s going into WebEx and then out over into Google Chrome, into her teacher’s classroom and bringing up different applications and navigating around. And she’s six. I get it that kids are on iPads and things like that, but it was a lot more challenging than just swiping or moving around on an iPad. And so I’m taking away, she may not be in the classroom right now, and certainly, there are some disadvantages to that, but she’s really going to have better computer skills than probably a lot of other kids that are out there. So I think that’s a big positive.
Kevin Kroskey: I’m sure we’ll have a lots of ups and downs, but we’re starting at home at first and there’s a live teacher and it’s just like a regular classroom for 19 or 20 students in our local school district with the teacher just teaching through WebEx, and just more so facilitated by the moms and dads at home. Today was a little bumpy, but that’s how we’re starting out, and then we’ll see how it goes. And once maybe we feel safe, maybe we’ll put her in school. We just don’t want her to be a guinea pig right now, and we’re fortunate that we don’t have to put her in.
Kevin Kroskey: My wife is here at home, and probably by about 11 o’clock she’s like, “Why the heck didn’t I just send her to damn school?”
Walter Storholt: Why did we opt for this? We did this to ourselves.
Kevin Kroskey: So I was just trying to be as supportive and reassuring and problem-solving as I could be.
Walter Storholt: You got to be a hero, popping in and just fixing all the problems. That must’ve felt good.
Kevin Kroskey: Well, no, because it was easy for me. And apparently, my wife was trying to fix it for a while. And so the ease with which I fixed it.
Walter Storholt: Oh, that just made it worse then.
Kevin Kroskey: Yes.
Walter Storholt: Well, those things happen. That’s all right. But it’s great that you are at least finding your way through the challenges that face us right now. And I have a feeling we’ve still got a few more curveballs left in the tank for 2020. You would think we’d be out of them by now, but with that impending election coming up in November, certainly, there will be many more curveballs along the way. And Kevin threw me for a loop today, folks. I said, “All right, Kevin, what are we talking about on the show today?” And he just left me with, “Politics.” And that’s all he gave me. So I said, “All right. Well, I’m looking forward to today’s episode. This is going to be great.”
Kevin Kroskey: And Walter’s pause was really … what you really said where that pause was, “Are you sure you want to do this?”
Walter Storholt: Are you sure?
Walter Storholt: We certainly, no secret, have always, … we haven’t talked much politics on this show, that’s for sure.
Kevin Kroskey: No. And for me personally, frankly, I don’t particularly care for politics, so it’s not something that I really like to talk about. I mean, I think they’re just BS.
Walter Storholt: You’re not a political junkie by no means.
Kevin Kroskey: No. I don’t like BS, and there’s a lot of BS that goes on out there in the world, and it seems to coagulate pretty heavily within politics, and I just have a bit of a disdain for it. I try to be informed because our clients and our prospective clients are asking questions about it. And some of it matters to a certain degree, and other parts don’t. But you still have to be informed and just say, “It doesn’t matter.” I think you have to provide some context to it. And we’re starting to get an uptick of those questions being that we’re coming here towards September and going to be here at elections just a couple months away.
Kevin Kroskey: Certainly, things are quite heated at the moment. I can’t imagine that … You hear people saying, well, “It’s the worst as it’s ever been.” I’m like, “We had a civil war. We were killing one another, and we’re in the same country. So it had to be pretty bad then.” I digress, I suppose, but yes, people have a lot of beliefs in, “Hey, this is America.” Have your beliefs. That’s great. But I want to just talk through, in typical Retire Smarter form, just talk through more about the evidence about really do elections matter when it comes to investing. Yes, no, maybe. Why, why not, so on and so forth. So we’ll walk through that today, I’m sure I’ll offend both sides and everybody in between, but I’ll do my best to do it in an evidence-based way.
