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What History Says About Elections and Markets – Episode 256


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The stock market usually does this after an election—no matter who wins. 

An election, COVID, protests, uncertainty—on this episode of the Dentist Money™ Show, Ryan and Matt take a close look at the history of elections and the stock market as they forecast what is likely to happen as we move past this one. 

During your lifetime, your investing timeline will cover eight to twelve different presidencies. Since elections are something you should get used to, Ryan and Matt discuss the investment philosophy that holds firm through different economic highs and woes.

 


 

Podcast Transcript

Ryan Isaac:
Hey, Dentist Money Show listeners, thanks for tuning in to another very special episode of Dentist Money Show, which I think all of them are very special. But today we’re talking about the recent election, what markets do, what markets will do, and how you should think about what markets do in your portfolio and your long term behavior for events like this and many events down the road that are sure to come that cause uncertainty and questions and volatility and worry and fear. Thanks for tuning in. If you have any questions, go to dentistadvisors.com, click on the Book free consultation button, have a chat with one of our very friendly dental specific advisors any time you’d like. Again, thanks for tuning, thanks for all the support, enjoy the show.

Announcer:
Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentists Advisors, a registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Issac.

Ryan Isaac:
And welcome to the Dentist Money Show, where we help dentists make smart financial decisions. I’m your host Ryan Isaac, here with the other guy in the room, also known as the Mighty Mountain of Hollywood, Matt Mulcock.

Matt Mulcock:
Oh my. It just keeps getting bigger and bigger.

Ryan Isaac:
As the mountain does. The mountain grows. Matt, how you doing man? You feeling up to your nickname?

Matt Mulcock:
I’m great.

Ryan Isaac:
You feeling mighty? The mountain?

Matt Mulcock:
No. I got to admit, I’m actually feeling a little bit self-conscious right now.

Ryan Isaac:
Because of the nickname?

Matt Mulcock:
After our webinar, you know what I’m going to say right?

Ryan Isaac:
If we ran this back we would say, “Here with Matt Mulcock, who also sounds like Seth Rogen.”

Matt Mulcock:
Yeah, so I was getting roasted man. I’m self-conscious because this is just obviously… So the webinar’s, at least our faces, so people can see us. Obviously here, we’re just coming through your phone or whatever, and I’m feeling a little self-conscious about my voice right now. I got called out for sounding like Seth Rogen.

Ryan Isaac:
Who I love. Everyone loves Seth Rogen. Or they should.

Matt Mulcock:
Well I don’t know. I like Seth Rogen. I’m a big fan. But I know of people that have said he’s super annoying. So now I’m sitting here being like, “Man. Maybe I’m annoying. Polarizing at the least.”

Ryan Isaac:
I love it.

Matt Mulcock:
The other one that was really bad, I thought it was a straight-up just shot, literally just a shot, was that they wanted me to do my best Kermit the Frog impression.

Ryan Isaac:
It’s like come on guys.

Matt Mulcock:
That was mean. That was really mean. I enjoyed it. I laughed. But it was mean. And now I’m feeling very self-conscious.

Ryan Isaac:
We all love Seth Rogen. We love Mighty Mountain Hollywood Matt Mulcock even more. But I mean, at least you’re not sir. I’m Sir Ryan Isaac, and I didn’t get to pick it either. We don’t choose our nicknames. Hey, Matt, before we jump in, let’s go ahead and remind everyone… First of all, thanks for joining us on this illustrious episode. We’ve got a good one for you today. We’re going to remind everyone listening that the Dentist Money Show is brought to you by Dentist Advisors, a comprehensive, fee-only, financial planning firm just for dentists across the country. Check us out at dentistadvisors.com. Matt, this week, and today’s episode is about the thing that I guess when this episode comes out it might be the day after. So this is going to be a fun one to do. We’re talking about the elections and the markets.

Matt Mulcock:
Oh this is going to come out the day after the election?

Ryan Isaac:
The plan is for this to come out next Wednesday, which would be the day after the election. So what? November 7 or something.

Matt Mulcock:
So this is going to maybe be worthless? I don’t know.

Ryan Isaac:
Prophetic.

Matt Mulcock:
We’re not going to make any predictions.

Ryan Isaac:
That’s all we’re going to do.

