Episode 5: It's An Election Year - Should I Change My Investments?

In the fifth episode of the Melby Money Show, host Shaun Melby addresses the anxiety and uncertainty that investors face during election years. He emphasizes the importance of maintaining a long-term perspective on investments regardless of the political climate. Historical market performances under different presidencies, the pitfalls of market timing, and strategies for managing emotions and staying the course are discussed. Additionally, the episode breaks down tariff policies of recent administrations and explores their economic impacts. Listeners are encouraged to stay invested and work with financial advisors to navigate turbulent times effectively. The episode concludes with a reminder of the importance of a well-diversified portfolio and the resilience of the stock market.

00:00 Introduction to the Melby Money Show
01:37 Understanding Tariffs and Their Impact
05:21 Sponsor Message: Benefits of IRAs
06:33 Stock Market Performance Under Different Presidencies
09:23 The Pitfalls of Market Timing
12:20 Managing Emotions During Political Uncertainty
14:46 Conclusion and Key Takeaways

This podcast is for informational and educational purposes only.  This podcast is not financial advice.

Transcript

 [00:00:00] 

Welcome to the fifth episode of the Melby Money Show. I'm your host, Shaun Melby. In today's episode, we're tackling a topic that's on many investors' minds as we approach another election year. The anxiety and uncertainty that comes with the political season. It's natural to feel sense of unease when the future seems unclear. Especially when it comes to your heart or in investments. The constant barrage of news headlines, political debates and market fluctuations can be overwhelming. Leaving you wondering if you should make changes to your portfolio or even pull out of the market altogether? However it's important to remember that making an investment decision based [00:01:00] on short term political events is rarely a wise move. We'll be discussing the importance of maintaining a longterm perspective when it comes to your investments, regardless of the political climate. We'll take a look at historical market performance under both Republican and democratic presidencies. Explore the pitfalls of attempting to time the market and offer strategies for managing your emotions and staying the course during times of uncertainty. By the end of the episode, you'll have a better understanding of why sticking to your investment plan is key to achieving your financial goals. No matter who sits in the office, but first let's talk about what's in the news with current events. 

Tariffs have become a hot button economic issue in recent years, both the Trump and by an administrations and post tariffs on various imported goods, especially in China to protect American industries and workers. And heading into the 2024 presidential election tariff policy is once again in the spotlight . We'll break down what tariffs are, how recent presidents have used them and what the current candidates propose. [00:02:00] Put simply tariffs are taxes that countries impose on imported goods when they crossed the border. Historically tariffs were the main source of revenue for the U S government until the federal income tax was introduced in 1914. After world war two. The us began decreasing tariffs to promote international trade. That downward trend continued until 2018. There are a few main reasons. Countries use tariffs, one to protect domestic industries from foreign competition. To incentivize foreign countries to change their trade practices. And three. To raise government revenue. However most economists argue that tariffs end up harming the economy overall by increasing consumer prices. Reducing exports. And lowering efficiency. The costs tend to outweigh the benefits. 

In 2018 president Trump began imposing significant tariffs, especially on goods from China. You raised tariffs from less than 5% over 20% on Chinese imports. Trump also tax steel and aluminum imports from various countries. The Trump administration [00:03:00] argued, the tariffs were necessary to protect American manufacturers from unfair foreign competition and put pressure on China to change practices around intellectual property theft and forced technology transfers from us companies. Trump blamed the us trade deficit with China on their business practices. 

However economic studies found that us businesses and consumers bore the brunt of the higher costs from the tariffs, not China. It's estimated the tariffs cost, the average us household over $800 per year. China also retaliated with its own tariffs on us exports. Despite criticizing Trump's tariffs during the campaign. President Biden has kept most of them in place with only minor adjustments. Like Trump Biden views the tariffs as leverage to spurred changes in China's economic practices. In May, 2024 Biden actually increased tariffs on certain Chinese goods, including electric vehicle batteries, medical equipment, and solar panels. The administration said that this was in response to unfair Chinese subsidies and to protect [00:04:00] important us industries. However it marked a shift from Biden's campaign rhetoric. Former president Trump running again in 2024 is proposing even more aggressive tariffs if reelected. At a recent rally, he called for a blanket 10% tariff on all imported goods, which he compared to a protective quote, "ring around the collar for the us economy." economists estimate this would amount to $500 billion annual tax increase. Trump claims that foreign countries pay the tariffs. 

When the data clearly shows the costs fall on the American importers and consumers due to the cost of the tariff, getting added to the cost of the good. Which is paid by the consumer. His trade representative said the goal is to encourage China to eliminate its unfair trade practices.

Vice president Kamala Harris has not proposed any major changes to the current bind tariffs so far. It remains to be seen if she'll keep them in place or roll them back. Tariffs may seem like an arcane economic issue. But they have a real impact on the prices we pay and the health of key us [00:05:00] industries. The past two administrations have broken from the historical trend and embraced tariffs as a tool to combat perceived unfair foreign competition, especially from China. 