Walter Storholt: There we go. As long as that’s the driving force, then you’re okay. I feel like we’re going to answer or speak directly to that person on today’s show, or at least answered their question even if they weren’t asking it, who says, “I’m not into politics because whoever the president is doesn’t ever really seem to affect me on an individual basis.” And I think a lot of us can probably identify with a little bit of that feeling. But then there are others who certainly would point to who’s in the White House as one example, or the elections as a whole, as being responsible for wholesale changes, even individually in their lives making major differences. So as with anything, it depends on your perspective. But it sounds like we’ll at least dabble in answering some of that question today from a financial perspective.
Kevin Kroskey: Yeah. And the key overriding message is, just keep your politics separate from your investing. I can think back, and we’ve been doing this for a while now. I’ve been doing this for a while, and I’ve at least had a few different presidents in the office while I’ve been working with our clients. And whenever Obama was in the office, I remember a lot of my more conservative clients would just … it just seemed like we had more conversations about this issue or that issue. There’s just a lot more concern. And then when Trump came into office, I think there’s a lot of people that like him, a lot of people that don’t like him, he’s quite polarizing for sure. But I remember somebody, a few clients, saying, “It looks like it’s time to go ahead and sell our US dollars, buy Bitcoin, and moved to Canada.”
Kevin Kroskey: And when Obama was in office, I remember a client telling me about how his good friend was, because the tax rates were sunsetting and a top tax bracket was going from 35%, which it was under George W, it was going back at 39.6, which was before. And he’s like, “Well, he’s closing down his business.” I’m like, “He’s closing down his business over less than a 5% increase in the tax rate?” Come on. There’s got to be a business problem there, that’s not a tax problem.
Walter Storholt: Slight overreaction, maybe.
Kevin Kroskey: Yeah, I think that. And I think that’s what it gets to. When you think of investing, we’ve done a four-part episode about an investing process, at no part in that process was, “Let’s get emotional.” Whether it’s about this belief, that belief, politics, religion, your likes, your dislikes, or anything, it’s more about an evidence-based approach, going through the process, having a reputable process, and as the inputs change, maybe the outputs change. And really, that’s what it should be whenever you’re looking at anything as it relates to money.
Kevin Kroskey: We’ve talked about this. I remember studying to become a financial planner and just being attracted to coming into the profession and learning about money and helping people do more with it. I think that’s what a lot of people get drawn into is about investing or something along those lines. But then when you get here, at least for me, you realize it’s a heck of a lot more than that. It’s not just about the technical competency, which is so important. The planning, the investing, taxes, insurance, you name it, and then being able to pull it all together cohesively to strategy, that is incredibly important.
Kevin Kroskey: But then you really have to be able to help people see more clearly. Sometimes their thinking could be clouded like on things related to politics or maybe things that they were taught about money when they were growing up, or behaviors that are related to money that aren’t so productive. And you just realize that the qualitative side or the softer side is oftentimes just as potentially even more important than the technical competency. And in my view, we call it financial life planning, but to me that that term encompasses both parts. So you really do need to think rationally, but we’re human. That’s the great thing about us. We’re not just rational robots moving around. We have highs, we have lows, we have happiness, we have sadness. We have the rear part of our brain that has basically one important thing to do, and it’s to keep us alive. It’s like, if you see a bear in the woods, you run. If you see a bear market, unfortunately, it tells you to run when a lot of times you shouldn’t. But our minds, that’s us.
Kevin Kroskey: Our minds are there. The emotional part of our brain is faster than our rational part of our brain. And all this is thrown into the melting pot whenever it comes to money and to investing. So one of the ways that I will try to, at least in part, prove what I’m saying here is just talking about some recent polls from Pew Research came out with this in January of 2020, before COVID just smacked everybody upside the head, at least for this part of the world anyway. And what they were looking at were just the views of the economy. And they broke it down by whether the poll participants were Republican or republican leaning Independents. And then they looked at Democrats or democratic leaning independents. So in 2020, 81% of the Republican and the Republican leaning thought that the economy was doing great.
Kevin Kroskey: What’s interesting to me is if you just go back a few years to say November 2016, just before Trump won the election, Walter, you want to take any guess what the positive view percentage was for that group, the Republican and the Republican leaning?
Walter Storholt: I’m going to say very negative. Very negative outlook. Yeah.
