Episode 42 – How Election Years Impact the Market
32:02
Todd Pisarczyk & Linde Carroll
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TRANSCRIPT
Welcome everybody to the Momentous Wealth Podcast, where we discuss current issues in the world of finance and break them down into understandable terms to further your education. Momentous Wealth Management is a financial planning and investment management firm based in Washington. We've been serving clients for more than 20 years, and on this show we take that experience and put it to the microphone in an effort to educate investors in the complex world of finance and financial markets. Hi everybody. Welcome to episode 42 of the Momentous Wealth Podcast. Today I'm your host, Todd Pisarczyk. Normally, you're used to hearing a wonderful intro by Nik Miner, but he's actually out right now because his wife just had a baby. And actually before this, Linde and I, by the way, I'm here today with Linde, which I'll introduce in a sec. We had to FaceTime Nik to figure out how the heck to work the podcast stuff. So we got it figured out and we're ready to roll. So I'm here today with Linde Carroll. She's been on the podcast before. Linde's a great friend of mine. She's been with the firm forever. She's been an advisor with us forever. How many years, Linde? What's forever? Since 2010. So 2010. Yep. Going on my 15th year. Linde is a CFP and she is my business partner and co-owner here at Momentous Wealth. So Linde, bonus, bonus information on today's episode. 'cause we're gonna be talking about the elections today.
So before we dive just straight into politics, I figured it would be good to kinda, you know, 'cause it's gonna be a fun topic, so Oh yeah, yeah, yeah. I mean, politics, elections, it's always a light topic. Something you wanna bring up at the Thanksgiving table for sure. With your family. So what, what is CFP? I've been hearing a lot about that more, it seems like we have a lot of clients coming in and saying just, Hey, are you A CFP? Yeah. Because I think they probably maybe read something that they should ask that. Yeah, yeah. But what, what, you know, you've had your CFP for a while. What, what is that? Yeah, so I actually got my CFP in 2018. So CFP stands for a certified financial planner and it's a, it's a certification process, a designation. I had to go through a bunch of classes. So really rigorous classes, just really stepping up my knowledge and skills in the areas, particularly of financial planning. But it looks at all areas, right? So we're looking at investments, retirement, estate planning, tax planning, you know, all the kind of areas that we work with our clients in. And just really taking a deeper dive into all those topics. And then you have to have, of course, you have to pass all the tests and, and exams and you have to have so many hours in the business.
So it's really just a way to kind of differentiate, you know, just that extra certification that I went into to kind of get those skills and, and represent those knowledge and skills. How long did it take to get that? Well, it took me about two years. I will say I was, at the time I had two kids. My, our son was in his senior year of high school, so I started it. My goal was to finish it before he graduated from high school. 'cause I just wanted to enjoy his graduation time. So, so it took me just about two years to do it. I think it was just shy of, of 24 months. But it was, you know, after work on the weekends, like that's what I was doing. I was back in school just like my kids were in school. So that's what really, you know, really had my efforts for a couple of years. I was very fortunate to have my husband who was a great support and the kids were a great support to be able to kind of let me have the time to really be able to do that. 'cause it's not easy, right? Yeah. Working mom, you know, and then add, you know, kind of in a sense going back to school on top of it. So had to dust off those skills.
We did certainly find out that CFP does not come in handy when you're trying to set up a podcast or any of the technology that goes along with it. So just so you know, there's nothing in there that helps with that. But it comes in handy in giving great information on the podcast. Right. There you go. That's right, that's right. That's, that's exactly, and because you are A CFP and because you're big time, you get to, you know, hire other people to set up the podcast for you, so That's right. You can just dispense knowledge. So. That's right. That's right. So here's some other, other things I wanted to, well, I didn't tell, I didn't prep Linde for this. Oh gosh. I'm gonna, I'm gonna ask her some more questions so we can get to know Linde Carroll again, diving into politics, which is gonna be exciting, but I wanna know more about Linde. So Linde, first off, 'cause people read Why is your name spelled wrong? Oh, why? Yes. Okay, so yes, my name is spelled L-I-N-G-E. So here's, here's the story on that. My grandparents on my mom's side were German immigrants. And so my mom, her name is Sig Linde, like all her and all of her siblings had very German names. My mom's name is Siglin, which is spelled S-I-E-G-L-I-N-D-E.
