We just recently wrapped up the midterms. Obviously, a lot to talk about with regards to that. But we're going to focus specifically on what it means for your retirement plan. We'll do that as always with John Stillman and Jake Dozer, part of the planning team over at Rosewood Wealth Management. And guys, I know this has been a very popular topic of conversation for for a while now, and it seems like all these election cycles are that.
But I know you get a lot of of questions about this, and and people that are you know wondering what this actually means. Dive into that a little bit today, and talk about this from your perspective, and kind of you know from your experience around market or around these different election cycles, what you've seen in the past, and I know we'll have some data to back things up as well. But just in general, how are you? How have you guys approached the midterms with your clients and discussing the retirement planning aspect of it?
Well, it's always good to have news to talk about, right? Like any time there's new tax legislation or anything, it's like, oh, hey, good. This is a new angle for us to not talk about the same things over and over. The reality is that when we're boring ourselves, we're probably not boring everybody else because they're not hearing us talk about it 45 times a day, having the same conversations over and over.
So news is nice, I guess. But you know, it's funny. Usually, the market is volatile leading up to elections, and very often after elections, it's not as volatile because the market doesn't really care about the outcome. The market just wants to know what the outcome is. Is very often how it goes.
So, normally, to answer your question, Ben, when we have folks that are nervous leading up to an election. That's usually what we're telling. I mean, it's like, yeah, what you're seeing now is the pre-election volatility. More often than not, you don't have that much volatility after the fact. Not always.
But that's often how it goes.
Well, let's talk about then because with the results, you know, the Democrats obviously winning across the board, and now we have this divided government. And does that matter? I mean, how does that affect the market when we have this divided government, like we're going to have for at least the next couple of years?
Well, it's really interesting if you look at market performance over the last hundred years with different configurations in DC.
So there's four options, right? Unified government on the Republican side, unified government on the Democrat side, divided government with a Republican Congress, Democrat White House, divided government with a Democrat Congress, Republican White House. Then you say, okay, well, what has historically been the best configuration for the market? In the last hundred years, the best performing configuration is divided government, with a Republican Congress, Democrat in the White House. That's the best performing market in that in those terms.
Second best performing is a unified Republican government, Congress and White House. Third best performing is Is unified government again with Democrats in both. Last place is what we have now: divided government with a Democrat Congress, Republican White House.
So I have more thoughts, more data that I can give you on that. But when you hear those numbers, Jake, what's the first thing that comes to mind in terms of how you process that?
Well. I think about the division that often we we see right now, where folks will describe a president as a lame duck going into a process the the last two years of an administration. Which, you know, with our current administration. A lame duck can probably still yield some chaos, whether you interpret that chaos positively or negatively. I would assume a chaos can happen.
I think it's also important to note that we have a divided ruling class.
However, we don't have a super majority, and so that there there can be some differentiators between a super majority and a simple majority. But what I what my takeaway is. Is that most folks, most of our clients are probably surprised by that because they feel like their party, regardless of the direction they vote, is is the answer, and without that proper answer, they're going to be stuck with negative consequences. But in reality, what we often see play out is that when things swing one direction or the other, similar to John's comment earlier, where The market doesn't care about the answer; it cares about the uncertainty of the answer, and that's true not only in elections but any time there's uncertainty, the market performs worse than when there's certain bad news. Is the Iran war resolved today, or is it not?
Is worse than we are going to war with Iran historically, based on market performance, and so I think it's important to Except that maybe that's different than what your perspective on things is, and maybe it requires you to open your mind a little bit to realize, hmm, maybe I'm less in control of my portfolio than I realize, and rather I need to trust in the power of the bureaucracy that fuels the economy, as opposed to my certain take and tilt on it, and trying to. Require my portfolio to fit into that parameter, and that is the power of holistic, comprehensive planning and diversification in your portfolio. I think that's my main takeaway.
So let me give you some more data. I was going to say I need the more data because you you set me up for emotional reaction here to us being in the worst possible scenario right now.
So what I gave you was the last hundred years. Which means it dates back to 1926. What is included in that hundred years? The Great Depression, where we had you know the Black Friday, the big crash in 1929. What do we have?
Divided government, Democrat Congress, Herbert Hoover, Republican in the White House.
So like the worst ever era was that. What we have now. And or what we're about to have, I guess I should say, and then the recovery after the depression, you had FDR in the White House, so it's now a Democrat in the White House.
So it's like if you take those outliers out of it, and we just look at it since 1945, since World War II, and you look at the four different divisions, unified government on both sides. Divided government with the different permutations, there's almost no difference since 1945. There's almost no difference in market performance and what the government looks like.