Kevin Kroskey: So if it was 81% thought it was positive and they had a positive view of the economy in January 2020, only 18%, just flip the two numbers, only 18% in November of 2016. So man, did that change. It changed quite a bit. Now, if we go over to the blue side and if we looked in November 2016, 46% of the democratic or democratic leaning independents thought the economy had a positive view of the economy. And somewhat interestingly, if you look in January 2020, it was lower, but it was only 39%. So where you go from 18 to 81 for Republicans, you go from 46 to 39 for Democrats.
Kevin Kroskey: I don’t know what conclusion you draw from that. Maybe the Republicans are more fickle. Maybe the Democrats never got above 50%. Maybe they’re just pessimistic. I don’t know. There we go. I think maybe we offended both sides, mission accomplished. But I think it proves the point, particularly on the red side, that when you have that change going from 18 to 81, that’s just a huge view. It’s not like the world or economy or the markets change so much and just flip the switch going from 2016 to 2020. So I think when you look at that, you can see how political beliefs really impact your perception of the economy.
Kevin Kroskey: And if you think back, Walter, I know we’ve talked about it, there’s a lot going through COVID and how the economy and the markets aren’t the same things and how the markets tend to lead the economy. So this poll is asking about the economy, and it’s not even getting into the markets, but yet people are still basing some investing decisions based on their political beliefs.
Walter Storholt: Good that you also polled that number before COVID happened certainly. I’d be interested, do you happen to have the numbers for current? Have you seen any recent studies on that, or is it more of a year by year thing?
Kevin Kroskey: I poked around, I didn’t see anything more current. I was looking for the same. I wanted something pre-COVID. I figured everybody is probably a bit less optimistic about the economy at this point in time. It would seem to be a rational conclusion. I would expect there’s probably a similar disparity where the Republicans certainly are more positive than the Democrats just because Trump is still there and some of the messaging and some of the news outlets that they pay attention to, what have you. I think that’s been proven over the last few years. I don’t think that’s going to … the switch is not going to flip just because COVID, but maybe the total optimism I would think would be a lot less than 81%.
Walter Storholt: Yeah. I’d be interested to see if the democratic number, instead of being taken in January, being taken much closer to the date of the election, like the Republican number was originally, how much more it degrades the closer you get to the election would be interesting to see.
Kevin Kroskey: Yeah, for sure. It’ll be interesting. So if we talk about, those are perceptions in reality. We’ve all heard the phrasing; perception becomes reality. And it can to a certain extent, but again I would say that a lot of what we just talked about is more on the emotional side and not so much on the rational side. I mean, you don’t go from 18 to 81 in a couple of years just because the White House occupancy has changed to your party. I mean, that’s what happened, but it’s not like the world or the economy, in my view, changes that much.
Kevin Kroskey: To me, going from an 18 to 81 is like going from communist country to capitalist country or something like that, not just blue to red sort of thing. But that’s me. So everybody’s got their own opinion, but I have the microphone right now. Right, Walter?
Walter Storholt: You have the power. Well, technically, I have the power. I can hit the mute button.
Kevin Kroskey: Yes, you do. Yes, you do. So if we get into the investing implications now, we talked about perception or reality, and how our perceptions may inform what we believe to be our reality or reality, I should say. But when we get into the investment implications, when we’re talking about the investments, we’re just focused, not on bond or fixed-income investments, but just investing in companies. Owning stock, owning stock-based mutual funds. What have you. So not only are you, when people are asking us like, “Maybe we should make a portfolio change because of the election.” I’m like, “What about the election exactly?” And again, it depends on who you’re talking to, whether they’re blue or red or some shade of it. But I’ll just have a conversation with them and say, “What are you concerned about?”
Kevin Kroskey: And let’s just suppose that I’m talking with a conservative client who’s concerned about Biden becoming president, and they’ll say, “Biden might win.” I’m like, “okay, what are the current polls showing?” Like, “Showing the Biden might win.” I’m like, “That’s right. So that’s common information. You know that, right?”
Kevin Kroskey: “Yes.”