And so they thought it would be fun to name me Linde, kind of as a play on my mom's name, but they spelled it L-I-N-D-E. So, ah, I answer to just about anything people call Melin, Linde, all those things. I actually had a kindergarten teacher who, you know, you go to kindergarten and you're learning how you spell your name and I spelled it L-I-N-D-E. And she told me I spelled it wrong. And so the whole day long, and I'm arguing with her of course all day long 'cause I'm five and I'm feisty and I'm arguing with her all day long and saying, no, it's L-I-N-D-E. And she's like, no, it's not. And boy, let me tell you, as soon as my mom came to pick me up, I marched over to that door and said, tell her how I spell my name. So we got that cleared up and I don't think that kindergarten teacher was a huge fan of mine after that. But, but yeah, I, that's, that's kind of the story behind the spelling on my name. So do you think that that that experience with your kindergarten teachers perhaps what drove you to become an accomplished CFP? And then also another interesting fact about Linde, tell us about your volleyball career. Oh yeah. So I, yeah, I played volleyball. That was my main sport. I did play basketball and softball, but volleyball was my main sport.
I played for a really competitive high school team and club team in the Portland area. And then went on to get a scholarship to play at the University of Montana. So I was a setter for the Lady Grizz as we are called. And then after college I actually had the opportunity to go overseas. My minor in college was actually German and I have a lot of family still in Germany. So that's been a big part of my life. And I wanted to go over to Germany and had the opportunity to kinda make some connections through college. And then also had an opportunity to get a tryout with a club over in Germany. It was a semi-pro club. So the, they have two pro leagues, the first league and the second league. And so the team I tried out with was in the second league, which would kind kind of be like a semi-pro. Yeah. And so I got on with that team and got to play with them for a season. And it was really cool 'cause I got to play with like players, like a player who was a ex Chinese national player. Wow. A player from what used to be Yugoslavia. She was an ex national team player for Yugoslavia and a couple German national team players. So that was really cool because they were just a level above what I had experienced. So that was really fun.
And then the following year after that, I actually got the opportunity to play for a first team in Belgium. So I lived just outside of Antwerp for about a year and played volley for volleyball for that club. And then after that I was kinda like, okay, I think I've done that. And I came home and then just kind of started life here back in the US That is awesome. And then, and they spelled your name right over there too, probably. Right. And they spelled it over and they pronounced it right. And so they had no issues with that at all. So. Yeah. Yeah. Pretty funny. Well, so last question for you Linde, before we dive into politics, why is your nickname Toby? That's just a mean question actually. So for those of you in in podcast land that have ever watched the Office, you will know that the compliance personnel on the office, his name was Toby and nobody liked him. And everybody fairly well disrespected him. And, and he got made fun of. And so I am compliance here at Momentous Wealth. Linde is our Chief Compliance Officer, also Chief, chief compliance officer. So I, you know, get to be the bad guy and reign on everybody's parade and nobody can have fun because of me. And so, yeah, that's not true. So that's kind of the joke.
Like when I have to send out emails about compliance stuff, I always sign it as Toby and it's just kind of wah w Toby sent an email about compliance. So to be fair, I feel like you nicknamed yourself Toby. 'cause I don't ever remember like calling you that. No, it was you, it was you that came up. Yeah, because I didn't even watch The Office all. I mean, I watched the Office a bit, but I wasn't one of those people that diehard watched every single episode. Yeah. And so then one day you were like, you know, I, I think it, it is probably perfect 'cause I used to like kind of feel like I was like the Michael Scott of the office. Yeah. Yes. However, not anymore because my goodness, like I can't say that anymore. 'cause Michael Scott in today's world Oh, would not last very long. Yeah. So yeah. Not Michael Scott. Yeah. Anymore. But I'm compliance, not hr. Just so we're clear, I feel like Michael Scott is more of an HR nightmare. Yeah, exactly. Yeah. More so than even a compliance nightmare. So no, everybody here is really good. That's a great transition, Michael Scott into politics actually. Oh. So today the real topic, we're here today to talk about. I mean, I I think most of you have heard there's gonna be an election this year. How can you miss it and not, I, I had not actually heard this word until 10 minutes ago.