So, I kind of wanted to set it up that way to prove prove the point of like you're probably making more of it in terms of the things that you worry about. You're probably making more of it than is actually there to worry about. And that doesn't mean that that doesn't mean that. Things won't look different for the next two years. It just means that over a long period of time, it's going to even out, and I think that's an important takeaway.
You know, but but there's got to be a realization that you know the CEOs of these large companies they're making decisions. For their companies, and therefore your four hundred one k IRA, because of the investments that you are making in them, either directly through stocks and bonds or through an index like the S and P five hundred, they're making these decisions based on what they anticipate being the outcomes, and and so oftentimes the knee jerk reactions that are happening after an election are more emotional fueled than they are. Price fueled, and so going into these processes, these these extremes that we see, you know, stay the course. Don't allow them to deviate you from what it should be. Your larger Directed retirement plan based on long-term wisdom and your specific circumstances.
Well, John, you—you mean Jake? You both mentioned uncertainty.
Well, what about factoring in gridlock then? Because I'm sure there's uncertainty around gridlock, right? What's going to get done? You know, what's going to be held up? What is what's actually going to happen over the next couple of years?
Well, gridlock is a funny thing because, in a lot of ways, the market likes gridlock. Because the market is like, guys, don't do anything. Just stay out of our way. Right. Let us have our economy.
So, to that extent, the market likes gridlock.
However, the thing that does create some problems sometimes is when you have things like, you know, the debt ceiling. A couple of times a year, we have these issues where everybody has to agree on everything. Before we can move on with our lives, and they have to come to some kind of deal. And when we have that kind of gridlock, that does often lead to market volatility.
Now, again, understand what I'm saying when I say market volatility. Market volatility doesn't mean the market is crashing, right? Volatility means just that. It's volatile. It's up one day, it's down the next.
It's whiplash. And that's where a lot of people can start to make some emotional decisions because when every day is so wildly different, I mean, it's almost like our elections themselves, where we're just going to swing wildly back and forth to every, you know, the different side of the political spectrum every election. When the market is like that on a daily basis, instead of an election to election basis, it kind of freaks people out. And so you should just go ahead and emotionally prepare yourself that we're probably going to have some days like that. Again, it's not a great market; it's not a bad market.
It's just every day is wildly different kind of market.
So prepare yourself for that. And I think emotional preparation is the key there. How do you implement emotional preparation?
Well, to John's point, you. Prepare yourself to know what's going to happen, but also there needs to be a little bit of a filtering process, which is to say that there needs to be a recognition that a lot of times the news cycles that we love to tune into, and it doesn't matter, you know, if it's red or blue, they they both have their talking heads. A lot of times they're selling salacious headlines. That are designed to make you click and subscribe and tune in, but they not might not necessarily be delivering anything of substance. That is something that you need to make a decision based upon.
So take that information in, but chew up the meat, spit out the bones, as they say, and recognize what does this mean to me is a better question than what is happening today. Because what is this? What is happening today could be fifteen different things. What does this mean to me? Maybe there's only two of those fifteen items that are relevant to you, and maybe it's only relevant for the next twenty four hours.
And so, unless you're about to pull all of your money out in the next twenty four hours, maybe relax a little bit.
Well, it's it's kind of good to have that perspective on on things because look, it can be very emotional. You know, whether you're excited about the direction or maybe you're frustrated about the direction of the country. Either way, there's some emotion behind that, and it can actually drive those decisions you make financially.
So again, sit down with a financial planning team like Rosewood Wealth. Actually, talk through some of these things. Talk through some of your concerns. Talk about your portfolio. Get a review on you know, are you allocated properly?
Are you taking on enough risk? Are you comfortable with the risk? You have all these are conversations that John and Jake have all the time with their clients, and again, you can get touch Rosewood Wealth Management. I know John, this isn't everything though that you know you you probably want to talk about with these midterms. This affect you know other things besides the market too, right?
Yeah, I wanted to focus on the market for now, and we can come back with a follow up episode on what this all means for your tax planning, but we'll tackle that on a different day. All right, we'll do that. Make sure you're there for it by hitting subscribe if you're watching us on YouTube or your favorite podcasting app, and we'll be back again soon, John and Jake. As always, thanks for the time. Carolina Wealth Stewards, doing business as Rosewood Wealth Management, is a registered investment advisor in the state of North Carolina.
The material presented is intended to be general information and should not be construed by any consumer as the rendering of personalized investment advice.