Kevin Kroskey: And then I’m like, “Anytime you turn on a 24/7 news media, basically, you see that. So all that information is already baked into all of our minds to varying degrees. And once it’s baked in, it’s influencing us on all the buy and sell decisions that we’re making today. So said another way, that information is out there, it’s public, and it’s already in the price. It’s already factored in.” I mean, if you pay attention to this stuff, I mean the Biden tax plan came out not too long ago. We commented about it in our last podcast, talking about why Roth conversions can be so good this year. And yeah, he’s talking about raising taxes and raising them sooner, both on corporations, as well as individuals. And that is going to harm, at least to a certain extent, the economy.
Kevin Kroskey: It’s going to take money out of people’s pockets, out of corporations, and it’s going to go more to the government. So at least in the short term, that’s the effect. But that information too is already commonly known. It’s out there. It’s not like it’s a big secret. It’s not like you have some sort of, “Here’s the dark web to the political information,” and you’ve got to press these certain buttons on your keyboard, and then you can get this poll information. No. Every time he turned on any of this cable news media, you see it. And it’s there. And we know it, and it’s already in the price. So not only are the election results there, but you have some indication on what the policies are going to be, but you also don’t know what the actual election results are going to be or the actual policies then implemented by the elected president are going to be, or if the Senate is going to flip and if everything’s going to be blue or whatever the case may be. So you don’t know any of this.
Kevin Kroskey: And then if you don’t know that, you also don’t know, and here’s the rub, but this is where we started, and we’re going to close the loop here, but we started talking about perceptions, and there’s a lot of people that again are just, you have these perceptions, and you could be making investing decisions based on these perceptions. A lot of people are. Nobody’s completely rational and devoid of emotion. But if you’re going to try to predict all these things about the election, then about the economy, and then how the economy and those policy decisions are going to translate to individual companies or industries, then you have to go ahead and pivot again and predict how people are actually going to feel and interpret that stuff.
Kevin Kroskey: So we’re talking not just about the election, we’re not just talking whether it’s the president or the Senate, but then we’re talking about policy. And then we’re talking about how companies are going to adapt, how are they really going to be affected, how quickly is that change going to go ahead and be implemented. And oh, by the way, how are people going to feel about this, and how is that perception going to go ahead and factor in how they are going to buy or sell these different stock-based investments?
Kevin Kroskey: I don’t know about you, Walter, but my crystal ball broke probably on the second turn, and now we’re like four or five or six layers deep. And I’m just looking here, standing on glass.
Walter Storholt: Yeah. You’ve got not a very stable foundation once we start prognosticating several layers and elements into the future here. You’re doing yeoman’s work continuing to follow the thread down as far as you have.
Kevin Kroskey: I tried. I even got myself a little confused on the way down. But hopefully, you can see this. Again it’s not just about if this or that is going to happen. It’s all these other kinds of derivative effects. I remember back when Obama was really … before Obamacare was put in force and there was a lot of, at least I’m going from memory here, I didn’t do research on this before the call, but there was, I believe the majority of healthcare companies were lobbying against Obamacare and there was a lot of concern about this is really going to harm health insurers. You’re going to drive them out of business, and you’re going to defacto in the single-payer, and that’s what you really want.
Kevin Kroskey: And then here you go, and Obamacare is passed, and health insurers are thriving over the coming years under this new regime. Just because you think something is going to happen, just because a lot of informed people, these health insurers. Again, I’m going from memory here, but I tend to have a pretty good one, and I believe that the majority of the lobbying dollars were going against Obamacare. But yet, post-Obamacare, when you look at the stock prices of these health insurers and just their financial performance, they’ve thrived. And so I think you just have to be humble here, all for having your political beliefs, being an American, voting, doing what it is that is important to you and believing what it is that you believe, but you just have to be humble when it comes to investing because your political belief could be far removed from making a very, very good investing decision. I’ve seen plenty of times where people have made good economic calls. There’s a gentleman, Peter Schiff was his name, and he basically predicted-
Walter Storholt: It’s wild that you bring that name up. I’ll tell you in a moment. It’s just very funny. But go ahead.