Linde informed me that not only is it a presidential election year, but what are they calling this year? So I've heard the term election palooza because not only is the us you know, are we having our presidential election, but it's actually the biggest election year in world history. There are 76 countries around the world. So that's home to about 4.4 billion people that are holding political elections in 2024. That's crazy. Yeah, yeah, yeah. And actually, yeah, I, I was just looking at a chart that showed, you know, history going all the way back to 1945, that this is the largest amount of people that will be involved in elections. And I know Jeff Klein top, who's the international strategist at Schwab, he was talking about it on podcasts re recently. And, and there's some big ones, right? Some real notable ones. Like in March, Russia is having their election, which we'll see where that ends up. That that should be interesting too. So before we go into that Yeah. Fully, I wanted to just get one thing out of the way. 'cause I think what's on a lot of people's minds is the presidential election here in the us but as Linde just pointed out, it's actually just not that. Right.
So today the idea is we, we want to go over kind of what's going on with the US presidential election, but then dive into, you know, election palooza, talk about the Senate, all the elections that are going on this year. So real quick, I just, we'll just get this out of the way upfront. What I think is kind of interesting with presidential elections in the us so thi this statistic is from Morningstar and Eidson Associates. And so first off, just this notion that is an election year, a bad year to be invested. Okay. Because I think a lot of, a lot of people are asking like, well, with it being an election year, are election years bad for the market? Right? Yeah. Okay. So that's the first question that we get a lot. And what's really interesting is if we look at the average return of the s and p 500 going all the way back to 1928, and again, this is according to Morningstar and EBIT and Associates, the average return of the market during an election year was 11.28% per year. Okay. So election years from a return standpoint don't appear to be, you know, and that's pretty close to the historical norm too. Right. And then here's another thing that's, that's kind of interesting is, so if we go back and look at that same time period, there have been 23 elections since 1928. Okay?
19 of 23 times the market's had a positive return. Right. So 83% of the time the market's been positive in an election year. And if we look at instances like we're in right now, where we have a Democrat in office who wins the election also didn't seem to really matter all that much. Right? So when we have a Democrat in office and a new Democrat was elected, the total return for the year averaged 11%. And if we had a Democrat in the office and we elected a Republican during election time, the average return was 12.9. So it was higher if we elected a Democrat, or I'm sorry, a Republican. But in market terms, you know, really the difference between 11% and 12.9, 1.9%, not a huge difference. And that could very well be many factors that play into that. But the bottom line is, when we look just at election years, and we're gonna get into later, Linde has some interesting stats on does the market do better under Democrats and Republicans? But if we just look at election years, like we're in this year, you know, again, according to Morningstar, the market's been positive 83% of the time with an average return of 11.28%. So it certainly doesn't appear to be like, oh no, it's an election year run for the Hills. Right? Right.
We feel that like we feel, you know, election years, and especially I think in recent memory, the last couple of elections have been pretty volatile and, you know, high stakes and we, we feel uncomfortable or people are concerned about it, or there's a lot of just angst around elections it seems like, especially in the last couple of cycles. And I think people feel like that translates to the markets, right? Like it's just gonna be a bad year because it's an election year and you know, everybody has their different feelings that they're trying to kind of put onto the markets and that's just not really how it works. Yeah. It, it, it just seems like, I think, you know, we heard this described really well. We actually did did a, an event for clients. It was during the midterms, right? Yeah, I think so. Yeah. And we had a speaker, Apollo le pesky from Dimensional Funds and he stated that, and I really like how he described it so credit to Apollo, but he described it like as if you're baking a cake, you know it, the election is like one ingredient, right? Right. But in reality, what affects the returns of the markets, just like what affects the taste of that cake is there's a bunch of ingredients that go into that and the process and the way you make it and everything else.
