A/B Conversations: CFP® Your Way Out Of It
A/B Conversations: CFP® Your Way Out Of It
Ep #124 - Election Impacts on Planning and Investments
We’re a very polarized nation right now so for many, the stakes of the upcoming election season feel super high. Do your politics impact your planning though? In this podcast Adam and Ben discuss to what degree the election results could impact financial planning topics like taxes and estate planning and how investment strategies may (or may not) change too. Listen in as they share their perspective and lean on some historical context to support their thoughts.
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Adam Werner: [00:00:00] Hi everyone, and welcome to AB Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple certified financial planners on how we think and feel about everyday financial planning questions, and what should really matter most to you. A healthier financial life starts now.
Hello there, Benjamin, back on another podcast. How are you doing today?
Ben Haas: A little, a little stuffed up. Maybe the listening audience will hear that. Tis, uh, tis fall. Is what it is, but I'm ready. I'm ready to battle through this.
Adam Werner: Kids are back to school, so instantaneous sickness goes around the house.
Same environment.
Ben Haas: Just like that, so.
Adam Werner: Magic. Speaking of magic. Yeah, what's, what's our topic today?
Ben Haas: It's fall. [00:01:00] Like you said, kids are back to school. We are now, by the time this comes out, we'll be probably a little more than a week past what could be the one and only presidential debate between Vice President Harris and former President Trump.
So we thought, because we field lots of these questions. We do something that we have historically done. This will now be probably the third or fourth podcast that we've done with an election focus. Um, But we thought today, because between politics and, investments, we know there's not only a lot of angst that can come with that, people do get politically charged up.
We thought it'd be important to give some context around how elections truly can impact planning and investments and maybe also give our perspective on those places where we'd like people to disconnect their politics from their planning and investment strategies. I know we got to bounce around a little bit, try to jam pack a lot in here, the next 15, 20 [00:02:00] minutes, but I'm excited for it because I know it's important to us to have our listening audience gain our perspective on all that.
Adam Werner: Absolutely. So, yeah, we'll talk about maybe some specifics, but before we even get into that, kind of just set the stage more broadly, and I feel like. I think we've done some others in the past that were titled, "Do Elections Matter?"
So I think we'll start there. And the answer I think we gave on those was yes, but no and maybe we could talk about that but I think from our perspective there can be influence from any political party whether it's just and it's not just the presidency. Maybe we'll start there. It's not just who is the president but it's going to be what's the makeup of the senate and what's the makeup of the house?
Because there's these three things combined will impact policy that may or may not be passed.
Ben Haas: Sure.
Adam Werner: But ultimately the U. S. economy is absolutely massive. And more often than not, the economy and the stock market will largely just [00:03:00] do what it's going to do, regardless of who is in power. That's where impacts can be made on the margins, right?
Push, push a little here, pull a little bit there. There are certainly policies that could be pushed through that would have impacts, but broadly speaking, we would make the argument that there is certainly, the potential for just the chair of the Fed at this point, it's Jerome Powell, to have way more influence over the markets and the economy than any one political party, just because of, of the, the direct, I'll say maybe more direct impacts on the financial world, from that side of things.
So the last thing I'll say there, and then I'll throw it back to you is I kind of alluded to it earlier, but it's, not just the focus on who is going to be the next president.
There are races in the House and the Senate. It just feels very odd. I know you and I talked about this the other day that just feel like everything is just kind of split down the middle [00:04:00] in this country. You know, you look at the polling data and the Trump and Harris are neck and neck.
You look at the makeup of the Senate, the makeup of the House, everything just seems so polarized. No matter who wins any of these different races, the market in general likes gridlock from a political standpoint, meaning not one party in control over all three aspects of Congress.
Well, yeah, Senate, the House and the presidency. Odds are, after this election, that there may be some sort of split government and the market typically really likes to see that. And the reason being, that removes some potential uncertainty on what policy may change moving forward if things just can't get passed as easily. And we kind of know the rules of the game and that's ultimately what the stock and the bond markets are looking at. Or what are the rules going to be moving forward?