Kevin Kroskey: So Peter Schiff, he’s a book author, his dad was famous. He really just thinks inflation is going to be rampant. The US dollar is going to pot. I think he lives in Puerto Rico, and he’s domiciled there just so he can basically escape income taxes. But he also manages money in addition to being in a financial and political author. And he predicted that there was going to be this collapse in 2007, 2008, the great financial crisis. He predicted it. He was dead on. Economically predicted this was going to happen. And then what his belief was, and if you go back and read this, it’s very clear, and he actually did this with his client money, but he took all the money outside of the US , or the vast majority of it, invested it in international equities.
Kevin Kroskey: And then guess what happened in 2008? Those companies, because of the appreciation of the US dollar, which he thought was going to pot, those companies, those international companies, went down a lot more. They went down 50%, 60%, probably about 10% or so more than us equities. So he made the right economic call. He didn’t make the right investing call. And then again, part of this is about perceptions and feelings. It’s not just about the numbers in the short term. Over the long term, the numbers are really, the earnings per share, what we’re going to get from owning a stock, really is going to matter. But in the short term, there’s just so much noise and so much emotion that clouds the market, that you just can’t predict it in the short term.
Kevin Kroskey: But I’m curious, what sparked that reaction when I mentioned his name, Walter?
Walter Storholt: It was just really funny because right before we recorded today, while I was snacking on some lunch, I will often open up YouTube and just fall down a YouTube rabbit hole for a couple of minutes just checking out different videos. Sometimes they’re nothing, sometimes they’re political, sometimes economics, learning, just whatever. I let YouTube point me in whatever direction I’m going in that day. And randomly, I was watching a video of Peter Schiff back during Occupy Wall Street. He went down with a sign that says, I am the 1%, let’s talk, and sat out there, stood out there, surrounded by basically a mob. And he just said, “Let’s talk.” It was like an hour and a half video. I didn’t watch the whole thing, but he was there for an hour and a half, just answering questions left and right from all these people coming up, yelling at him. He was just trying to have a good conversation with them.
Walter Storholt: It was just really interesting to watch it through the lens with everything else that’s going on in our country right now with protests and trying to have a conversation and just seeing some of those kinds of conversations play out and talking about capitalism and the economy, still in that Occupy Wall Street, certainly terminology and that framework. But a lot of it applied to even the discussions that we still have today, almost a decade later. So it was just really funny. I was just watching a video about him, literally right before we started recording today. So the timing was-
Kevin Kroskey: Good timing.
Walter Storholt: Yeah.
Kevin Kroskey: What I was doing before we started today was, I don’t know if you’re familiar with like the prediction polls, like predictit.org. Have you checked those out?
Walter Storholt: Is it like gambling, but not gambling?
Kevin Kroskey: Yeah. It’s gambling based on election. Rather than say gambling, they create a market to express your views on who’s going to win the election. And the market means that you can put real dollars and cents behind it. You see, I think, over time, these markets more develop. I’m not sure how effective they were. I think most polls and methods got 2016 wrong, or at least within the margin of error. But you’re seeing a lot more people participate in these polls. I think there’s like 300,000 active political market participants, but they’re out there betting with their own money about who they think is going to win. So they’re informed, probably more so than the average Joe or Jane that’s out there. They’re well aware of like the polls, probably some public polls, private polls, who knows. There’s probably a lot of Washington insiders that participate in this as well because they have a piece of knowledge and probably have a belief that they have a leg up.
Kevin Kroskey: But the fact of markets are, you get a lot of smart people and then basically wherever that opinion coagulates is really the general belief. And it’s the law of large number effect. But when you get a lot of people like that believing one thing and putting their own money on it, they tend to be right. Certainly, markets can overshoot or undershoot, but it’s the same sort of thing when it comes to investing. Whatever the current price is of something tends to be the best estimate of its true value, just because people are out there voting with all the buys and sells that they do and that the current price is the price.