And so, you know, the election is kind of just one ingredient that goes into that cake. So. Right. But it sounds like this year, Linde, to use the cake example, we might be trying to make a pretty well a cake with a lot of ingredients. Yes. 'cause because of Election Palooza. So, so as you mentioned, not only elections here, you were talking about elections in Russia. And so what, let's, let's dive into Election Palooza and all the different elections that are gonna be happening this year. Yeah. So, so very interesting. Like I said, there's 76 countries around the world that are gonna be holding, you know, political contests. Some, you know, I think they call it political contests because there Yeah. Elections around the world have some, some very, quite a wide variety of ways that it happens, I should say. But yeah, some big ones are some real notable ones. In March we've got Russia, and then April we've got India. So again, you know, that's a big, obviously huge nation. Yeah. Lots of people, but their impact on the world is, is big too. Mexico, that's in June actually. So Mexico to the South elections in June, also in June is the European Union. Okay. Wow. So again, you know, a big player in the field of world politics as far as what's happening in the European Union.
And then of course, you know, we're the finale it seems like at the end of the year in November. I mean, we planned that, right? Huh? Well, yeah. Yeah. I mean, we kind of, that's just very American right? To just be, we're just gonna let you guys all do your thing and then we're gonna do our thing bigger and better than everybody else. Right. So yeah. So November 5th, of course, and just thinking about too, like, it's not just the presidential, you're not, we're gonna have a new president, a new vice president, but we actually have 34 Senate seats that are up for election. So that's big. And then all 435 members of the House of Representatives are up for election. Right. Wow. So that's huge. Right? Yeah. And of course, you know, numerous, you know, state and local offices, ballot measures, all that kind of stuff. So always a plug to like get out there and vote and try and have your voice heard. And you know, maybe sometimes you don't feel like it's being felt on every level, but it's super important to get out there and, and just make your voice heard. But some other things, just kind of thinking about the US election that's coming up. So we've not only got president, vice president, those races in, in the different houses, but it's also gonna be, you know, I think a lot of people think it's gonna be a really, yeah.
You know, tightly contested election just as it has been in the last couple cycles. And I don't think, you know, there's always those key battleground states. So that's something that people are really gonna be looking at, you know, to kind of watch. So think Arizona, Georgia, Michigan, Pennsylvania, Wisconsin, and then some other states that could go either way, like North Carolina and Nevada, those have been bigger players in the last couple of elections. Yeah. So, you know, those, those will, those states will have a lot of focus on them in the next coming months. So that's, that's kind of a big deal too. So are there, are there certain issues, I mean, obviously there are so many issues with these, with this election and, you know, now's a good time to kinda state like, we're not taking sides, right? But, you know, I, I've heard there's a lot of different issues being talked about this election. Yeah. But we, you know, we, we try really hard when we're working with clients 'cause realize like our clients come from all sorts of different backgrounds and everybody has different beliefs. But, you know, our job really is to try to kind of sort through the noise and figure out the things that really might have an impact and accounts.
And so, you know, obviously tons of issues, but are there, you know, financial issues, tax issues, are there any, any kind of big things coming up that, that people should be watching out for with this election in particular? Yeah, I, I do, I think so, so one of the big things in the area of taxes, right? I mean there's, every election talks about taxes, right? Yeah. There's, there's, there's no doubt that that'll come up. But, but what we kind of have coming up on the horizon here is that those tax cuts that were enacted during the Trump administration, so the tax cuts in jobs act of 2017 brought a lot of changes to the federal tax code. And those are scheduled to end or sunset in 2025. Wow. So, so depending on who's in office, they're gonna be the ones that really dictate. So do, does the current tax policy, does that continue as it is? What changes are they gonna make to it? Yeah. You know, so that's, I think gonna be really big because I think typically Republicans approach taxes differently than, than Democrats. And so I think that's gonna be a big thing on voters' minds this time around Yeah. Is okay, you know, whoever we vote for, not only with the president, but also with Congress, right?
That's gonna, they're, they're the ones that are gonna be passing a lot of this, you know, they're gonna have a big say in tax policy moving forward with that huge kind of, you know, it's kind of a cliffhanger coming up in 2025 as to what's gonna happen with taxes. So in 2025, if nothing happens, then what? It just, it sunsets so we revert back to where it was. Yeah. They basically expire and then, and so then Congress would have to act to either approve a new tax package or potentially, you know, maybe they do something where they just say, Hey, we're just gonna extend it for one more year. Right. 'cause we don't wanna deal with it. Yeah, exactly. Yeah. Yeah. Okay. Yeah. Okay. So that's kind of what I think is on the horizon. That'll be a pretty big one. And then the other thing I think, you know, we've talked a little bit about it and you're hearing a lot about it, of course is, you know, the, the debt limit, so the deficit Oh, yeah. And we've got coming up also in spring of 2025, the US debt limit comes up for consideration again. Again, right. Like, I feel like we, I don't even know if we've actually passed one for this year. I feel like in March we're doing that again. Like Yeah. But, but it comes up again in 2025.