And if we have a good beat on that your your investment strategy can be aligned to do those out.
Ben Haas: I think [00:05:00] When we were discussing that theme of do elections matter, we were trying to make sure that we separate our role in all of this for, for our clients.
Clearly elections matter, right? There are many things that affect our lives. There are social issues, there are economic issues, there's foreign policy. There are things that we clearly, as, we have perspective on what matters most to us. We're going to focus on within an election. And that's going to probably lean us one way or the other.
We get that. But I'm glad you kind of are honing in on what we need to pay attention to is how are certain things in government going to affect our job? And we can go through some of the planning topics and investment topics. But I think what I wanted to highlight right off the bat, it really has not mattered who was president in the past.
If we just look at the S and P 500 price change per presidential term, the market just, pretty much always goes up. I mean, we can go all the way back to Eisenhower and it was only Nixon second term, and then both Bush's [00:06:00] having to go through that very difficult time, late nineties, early two thousands, where, the market did not return positively, but everything else, whether it's been more under one president or, less under another, the market does go up.
So whether it's blue or red, we do not have an investment strategy that differs one for the other, I guess is the point where if something changes in November, we immediately click a button and now we're addressing it differently. We're just not going to do that. I'm going to give one more theme and then we can maybe get into some of the details, but in the same way I listened to the debate, I know that you did it.
Like we kind of feel that's our responsibility because we're going to have these conversations with clients, policy platforms, or I should say platforms do not immediately turn into policy. There are going to be any number of ideas on what could change from a tax standpoint, what programs could be instituted to try to bump up housing or energy or things of that [00:07:00] nature. Just because somebody gets elected doesn't mean that they'll be able to push policy through for the reasons that you just mentioned. We do have two different houses that need to come together to create legislation. That's really not something that's coming straight from the president's desk. So it's just important, I think, to keep all of that in context, to make sure that we don't let some of those feelings or realities, once we know what the situation is in November, turn us into knots when it comes to, well, now do I need to change my financial plan or my investment strategy?
Adam Werner: Yeah. And I think that from our standpoint in just helping clients navigate this, it is the focus on the behavioral side as you stated. The markets, there's a saying, right? I've probably said this 10 times on this podcast over the last a hundred and however many episodes that the U S stock market climbs a wall of worry.
So we would not want our clients to invest in a way to [00:08:00] purely focus their investments based on how they feel politically. There are statistics that show how democratic investors feel when the democratic party is in power and how Republican investors feel when the democratic party is in power and vice versa, there is that disconnect where you can feel a certain way when your party is not the one in power, but ultimately the market is going to rise and fall cyclically.
Some of that may be impacted by some degree of policy. But I guess, from our standpoint and just working directly with clients, we would not want them to, using your words, twist themselves into knots and focus too much on that. When broadly speaking, the markets will do what they're going to do over time.
We know time is their friend, right? It's time in the market, not timing the market, that as long as we have things set up from a planning perspective, we're fine to kind of ride out those undulations in the market. But all of that said, let's maybe talk [00:09:00] about some of those areas of policy coming from the government that we would pay attention to and say, well, these are areas of opportunity, or these are just areas that we're watching and coming up with some pathways that if X happens, then we're going to do Y.
Ben Haas: Yeah. I think the first place to start, maybe if I could, is just, it will be taxes. I'm not going to remember the specific number, but over the last hundred years, I'm pretty sure we've had 20, 25 different versions of the tax code. So you can do the math with me. That pretty much means every four or so years, we have a new tax code to deal with.
And that kind of corresponds with presidential elections. It's just the reality of things, right? So we do have the tax cuts and job act, from, I don't know, film me in 2016, 2017.
Adam Werner: Yeah, I think it was the end of 2016. I think it started, in 2017.