Matt Mulcock:
Although I will say… Here’s my prediction. Here’s my prediction. Tell me how you feel about this. We will not know… If you’re listening to this right now, on Wednesday, the day after election night, I’m going to predict that right now, we still don’t know who the president is. That’s my prediction.

Ryan Isaac:
Ooh I like that. That’s a cool shot to call.

Matt Mulcock:
We’re going to find out how wrong I am.

Ryan Isaac:
I’m going to make the prediction on this Wednesday, the day after the election, my prediction is that logging into social media will make you feel worse about yourself and your life than not logging into social media.

Matt Mulcock:
Oh it already does. Oh yeah. I blocked it all out. It’s shut off. Twitter. I let go of Instagram a long time ago. It’s all gone.

Ryan Isaac:
Yeah I tag you in posts all the time.

Matt Mulcock:
But especially Twitter and news. It’s all shut off right now.

Ryan Isaac:
Yeah good call. So if you’re listening to this, and you’re not on social media, thank you. Thanks for being here. We’re going to talk about this topic, which is markets and elections. This will be interesting, the time of recording. We’re recording this on Thursday the 29th of October. So we’re still five days out from the actual election. So this will be interesting to listen to and think back how at least the first 24 hours went. If it’s like the first 24 hours of the previous election in 2016 when-

Matt Mulcock:
Chaos.

Ryan Isaac:
I mean futures markets were down 1000 points on the Dow, which at that time represented a bigger percentage than 1000 points would today. And it was messages at 2:00, 3:00 in the morning, and then by the morning the markets were actually up. So here’s today’s agenda. Let’s lay it out there for the people, and then we’ll start to get into this. The agenda today is we’re going to talk about a little bit of history on elections and markets. And I still think this is going to be really helpful, even the day after, because I mean, it could still be chaos and there still will be uncertainty. And besides the presidential election, there’s still a lot of uncertainty in the economy and the world right now, just from COVID and the effects of it, and the continuing of vaccines or-

Matt Mulcock:
What’s COVID?

Ryan Isaac:
So I mean there’s still just stuff on the horizon, and the principles… Here’s what’s more important about the exact specific subject of elections and markets. The principles we’re going to talk about today will apply to the next time in the world when there’s uncertainty or fear or worry or something unexpected that shakes us a little bit. And that, by the way, is going to happen every handful of years. So just a different label. But we’re going to talk about that, a little bit of data, a little bit of history. We’re going to start by talking about the difference between when people ask the question, what are the markets going to do with the election? Or the change in president? Or the re-election of president? What are the markets going to do? We’re going to talk about that sentence probably maybe doesn’t mean what you think it means. What’s that line from Princess Bride? “I don’t think that means what…” “Inconceivable.” And he’s like, “I don’t think it means…”

Matt Mulcock:
“I don’t think you know what that means,” or whatever. Yeah. However he says it.

Ryan Isaac:
“I don’t think it means what you think it means.”

Matt Mulcock:
Oh that’s such a good movie.

Ryan Isaac:
And then we’re going to end the discussion with appropriate times when making a change to a portfolio is logical, and makes sense, and is supported either with data or your situation. But before we jump into that we’re going to take a quick break, and then we’ll come right back with markets and your portfolio and how that should even be defined in the first place.

Ryan Isaac:
We wanted to take a break for just a second to remind you how easy it is to book a free consultation with one of our dental specific advisors. What you do is you go to dentistadvisors.com, and you’ll see a big, green button that says “Book Free Consultation.”

Matt Mulcock:
Can’t miss it.

Ryan Isaac:
Click that button and book a time that works for you, or you could just call us at 833-DDSPLAN. Let’s start a conversation about how we can help you with your finances.

Ryan Isaac:
Let’s get into this. So one question that we hear quite a bit, it’s a very logical question, it’s a question that we’re just trained to ask since markets and finances and money and economy is not really taught, especially personal finances. It’s not really taught anywhere with much depth. So we’re taught to ask this question, and the question is, what are markets going to do when, right now it’s presidential election but I mean you can just fill in the blank with anything really, every couple years. What will the markets do when dot dot dot? So the first thing I’m going to say about this, this is a teaser and an invite, and audio bait, click bait.

Matt Mulcock:
Tease it. Tease it.