And so that comes back up on the table again and again, there's a lot of thoughts around what debt limits should be, what our deficit looks like right now. Yeah. You know, the national debt is much larger now, you know, than it has been in the past. And so how are we gonna tackle that? Yeah. And that's gonna be a huge, I don't know, fight, I guess. Yeah, no, that's what typically ends up being. They'll, I mean, they'll, they'll figure something out. Yeah. Really easily a pol it's going to be a political conversation that will be on the table Okay. Coming up in 2025 as well. So again, you know, what happens during the election in 2024 is going to really set up who's going to be dealing with those big issues coming up in 2025. Okay. So, you know, we, we generally talk a lot about presidential elections. I mean, it seems like that's usually what steals the, the show. Yeah. Yeah. But in reality, you know, it seems like this what's happening in Congress could be like as impactful. Yeah. And when I think about market returns, it, it's interesting because there's, there's, there are a lot of stats too around just this idea of like, who controls the house and the Senate and how that also impacts returns. So not just who's president.
And I think when we think about things like that, realize, and, and this, this is what always strikes me during elections is, you know, like obviously a lot of us have one political party that maybe we affiliate with, maybe we don't, some people feel very strongly about it. So it's, it's, what's interesting is whenever we're talking to somebody who is a member of one party, if the other party's elected, they just, it's like the world is ending. Right. Right. And especially over the last several years, the last several elections, 'cause things have been so contentious. Yeah. Yeah. But, but you know, I guess when we think about market psychology, I think there's two things to, to really keep in mind when you're trying to figure out elections. Right. Especially this year. 'cause if your, if your party loses or wins, you know, just take it with a grain of salt because, you know, again, two things. One, realize that the market, the market likes certainty, right? And it doesn't like uncertainty. It's the market is not Democrat or Republican. Right. Theoretically, whoever wins in general, obviously there's times where, you know, we've had instances because of the electoral college where the president that won the election actually didn't win the popular vote. Right? Right. So sometimes I'll say this and people are like, oh, that's not right. Right. But in reality, whoever wins won because more people voted for them. Right. Right. Right.
So theoretically then there are more people in the country that are happy with the result, just by the design of the election they won because more people voted for 'em. Right. Right. Right. And so realize that, that if you're on the wrong side, it doesn't mean that the whole country agrees with you. I mean, if, if your candidate loss, that means that most of the country disagreed with you. Right? Right. So in general, the population is gonna get what they, again, there are times where as we know, the popular vote doesn't always win. And, and, and more and more it seems like it's kind of closer to 50 50 every year, right? Yeah. But the other thing to realize is that, and I'm just gonna say like, there's a lot of people that, that I'm hearing saying things like, well, this election's gonna be crazy, and like, it's different this time because I mean, and it at this point it's looking like we're gonna have President Trump versus President Biden. Right? Yeah. Well, from a market standpoint, and again, this is just, I don't have any stats on this, so full disclosure, this is just Todd talking. The fact that we have Trump versus Biden again potentially might actually be better for the markets in a way, because no matter who wins, we will have seen that movie before. Yeah.
They're kind of a known entity to us versus maybe someone who's brand new to the scene. Yeah. So, yeah, I mean, I think that's definitely a possibility. Yeah. I think it's always good too to just the general reminder, right? That when you're investing in the markets, you're investing in companies, you're investing in products, you're investing in, you know, when it's in the US you're, you're investing in American ingenuity, right? And so I think a lot of people forget that, you know, you're not investing in a political party, right? Yeah. You're investing in those companies and those things and, and yes, you know, what happens in Congress can affect some of the regulations and things and taxes and things that those companies are dealing with, but, you know, decade after decade, you know, companies figure out a way with their products and services to thrive in whatever environment is put out there. Yeah. And so I think that's always a good reminder during those times. I think that's a really, really good point. Because not only does do those companies have to navigate what's happening politically in the US tax rates, everything else, they've gotta do that all around the world, right? So, you know, most of these companies in the US now are operating internationally, right? And so in reality, like they're used to not only navigating the political environment in the US right, but navigating political environments across the globe, right.