Tariff policy is shaping up to be a key difference between the parties in the 2024 election with Trump doubling down on his protectionist approach while Democrats are signaling a stay the core strategy for now. Now a word from today's sponsor. 

This episode of the Melby Money Show is brought to you by individual retirement accounts. 

Also known as I R A s, an IRA is a powerful tool that allows you to save for retirement and tax advantage way. There are two main types of IRAs to know about. With a traditional IRA. You contribute pre-tax money. This low is your taxable income now, but you pay taxes later when you withdraw the money in retirement. A Roth IRA works the opposite way you contribute after tax money. 

So there's no tax break now, but the big benefit is your money grows tax free, and you can withdraw it tax free in [00:06:00] retirement. 

The key with both IRAs is that your investments grow tax deferred or tax free over many decades. Starting an IRA early in contributing consistently over your working years can help you build a substantial nest egg to fund a comfortable retirement. IRA's are available to anyone with earned income for 2024, you can contribute up to some thousand dollars per year or $8,000. 

If you're 50 or older. And you can open an IRA at most banks or investment firms. So remember an IRA is one of the most effective ways to save for retirement. Take advantage of this valuable tool to keep more of your hard earned money working for you.

Let's take a closer look at how the stock market has historically performed under both Republican and democratic presidencies. It's a common misconception that the political party in power has a significant impact on long-term market performance. 

 However, when we examine the data, the different picture emerges.

Since 1929, S and P 500 has experienced an average annual return of a round 10%, regardless of which party occupied the white house. [00:07:00] A 2019 study by fidelity investments found that from 1933 to 2019. The average annual return for the S and P 500 was 10.8% under democratic presidents. And 10.2% under Republican presidents

the difference is negligible and suggest that the overall market trend is driven more by economic factors in business cycles then by political leadership. It's important to recognize that short-term volatility is a normal part of the market's behavior elections, policy changes and political events can certainly cause temporary fluctuations in stock prices. However, these short-term movements are often driven by investor sentiment and speculation rather than fundamental changes in the economy or longterm prospects of individual companies. History has shown that the stock market has a remarkable ability to weather political storms and continue its upward trajectory over the longterm. 

For example, during the contentious 2000 election between George W. Bush and Al gore, that's in P 500. Didn't really move at all that [00:08:00] much in the weeks. We weren't sure who's going to be president. The first few years of bushes term, economically we're defined by the recession. We entered a few months after he was inaugurated. However, in October of 2007, with one year left and bushes term, the index had recovered and gone on to reach new highs. Of course, the great recession hits a year later, but that certainly can't be blamed solely on one president. When you study that event, you can see that it was decades in the making. Now, moving onto the following decade during the 2016 election. Many investors feared that a Trump presidency would lead to market turmoil. Yeah, the S and P 500 continued to climb, reaching record levels in the years, following his inauguration. The same can be said of the Biden presidency and as the recording of this podcast. The S and P 500 is near a record high. The market isn't concerned with who is president.

The key takeaway here is that while elections and political events can create short-term noise and markets. They really have a lasting impact on the longterm growth of the economy and the stock market. As an investor, it's important to [00:09:00] maintain a longterm perspective and avoid making knee jerk reactions based on political headlines.

By staying invested in focusing on your long-term financial goals, you can write out the short-term volatility and benefit from the market's historical upward trend. Regardless of which party holds the reigns power. 

Now that we've established, the stock market has historically performed well over the long run or godless of which political party is in power. Let's address a common misconception that many investors make during times of uncertainty. Attempting to time the market. Market timing is the practice of trying to predict future market movements and making investment decisions based on those predictions. This often involves trying to sell investments when the market is high before the downturn, and then buying back in when the market's down. This way you avoid your losses and maximize gains. It sounds like a great idea, right? While the idea of market timing may seem appealing, especially during an election year when emotions are running high. It's important to understand that this strategy is rarely successful and can actually be detrimental [00:10:00] to your longterm investment performance. 

The problem with market timing is that it requires you to make two correct decisions. When to sell and when to buy back in.

Even professional investors and market experts struggled to consistently make accurate predictions about short-term market movements and the average investor is unlikely to fare any better. Attempting to time the market can lead to missed opportunities and underperformance. When you sell your investments during the market downturn, you lock in your losses and miss out on the potential future gains. 

When the market recovers. For example, during the 2008 financial crisis, many investors panicked and sold their stocks at the bottom of the market only to miss out on the subsequent rebound that saw the S and P 500 more than double in value over the next five years. Likewise investors who sat on the sidelines during the 2016 election waiting for the right time to invest. Missed out on the market, strong performance in the following years, this most recently happened on a large scale during COVID. 