Ben Haas: So that's going to [00:10:00] sunset after 2025. So whoever wins the White House here in the next couple weeks, that will probably be a discussion point.
You and I as planners, of course, are going to pay close attention to that, because there may be opportunities to think about how capital gains would be different. Rules on gifting, rules on a state tax law. These are things that affect our every day with our clients. We believe that is far more important for us to have discussions around, again, rather than some of the more politically driven conversations of what that could mean for investments.
Adam Werner: Yeah, absolutely. I'll throw this out there just as an example, right? There's been a lot of rhetoric thrown around, especially in that tax realm, because taxes are such a visceral topic. People have such strong feelings on taxation. Even some of the policies that have been floated on the capital gains side of things grabbed a lot of headlines in the last couple of weeks.
Ben Haas: It did three and a half years ago, too.
Adam Werner: Yeah.
Ben Haas: I think we dedicated a podcast to [00:11:00] what if these tax rules change and then they really didn't. That's not something that was able to go through Congress. Sorry, I didn't mean to cut you off.
Adam Werner: No, no, it's great. Well, the reality of it is no matter who wins, upcoming, the way it is set right now that that tax code, a lot of provisions in that tax code are set to go away or set to revert back to the previous.
So 2016 and earlier tax part of the tax code. So no matter who wins, that's going to need to be addressed. They're either going to need to be made permanent or at least kick that can down the road, keep them instituted, or adjustments are going to need to be made, or, it'll just be a blank canvas and we'll have something all new.
I don't think that's going to be the case. There was always these shifts that occur no matter who is going to be in power moving forward. The conversation may end up being for people that do have unrealized capital gains right now, the conversation may just focus around at what point do we feel that it's maybe [00:12:00] better to take gains sooner than continuing to kick that gains can down the road.
Let's lock in some of these gains. Let's pay those taxes today when we know what the rules are, at least for now through 2025, not knowing what the future is going to hold. But that may just be one of those areas where it's a conversation on an individual basis to say,
Ben Haas: yeah,
Adam Werner: here's something we are looking at, here are some opportunities, and get some feedback from clients on how they would prefer to approach that.
But that, that's just one area that again, it's, it's a big variable. But that's certainly something that can impact not only just planning, but your individual investments then as well.
Ben Haas: Yeah. And that's, that's not a conversation for everyone. Again, that might be a subsegment of people that need to pay attention to that in the same way that most estate planning tax law is not something that you and I personally need to worry about at this phase of our lives. But there are people that if they are higher net worth, those are conversations that need to happen.
But that's, [00:13:00] I think under that theme of these are things that feel like they're on the fringes.
They're not the core of what's going to lead to ultimate financial success or ultimate financial ruin. If I can, I don't know if you have anything else there, I was going to make that same parallel then into investments. We can say we don't have this broad portfolio that's one color or the other, but we don't want to just diminish the impact that certain policy, if passed, can have on sectors of the market.
Adam Werner: Yeah. So to that end, you think of some of the well, I think energy is always a big one that gets floated out there and energy in general is just very volatile as an investment sector. But yes, it's certainly energy. It's the housing market and all of the sub sectors that are affected by the housing market.
Whether it's going to be better to invest more focused on the domestic, the U. S. Stock market or the international market, there's all these little [00:14:00] shifts that could be impacted. All these little variables that are at play, and can be influenced by policy.
But ultimately from our standpoint for the portfolios that we manage for our clients, when we're making shifts like that, just based on potential policy impacts or just where our outlook on the markets, the economy, those different subsectors, we will make adjustments like a dimmer switch, instead of just flipping the light, you know, on or off.
So from that aspect, again, I think we use the term now, kind of that influence or the, the impact on the margins certainly applies to the investment side, too. No matter who wins, we're not going to completely abandon our philosophies and our approach to diversification, but yeah, may we overweight certain areas that we're already in and underweight others just, again, based on opportunity or overall outlook?