Where they're doing business, right? Yeah. And I think there's just so many things that play into what happens in markets besides kind of who's sitting in the Oval Office. Yeah. Right? Yeah. And so that's, you know, you've got geopolitical events, we've got interest rate changes, we've got changes in technology. I mean, that's been a huge thing over the last couple years. Yeah. Natural disasters, healthcare crisis, you know, there's just so many things that affect the markets and that companies are dealing with, like whoever's in the White House is just another factor that they deal with. So I think that's a good reminder too. David Booth, who's one of the co-founders of Dimensional Fund Advisors, he, he says, vote with your ballot and not with your life savings. Right? And I think that was a great quote to just kind of make sure you're separating a little bit the emotions and things of how you're feeling about who you're voting for and you know, how that might affect your portfolio, your assets, your savings, all that kind of stuff. So, yeah. Yeah. So what, you know, with all that said, as you know, the last topic we wanted to hit here as we wrap up is what, what effect does Congress have? Yeah.
So again, we're talking about the president, but you know, what, what happens based on Congress again, and I think a lot of it wraps back to this idea that we're talking about with regards to certainty versus uncertainty. So what it's looking like is a potential this year is really, no matter who wins the, the presidential election, there's a lot of people speculating that we will end up with a split house and rep or house and and Senate again. Yeah. Yeah. Whether it, whether it flips and whether you know, of who's in control of which house. But yeah, there's a great dimensional put out, a great piece as well that just kind of shows a great graph of kind of, you know, markets and market returns going all the way back to 1926. And one fact you can pull out is that from 1926 to, to 2023 stocks trended higher regardless of whether Democrats or Republicans controlled the House and the Senate or whether control was mixed. And I think that's really important because I think people assume if it's all one house or, or all one party or another party or mixed, that you know, it's gonna favor one or the other. And it really doesn't in, in the long run end. Yeah. And again, I think that goes back to some of the stuff that we're always talking about to clients about is being really focused on the long term, right?
I mean, even this presidential cycle, this person's gonna be in office for four years, right? Yeah. Maybe eight, depending, I mean, I guess with this round of 'em, not so much and only before. Yeah. But yeah, I mean, so don't, don't make those decisions about what's gonna happen over the next four years. Be really focused on the long term, right. Control the things that you can control, be in the market, be invested, don't try and guess, and time the markets and things like that, because more often than not that that proves really well, it's difficult near to, impossible to do, and it just doesn't end up well. Yeah. I think that's great advice. And I think that's a, that's a great place to end it. 'cause we always like to wrap these up with like, what, what should investors do? And I think the, the advice you gave just then was very, very sound. Right. Well, thank you. Yeah. Yeah. Maybe they'll earn me another trip to the podcast. I think. I think you're the most popular guest on the podcast, so, well I am the only guest today, so that probably makes me the most political or the most popular, at least this time. Right? Yeah. Yeah. Thanks everyone for joining us. Probably be doing some updates.
This is obviously gonna be a hot topic, and as you know, we go into an election year, actually, sorry, as we move through this election year, as different things happen, we will keep you updated and, you know, likely be doing some more episodes after the election based on for sure, for sure. Finding out what's gonna happen. But yep, appreciate the support of the podcast. If you like what you heard, we would love you to subscribe and, and follow it. We try to release these every two weeks. And thanks again for joining us. Take care. The opinions expressed in this podcast are for general informational purposes only, and are not intended to provide specific advice or recommendations for any individual or specific security. It is only intended to provide education about the financial industry to determine which investments may be appropriate for you. Consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices reference for comparison are unmanaged and cannot be invested into directly. As always, please remember, investing involves risk and possible loss of principal capital. Please seek advice from a licensed professional. Momentous Wealth Management, Inc. Is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Momentous Wealth Management Inc. And its representatives are properly licensed or exempt from licensure. No advice may be rendered by Momentous Wealth Management, Inc.
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