Is Biden or Trump Better For Your Investment Returns? | Erik Averill, Brandon Averill | AWM Insights #24
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Episode Notes
Are certain presidential candidates better for the stock market? If so, is there a “correct” party to vote for to improve the chances of stronger returns? We often hear political pundits offering advice or predictions around presidential election season, and suggest that the answer to both of these questions is unequivocally “yes.” There are certainly many ways political candidates impact our country, and because of that, it is extremely important we exercise our right to vote. However, as we wade through to the real issues – should a candidate’s impact on the stock market be one of them?
In this week’s episode of AWM Insights, Brandon & Erik, armed with more than 80 years of data, break down this question – and the answer might surprise you. Discussed questions and topics include:
How do presidential elections impact investment returns?
Which 2 presidents have seen the best S&P returns while in office?
Which presidents experienced negative S&P returns during their terms?
Is it true my political party is better for the stock market?
What drives the stock market?
How is the stock market different than the economy?
How might the two candidates’ tax proposals impact my finances?
Are there any ways to curb those impacts?
Do tax rates matter to stock markets?
Resources
Download “Market Returns During Election Years” below
+ Read the Transcript
Erik Averill (00:00):
Hey, everyone. Welcome back to another episode of AWM Insights, where we cover all things investing. Today, we have a really fun topic. Doesn't seem to be a very controversial one, so we'll try to keep you guys awake. Brandon, we want to jump into election season. How will the Presidential election impact investment returns?
Brandon Averill (00:25):
What a question. We're sitting here, we're 76 days, 12 hours, 33 minutes away from that election.
Erik Averill (00:31):
Oh, you must be excited.
Brandon Averill (00:33):
I am excited. We got the Democratic National Convention kicking off. Every talking head is making this the most controversial news topics of the day. So hopefully, what we can shed some light on here is your question, and that's really who's going to benefit the stock market.
Erik Averill (00:50):
I was just going to say real quick, do we even need to do a podcast? Because we all know this, right? Republicans, better for the stock market. Democrats, higher taxes. Is this even a conversation?
Brandon Averill (01:02):
You've been watching Fox News again, haven't you?
Erik Averill (01:04):
I have.
Brandon Averill (01:05):
Yeah.
Erik Averill (01:05):
May have baited you there a little bit.
Brandon Averill (01:07):
Yeah, yeah. We'll start with the punchline is, it doesn't matter. And we'll break it down here a little bit, but I think the one thing that we're really good at, and I think our listeners know, is really looking at the data. Let's get rid of the noise. Let's get rid of all the... On both sides, the pundits out there trying to manipulate you to sell ads, and really look at the data. And what the data shows is that it doesn't matter who is elected President. Pretty much, the stock market goes up. As long as our economy continues to grow, companies continue to do well, the data just doesn't suggest that there's any impact on markets. I know you're going to get into some trivia here, quiz me probably. I do have the answers, so I'm cheating. Who's been the best performing Presidents? We'll get into some of the averages just so we can share that we're not making something up. We're really looking at the data.
Erik Averill (01:57):
Yeah, and I think the point here is we're not saying to not have your convictions about who we should vote for, and we're huge believers in the importance of the vote. What we're trying to really do is protect you, as the audience and the investor, to say, "Is this meaningful on my investment plan?" And so hopefully through some of this data, we can debunk the myths and help you have evidence-based information to help you capture the returns you deserve. Brandon, jumping into some of that trivia. It's fascinating to look at past Presidential performance, and you do have the answers, but maybe break down overall who's produced the best S&P returns as a President. I think it's fascinating data to just kind of walk through some of these different Presidents and the returns.
Brandon Averill (02:45):
Yeah, absolutely. I think it probably would surprise some folks, and I want to be really clear. These are outliers. Again, there's so much that goes into these numbers, but the leader is actually President Clinton. Over his term, he had stock market returns cumulative of 210%. And this would probably surprise folks even more, is that Obama was second. President Obama was second with cumulative returns of 182%.
Brandon Averill (03:11):
So when we look at that, you've got two Democrats. That kind of debunks your whole Republicans make the stock market go up, Erik. And when we look at it, it's not all the Democrats. We see that when a Republican is in the Presidency, 49% is the average return, compared to Democrats at 46%, so we're within striking distance. And then we look at all elections, we're actually at 47%. We look at President Trump's current Presidency and through his term here, we're up about 43%.