Absolutely. That's part of what we will do. But yeah, we're, we're [00:15:00] certainly not going to throw the baby out with the bathwater, no matter who ends up winning the election or the House or the Senate.
Ben Haas: And even to that end, I think that statistic that we've used another podcast on this, we've been in a divided government.
Gosh, I don't want to get this wrong for compliance purposes, but I think it's around like 60 percent of our history. So I'm just going to circle all the way back to something you said at the beginning. These are important things for us to pay attention to. To what degree we feel, really feel we need to be proactive about them.
It may depend more on first of all, what's the path of the fed. I heard you say that, that's almost that position may matter more in our work than who wins the White House. And how divided is the government, you know, and right now polling may show that we're probably going to end up with divided government again, who knows what happens election day.
And then, you know, the urgency around some of these potential platforms coming to reality, it may just go down. If, if there isn't a strong likelihood that some of these things could even be passed, [00:16:00] you know, at that point they were just, stump speeches.
Adam Werner: Yeah. And that's the reality of the political landscape that we're in.
I'm selfishly, I'm anxious for November 6th so that I can stop seeing the ads. That's just me. So I'll, I think I'm, I'm good kind of on our points. I know there was one other point we kind of wanted to make here to kind of bring it full circle. So maybe I'll throw that to you. If there's nothing else we want to add.
Ben Haas: Yeah, I know I just referenced polling data. We're gonna get a lot of, what's happening in the polls, you know, who's leading, who's not. I find it really interesting, better than the polling data, the market returns, the three months leading up to a presidential election, have predicted the presidency 24 out of the last 24 times.
So it's a very, very high percentage going all the way back, like a hundred years now at this point. The incumbent party has [00:17:00] won the presidency when the market has been positive from August through October. So, who knows if history repeats itself on that end, but that percentage likelihood, that predictability of the market has far exceeded the success of polling data up until election day.
So just pay attention to the S& P 500 from August 1st to November 1st and, more often than not, 20 times out of the last 24, That's been correct.
Adam Werner: I liken that to just the mechanism of the market being referred to as kind of a weighing machine, right?
You have thousands, millions of inputs, right? People buying, people selling, and ultimately the value of any individual stock or an index at large is a function of all of those little inputs on who's buying, who's selling and to what magnitude. I'll draw the parallel to if you ever heard this story or this scenario where you're at a fair, and there's a jar of jelly beans and everyone has to guess how many jelly beans are in [00:18:00] the jar, right?
And any individual could just be wildly off from the actual number in there. But there's the wisdom of the crowds and that you take everybody's guess and average it out. And that average is typically really, really darn close to the actual amount in that jar of jelly beans. So I think the markets kind of take that same approach that you have so many different opinions, and so many different investor profiles and the way that people are approaching their investments that at the end of the day, it is that weighing machine.
You're going to come out somewhere in the middle of all of these thoughts and ideas.
Ben Haas: Yeah.
Adam Werner: And that may help prove why it's been more accurate. Because you're just getting so much more input and people are actually putting their dollars behind their opinions may not necessarily come out in a poll or who's gonna vote for whom.
Ben Haas: It'll be interesting. I know it's going to be. We are incredibly polarized It's gonna be a lot of those commercials and ads over the [00:19:00] next couple weeks.
I'm sure phone calls and Spam and yep we're going to have to deal with it, but I hope the theme here was pretty clear. There are certainly implications to planning and investments. We will pay close attention to that. That's our job. More often than not, it's not going to lead to any wholesale chains.
That's for sure.
Okay. Thank you, sir.
Adam Werner: Good job.
Ben Haas: Till the next time.
Adam Werner: See you then.
Ben Haas: See you out there.
Adam Werner: Bye
Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant, and financial advisor, or tax advisor prior to making any decisions or investing. Thanks for listening. [00:20:00]