Summary
In this episode, I look at the relationship between politics and the stock market. Please do not get caught up in the news cycle. You'll find that even though our current form of politics tends to be zero sum we are resilient people at the end of the day. I also provide some data about returns over time and walk through some of the events that happened over that period.
Takeaways
- Don't get too caught up in the news cycle and remember to gain perspective.
- Politics can be idolatrous and may not have a significant long-term impact on the stock market.
- Diversification and long-term investing are key to navigating market fluctuations.
- Historical events have not significantly affected the long-term trajectory of the stock market.
Chapters
00:00
Introduction
00:58
The Relevance of the News Cycle
02:55
The Resilience of the Nation
03:24
The Data on Stock Market Returns
06:21
Historical Events and Market Performance
08:19
Politics and the Market Over Time
09:18
Don't Make Rash Decisions
09:48
Conclusion
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JOSH KLOOZ, CFP®, MBA
WEALTH ADVISOR
Phone 281.719.0036
Text 281.699.8691
Fax 281.719.0156
jklooz@carsonwealth.com
1780 Hughes Landing | Suite 570
The Woodlands, TX 77380
Music by bensound.com
Josh Klooz (00:26.893)
Hello and welcome in again to the wisdom of podcast. Thank you so much for joining us again today Recently some questions have arisen around the combination of politics and the stock market and what we may think of of things going forward and Frankly, I don't think the two go very well together Especially when you overlay the two of them and I don't think they're as correlated as some people would like to believe that they are but in today's episode I
I'd like to dive into why that is. And before we get in, I think some perspective would be helpful. I think far too often it's easy for people to get zeroed in on the news cycle and feel that it's far more relevant and impactful to your individual situation than it actually is in reality. So some perspective would be helpful.
First and foremost, in certain theological circles, I think it would be safe to say that politics in its modern form is frankly very idolatrous at worst, right? And even at best, I'm with Mitt Romney, I think he got it right when he said most of politics in the modern era is sports for old people. But all joking aside, at the end of the day, I want to remind you of something that has just been really permeating deep in...
inside kind of the core of me. For as long as I can remember, my entire life, I've been told that every election that I can ever remember was the most important election of my lifetime. But if I may, I'd like to share with you what I've discovered. I've discovered that the types of folks that repeat that and promulgate that typically are selling books and subscriptions, right? They're...
Their entire ecosystem is designed on you believing that, not on you just simply living your life and moving forward. So I don't find that type of perspective very valuable. Regardless of which party is in power, I think the union will continue. We will continue to be the greatest nation on the face of the earth. And regardless of which leader is in power in the White House or
Josh Klooz (02:53.453)
which party is in power in either branch of Congress, or rather House of Congress rather, I think we're gonna be just fine. It may be painful in a different way, but we're going to be just fine and we will survive whatever the case may be. Often at this point I hear the objection from different people, especially if we're in a client meeting, but we've never been more divided. At which point I say,
I do believe John Adams and Abraham Lincoln would like to have a word. But enough about politics, and just political theory and history. Let's just look at the data, and let's go back to 1950. I'm gonna use a Bloomberg study, and if you get access to the newsletter, you can see this, the chart that I'm gonna reference here. But Bloomberg did a study between 1950 to 2023. And they looked at the returns,
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of the S &P 500 from 1950 to 2023, the aggregate bond index, and then also a 60 -40 stock to bond portfolio over that period of time. What they found was that the variance of returns over that period of time in stocks could have varied from 47 % to the positive to 39 % to the negative over that long period of time. What is that? That would be about 73 years, right?
In a rolling five -year period, it found that the variance of stocks was 28 % to negative 3%. The bond portfolio varied from positive 23 % to negative 2 % over that five -year period. And the 60 -40 portfolio varied from positive 21 % to positive 1%. Over a rolling 10 -year period, it expanded further. But I'm going to move on to the rolling 20 -year period.
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At the end of that rolling of any given 20 year period, no matter how you constructed it within that 73 years, you could have a spread in the S &P between a positive 17 % return or a positive 6 % return. For the bond index, it was 12 % or 1 % positive. And for a 60 -40 portfolio, you could see a rolling return of positive 15 % or positive 5%.
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What is that telling you? One, it's telling you that timing is not your friend. Please don't try to do that. Two, it's also saying that diversification over a longer period of time is a friend as well. It's also telling you, and to just put this in hard math, they estimated that on average $100 ,000 invested in 1950.
if it had been in 100 % S &P portfolio would have ended with $838 ,000 approximately. The bond portfolio would have started with $100 ,000 and ended with $292 ,000 approximately. And the 60 -40 portfolio would have started with $100 ,000 and ended with $590 ,000 approximately at the end of that period. And so what is this?
all supposed to tell you about how you should view politics, how you should view your current situation. I think it'd be helpful to look at all the different news cycles that you saw from 1950 to that point. So I'm gonna go through not an exhaustive list, but just some of the ones that came to mind that one, I think, would have been scary parts of history, but would have been unique parts of history that I personally would have found interesting. But as you're sitting in my seat, it would have,
provided a challenge. And so here are just a few. If you look at all the different things that have gone on in that period of time, found within that period of 1950, so, you know, 2023, you would have the Cuban Missile Crisis. You would have had the Six Days War. You would have had the 1968 presidential election, which was awful. You would have had the Apollo missions. You would have had the Challenger explosion. You would have had the 1987 market.
Market crash. You would have had the fall of the Berlin Wall, Desert Storm, the dot -com bust, 9 -11, and the housing crisis of 08, and oh, by the way, you had had COVID in there as well. At what point do you think, if you look at that chart where returns trend up over time, do you believe that politics and who was in the White House had a long -term effect?
Josh Klooz (07:49.357)
on the trajectory of an individual thousands of miles away making rational decisions about how to derive income from well -run companies earning a profit in the marketplace. It just doesn't follow. So my hope with all of this is to, one, give you some perspective about where we are in history politically. It's all been done before. Number two, there's probably not a lot that will...
that we'll encounter in our lifetimes that we're less prepared to overcome and to engage than those that have come before us. I mean, frankly, I've got no excuses. I'm well prepared. I've got resources and I'm armed with more information than I know what to do with. I simply have to have the discipline to put it together, which, by the way, is what everybody that came before us had to do. So as you look at...
this upcoming presidential cycle and this upcoming congressional cycle, I hope this is a comfort to you. There's really not a lot that politics has to do with the market over long periods of time. Yes, people on cable news may try to get us to grab our attention, but at the end of the day, again, I ask you this question. Are they selling subscriptions?
Are they selling advertisements? And are there perverse incentives there? So take this as you will, but if you take nothing else away, please remember, don't be making rash decisions in election years one way or the other. Please don't abandon what you know to be true over long periods of time simply because you believe the age -old lie that this time it's different. It's not. It's just not.
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At the end of the day, we will look back on this and we will have forgotten about it in probably a five to 10 year period, as hard as it is for us to imagine.
Josh Klooz (09:58.413)
things there for now. Hopefully this was helpful for you and in your current situation and hopefully you can you know use this as a springboard for for future conversations. If you have any questions about this topic or another topic please reach out to me at your earliest convenience and as always know that I'm wishing you and your family continued truth, beauty, and goodness on the road ahead. Have a great day.