Brandon Averill (03:46):
You start to see the averages work out here. One fascinating point I saw when I was doing some research for this talk was that the last time we actually had a negative return during a four-year term of a presidency was from 2001 to 2008, and actually was in both terms, we had a President George W. Bush in power. And then kind of even more surprising to that was that prior to that, it was all the way back in 1937 to 1940 under FDR. I think what we look at this, and that's high level data, again, we're just kind of seeing that it just doesn't matter.
Erik Averill (04:24):
I think this is a hard thing, I know it is as an investor. It's very much like when we talked about previously on our podcast about, are the economy and the stock market related? It is really hard to sit here and say, what is consuming so much of our attention and our media right now, that we're essentially saying it's immaterial in the short term, in the markets. And that just really hard to remove the emotion from it, but one of the things that I always think is super helpful is we take a step back and start to re-clarify what is the stock market, what drives returns? And ultimately, it's three things. There's definitely a little bit of return just simply from inflation, then there's dividends, but then the majority of it is the growth of companies.
Erik Averill (05:15):
And so as you share that over, really, it doesn't matter who's elected, that the markets have gone up. It's really because it's the belief we still go to the store regardless of who gets elected as President. We're still all probably going to use Amazon. We're still all going to use our iPhones. Post-COVID, we're going to go to restaurants, and we're going to promote businesses, and we're going to buy things and consume services. Ultimately, that's what we're doing in the stock market is investing in companies, in the growth of the overall economy and higher expected returns.
Erik Averill (05:55):
But one of the things, Brandon, that that seems be different is the polarization of the actual tax plans between Biden and Trump. This has to impact investors at some level. Can you really break down the tax impact conversation?
Brandon Averill (06:11):
Yeah, definitely, Erik. It really boils down to... if We're looking at stock market returns, the data at least suggests over time, that the difference between the tax proposals isn't going to have a marketable impact on your investment returns on the gross basis. However, as we've hit on so many times before throughout this podcast, where it's really going to affect you is on your after tax returns. We've seen stark contrasts between the two tax proposals. You've got Trump that's already passed some tax reform, is planning to keep those tax cuts in place and potentially even enhance them, as opposed to Presidential Candidate Biden, who we actually do know quite a bit about his proposals. He is going to try to get across the table some tax increases, both on personal income tax, taking the rate back from what it is currently at 37% back to 39.6%, which we have under President Clinton. Again, just to kind of reverse to our previous point. President Clinton had the highest stock market return with that tax rate. So we start to see that tax rates may not matter when it comes to markets, as discussed.
Brandon Averill (07:29):
Presidential Candidate Biden, payroll taxes are going to go up and be applied to anybody making over 400,000, and then cap gains will go up for anybody earning over a million dollars. What we see here is for most Americans, the reality is that these tax increases probably aren't going to have a big impact on you. However, for those that are in the wealthier segments, they certainly are going to have an impact. So what we turn to here is the planning aspect, and this is going to become absolutely front and center. It should already be front and center, but I think if Biden is elected, then we are going to have... 2021 is going to be all about tax planning.
Erik Averill (08:11):
I think that's a great point. Really, that's the truth. When we had the tax cut and JOBS Act back from President Trump a few years back, a lot of our clients are professional athletes or live in states with high income tax, that there were actually some devils in the details that hurt a lot of our current high net worth clients. And so, when it comes to any tax proposal or changes, it all comes back to planning. And it's the integration of your investment in your tax team. I think this is one thing that we will preach over and over and over again. It's really about after tax returns. And so what is your plan, regardless of if it's President Trump or Biden, what is your after tax investment strategy? How are you optimizing using asset location and tax loss harvesting in both the public and the private markets?
Erik Averill (09:04):
And so I think it's a really good word of caution that we absolutely believe in the power of the vote. We want people to be passionate about their convictions of what they stand for. However, when it comes to your investment plan, we beg you to pay attention to the evidence and the information, because the way that we define winning at AWM is ultimately, how do we create sustainable wealth creation that you can pass on to the next generation. And so, as always, we love these conversations. We appreciate your guys' attention. If you head over to awminsights.com, you'll be able to access the show notes. We're actually going to include an interesting link that breaks down the returns during Presidential elections. You can decipher it in a lot of different ways. It's a 15 page document, really fascinating for those people that want to jump into the information.
Erik Averill (10:03):
And of course, if you guys want to talk about your specific plan, if you want to learn more about after tax investment planning, we'd love to hear from you. So until then, stay humble, stay hungry, and always be a pro.