Kevin Kroskey: So we’ll see how these developed, but Biden I think was that a peak, like maybe 63% or so, and they use these in cents on the website. It’s predictit.org. But it’s some pretty high-level stuff. I don’t know, check it out. I think it’s really interesting just to take a look at, but you saw, maybe about 60 days ago in July, the gap between Biden and Trump was the greatest in Biden’s favor, and now it’s narrowing, and I think where today it’s maybe like 54, 55% to Biden and then the balance for Trump. If you wanted to, Walter, I know you are a millennial even though you’re a very mature and an old soul, you could still actually go bet on Kanye West if you went to. He is in there.
Walter Storholt: Oh, really?
Kevin Kroskey: Yes, yes. He’s bottom of the pack, as you may-
Walter Storholt: Is he 10,000 to one odds?
Kevin Kroskey: Something like that. I think at least for what it shows, it goes up to a hundred to one, I would say. But yeah-
Walter Storholt: I think it was Kevin Malone in the office that said, “If anyone ever gives you 10,000 to one odds on anything, you take that bet.”
Kevin Kroskey: Well, Walter, I will give you 10,000 to one odds, I was just going to say this, that my hair will never grow back. But who knows? With medicine, with innovation.
Walter Storholt: That’s true. Yeah, I would totally take that. I would totally take that bet. I’ll put a dollar down on that. I’d put a dollar down on all sorts of those kinds of bets. One will pay off one of these days.
Kevin Kroskey: It’s only a dollar. That’s right. That’s right. So that’s what I was looking at. But those are people betting real money. The way that we actually get our inflation estimates, there are different methodologies. The one that tends to be most effective, if you look at the difference between, say like for a 10-year inflation, what the difference between 10-year treasury bonds and 10-year treasury inflation-protected security bonds, basically you net the two, and then you get what the market is pricing in what they believe inflation to be.
Kevin Kroskey: And so when you have markets and people in the markets are sufficiently developed, I would say, and you have enough people participating. Enough informed market participants. Then whatever the current price tends to be the best estimate. So we’ll see what happens come November. Again, this gap seems to be closing. Certainly, things were … a lot of these polls were wrong in 2016. Who knows what’s going to happen. But again, none of this should really matter when it comes down to your investment strategy. Whoever wins the election is not going to be a direct fruit to what you should or shouldn’t do in terms of investing. We have a couple of hundred years of history now where it doesn’t really matter who’s in the White House. Being an investor, particularly in the US over those last couple hundred years, paid off in spades, whether it was red or blue. Technically speaking, the returns were a little bit higher when a Democrat was in office, but none of that is statistically valid.
Kevin Kroskey: Republicans would argue it was because we laid the groundwork before those blue people took office. And then certainly Democrats would argue the other way. But the market and the economy, the economy is quite diverse, and it’s quite adaptable. So it’s certainly a lot bigger than whoever occupies the White House. And again, I know that things are politically charged right now, and people may have strong beliefs, but you should really leave them at the investing door before you sit down and think prudently on your portfolio.
Walter Storholt: I don’t want to take you down a whole nother rabbit hole, but just maybe as a final thought here, I was listening to you over the last half an hour, and I’m trying to think of a way to poke a hole in what you’re talking about, or at least play devil’s advocate. And the only thing I can think of is this last election. But I may sort of answer my question in the question. And that would be, and I realize markets and the economy, as you’ve covered very well in the show, are different things, but an undeniable fact that pretty much as soon as Trump was elected, the market responded immediately, and we had one of the greatest run-ups in history. I think if you throw what’s happened with COVID out the window, it’s certainly been a good couple of years in the market and a lot of people did say, right after it started going up, this is all because of the excitement around President Trump and the things and the changes he was going to make, the taxes that were put into place.
Walter Storholt: All of these things were driving forces to what seems like a clear connection to that. Although it is interesting that right before, on election night, all the markets were crashing, and everyone was jumping ship because they thought it was all going to implode. And it only took a few hours for all of those prognostications and predictions to get undone and head the other direction. So maybe that is answering my own question there, that we still don’t really know what the impact … Would we have the same economy in the same market, or at least somewhere in the same ballpark right now, if the election had gone a different direction? I think that’s an interesting way to look at it, maybe.