Some people got out right before the market tanked in March of 2020. But then never got [00:11:00] back in and missed out on the recovery. The stock market ended 20, 20 higher than when it began. Instead of trying to time the market, the most effective strategy for long-term investment success is to stay invested and maintain a well diversified portfolio. By spreading your investments across a range of asset classes, sectors and geographies, you can help mitigate the impact of short-term volatility and benefit from the markets overall growth over time. A well diversified portfolio should be designed to weather, the various market conditions and political environments. Allowing you to stay the course and avoid making emotional decisions based on short-term events. It's also worth noting that staying invested doesn't mean you should never make changes to your portfolio. Regular rebalancing, which involves periodically adjusting your asset allocation to maintain your dice.

Regular rebalancing, which involves periodically adjusting your asset allocation to maintain your desired level of risk. Can help ensure that your portfolio stays aligned with your long-term goals. [00:12:00] However these adjustments should be based on your financial situation and risk tolerance. Not on short-term market fluctuations or political events. We've covered a lot of ground in this podcast, discussing the historical performance of the stock market under different political administrations and the pitfalls of attempting to time the market based on election outcomes. However it's important to acknowledge the emotional challenges that investors face during times of political uncertainty. Even armed with the knowledge that the markets. Proven resilient over the longterm. 

It's natural to feel anxious or unsettled when the future seems so unclear. One of the most effective strategies for managing these emotions is to stay focused on your long-term financial goals. Remember why you started investing in the first place, whether it was to save for retirement, fund your children's education or achieve financial independence. 

These goals re main constant, regardless of the political climate. By keeping your eye on the prize and maintaining a longterm perspective, you can help prevent your emotions from clouding your investment [00:13:00] decisions. 

Another key strategy for navigating the emotional challenges of investing during an election year is to work closely with a trusted financial advisor. A skilled advisor can help you develop a comprehensive investment plan. That takes into account your unique financial situation, risk tolerance, and longterm objectives. They can provide guidance and support during times of uncertainty helping you stay the course and avoid making impulse decisions based on fear or anxiety. Your advisor can also help you maintain a well diversified portfolio that is designed to weather various market conditions and political environments. Many times I've found, a big purpose of working with the client is to talk them off the ledge during these turbulent times, because they know if left to their own devices they'd panic sell.

It's also important to remember that investing is not a one-time event, but rather continuous process that requires discipline and patience. By consistently contributing to your investment accounts regardless of market conditions or political events. You can take advantage of the power of compounding and benefit from the market's [00:14:00] longterm growth potential. This approach known as dollar cost averaging it can help smooth out the impact of short-term volatility and reduce the temptation to try and time the market. The key to successfully navigating the emotional challenges of investing during election year. Is to trust in the resilience of the markets and the strength of your investment plan. By staying focused on your long-term goals, working with a trusted advisor and maintaining a disciplined approach to investing. You can overcome the anxiety and uncertainty that often accompanies political change. Remember the markets have weathered countless elections and political events throughout history. And they will continue to do so in the future. With a well thought out investment strategy and a commitment to staying the course, you can confidently pursue your financial objectives. 

No matter what the political landscape may bring. As we wrap up today's podcast, let's take a moment to reflect on the key points we covered. We've discussed the historical performance of the stock market under different political administrations, highlighting that markets have generally trended upward over the longterm, regardless of which [00:15:00] party is in power. We've also explored the pitfalls of attempting to time the market based on election outcomes. Emphasizing the importance of staying invested and maintaining a well-diversified portfolio.

 We've stressed the significance of maintaining a longterm perspective when it comes to investments. And it's important not to let short-term political events drive your investment decisions as this can lead to missed opportunities and underperformance. Instead by focusing on your longterm financial goals and working closely with a trusted financial advisor. You can develop a comprehensive investment plan that is designed to weather, various market conditions and political environments. Remember the stock market has proven its resilience time and time again. Overcoming countless elections, political events and economic challenges. By saying the course and trusting in the longterm growth potential of the markets, you can position yourself to benefit from the power of compounding and achieve your financial objectives.

While the anxiety and uncertainty surrounding an election year can be challenging. It's important to remember that with a solid investment plan and a commitment to staying the [00:16:00] course. You can weather any political storm and emerge stronger on the other side. Trust in the resilience of the markets, stay focused on your long-term objectives and have faith in the power of a well-diversified portfolio. By doing so you'll be well on your way to achieving your financial goals and securing a brighter future. 

No matter what the political landscape may bring. 

Thank you for joining me on this episode of the Melby Money Show, we look forward to continuing the conversation in future episodes. If you have any questions, you'd like me to answer on the show. You can email them to shaun@melbymoney.com it would really be an honor if you subscribe to the podcast so future episodes can show up in your feed. If you feel compelled to leave a review or rating. I'd appreciate that. As well as getting feedback will only help make this podcast the best it can be. And if you've enjoyed the episode so far, feel free to tell a friend about the show. Farewell and I'll see you on the next episode of the Melby Money [00:17:00] Show. [00:18:00]