Walter Storholt: Yeah. And that’s the problem. You’re never going to have the counterfactual. You can play the what-if game, but you don’t have any evidence of how it’s going to be one way or the other. So I guess what I would default to in terms of history is, when you look at it, again, if you look at a chart of just how the S&P 500 has grown, say, over the last 100 years, it’s pretty consistent up. Certainly, there are some big temporary downturns, like 2008, like earlier this year due to coronavirus, the tech bubble, ’73, ’74, the great depression, but in general, the longterm trend is that the US economy has grown at about 3% per year. It’s been a little bit slower as we become more of a developed economy. Think about it, a hundred years ago, we were more of an emerging economy, maybe like China or India, to a certain degree. But we’re a much more developed economy today, so that growth rate is slowed down.
Walter Storholt: But regardless of who was in office and through all these different permutations, so like preindustrial, industrial, post World War II, when you look at the trend over time, it’s pretty consistent, and it’s consistently up and to the right. So it’s growing. And again, that’s irrespective of whether we were driving around cars or on the back of horses with buggy whips, or in a Tesla for that matter. So things are going to continue to change. The markets are a discounting mechanism. They tend not to like a risk and uncertainty. I would say for sure when Trump was coming in the office. There was one heck of an amount of uncertainty. I have a lot of conservative friends that would staunchly argue that Trump is not a conservative. And you have other people that would argue that he would and everything in between.
Walter Storholt: So, we all have these beliefs, but we have a couple of hundred years of history just to show that it really doesn’t matter who’s in office. I think that, to me, that’s much more robust data than saying, “Hey, after Trump was elected, the market went up for a couple of months pretty strongly.” You just don’t know,. That’s a sample size of one. You don’t know exactly why that happened or what have you. Certainly, the tax cuts, I don’t think anybody can really argue that it was not a positive for corporations. And markets were, particularly in the US, were quite expensive. And then surprisingly, we had this tax reform and tax cuts when we’re already many, many years into an economic expansion. And that definitely added some additional fuel to it because just, again, as investors, we get earnings per share.
Walter Storholt: So those earnings were a lot higher, and it was like a temporary shot in the arm because that expense was not going to federal taxes. And it helped us go another leg up in my view. Now, can I empirically prove that? Probably not. Again, it’s a sample size of one, but I think that’s pretty logical to say that just because the market went up for a couple of months pretty strongly after Trump came in office, I’m not going to deny that fact, but I don’t think you can say it’s simply because of that reason. In fact, he didn’t even get into taxes until late in 2017. He tried to do like healthcare, and that didn’t work out so well when he was first in there. And so taxes came around much later, and the market had already gone up for several months at that point.
Walter Storholt: Fascinating to look at all these different angles certainly. Kevin, I thank you for walking us down this road a little bit. If you have questions for Kevin, want to talk a little bit about your own financial plan, what’s coming down the pike, obviously. There is going to be lots of news, lots of things happening over the next couple of months, lots for people to be nervous about, anxious about this year. But you shouldn’t let that impact your financial planning and at least your preparation for your financial future.
Walter Storholt: If you need some help getting some clarity to some of those things, never hesitate to reach out to Kevin. You can do that 855 T-W-D PLAN. That’s (855) 893-7526. Or go online to truewealthdesign.com and click on the Are We Right For You button to schedule a 15 minute call with an experienced advisor on the True Wealth team. That’s truewealthdesign.com. And as usual, we’ll put links to contact Kevin in the description of today’s show.
Walter Storholt: Kevin, thanks for the help. It wasn’t so scary. We went down the political road and came out the other side relatively clean.
Kevin Kroskey: I think so. Perception is reality, though, right Walter? That’s where it started, that’s where we’ll finish.
Walter Storholt: That’s right. You got it. Very true. Well, thank you, sir. And we’ll look forward to talking to you next time. Good luck with the school ventures over the next couple of weeks, and we’ll get another report from you maybe in a month or so, see how things are shaping up on the school front with the kids. But until then, we’ll talk to you next time, right back here on Retire Smarter.
Disclaimer: Information provided is for informational purposes only and does not constitute investment, tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.