Ryan Isaac:
Tease it, like a Cheez-It. Tease it like a Cheez-it. I like Cheese Whiz.

Matt Mulcock:
We’re all about that clickbait, right? That’s us. That just defines us.

Ryan Isaac:
Clickbait is, we just did a webinar on this, and we had more time and it’s a webinar so obviously we have visuals to show.

Matt Mulcock:
Can see our faces.

Ryan Isaac:
You can see our illustrious faces, which I use that word a lot now by the way. Illustrious. I just like it.

Matt Mulcock:
I don’t think that means what you think it means.

Ryan Isaac:
Exactly. It probably doesn’t. So go to dentistadvisors.com, click on the education library tab, and then go to the webinar section. And this one was just from October 2020, it’s about elections and markets. But we spent the first 20 minutes talking about this subject in more detail that we won’t be able to get into, which is this question of, what is a market? What does that even mean to say, “What are the markets going to do?” And how that’s usually not really the right question because what people think a market is, usually isn’t or shouldn’t be exactly what a well-diversified portfolio is. They’re not the same things. People think they’re the same things, but they’re not the same things. So on the webinar, we had some visuals. We had some data. It was really cool. We spent 20 minutes on this subject alone, which could be its own podcast and maybe will some day. So go to-

Matt Mulcock:
Hey. Teaser.

Ryan Isaac:
Teaser. Clickbait. Go there. Dentistadvisors.com, education library, webinars. Just go watch the first 20 minutes of that and we’ll get into it. But let’s talk about this question, Matt. What are people meaning in their heads, we’ve all been trained to ask this, the, whatever, financial media’s told us to ask this question. What does it mean when people say, “markets,” when they’re saying, “What are the markets going to do? What do you think the markets are going to do when the election happens?” What are people meaning by that? What’s going through their minds?

Matt Mulcock:
You’re saying specifically what they’re referring to with the market itself?

Ryan Isaac:
Yeah. The markets.

Matt Mulcock:
I mean they’re referring to, nine times out of 10 I’d imagine, because this is what the media’s throwing down our throat all the time, is the S&P 500, the US markets, which makes sense. We are in the US.

Ryan Isaac:
Dow, S&P. Yeah.

Matt Mulcock:
Yeah. When they say the market, and when a client comes to us and says, “What should I do leading up to the election because everyone’s talking about the markets.” The markets they’re talking about are the US markets, specifically usually the S&P 500. Yeah, maybe the Dow. That’s really what they’re talking about.

Ryan Isaac:
So what’s the issue, then, when someone’s trying to imply or ask about, when they’re saying, “The markets,” and they’re basically just referring to the stuff that they look on their phone. We just flip open the stocks tab and we’re like, “What did the markets do today?” What’s the problem with that in relation to what a portfolio actually looks like or should look like?

Matt Mulcock:
Yeah I mean I have a couple issues with it.

Ryan Isaac:
Bring them out. This is therapy, basically, so let’s talk about your issues. Kick back. I’m listening. Safe space.

Matt Mulcock:
Well the first issue is implying we know what’s going to happen with the markets, whatever those are, based on this one event. Like you said, fill in the blank. In this case we know what the event is, and it’s more anticipated. It’s not like a global pandemic that just hit everyone out of nowhere. There’s a really controversial, polarizing election coming up. So I think there’s more anticipation around it. But it’s still, the truth is, my biggest issue with is… I understand the question, but I’m saying, the biggest issue is you’re implying that we even know what’s going to happen to the markets based on this event. That’s my first issue, in the first place.

Ryan Isaac:
Yeah it’s like one of my favorite quotes of all time, and I’m not going to say this directly, but it’s, “I only have an opinion because you asked me to have one.” It’s one of those things. Like, “Ryan what do you think markets are going to do?” Well, “First of all, this is not something I would’ve brought up involuntarily, because it’s a complete crapshoot. But since you asked, I guess let me hurry and formulate something.”

Matt Mulcock:
Yeah, there’s a version of that quote, I think it’s John Gawsworth or someone like that. But it’s like, “Forecasters don’t forecast because they know, but it’s because they’re asked.”

Ryan Isaac:
That’s where it came from. Yeah.

Matt Mulcock:
Yeah that’s exactly what it is. I mean it’s like, “I’ll give you an answer I guess because I feel like I have to, but the truth is I don’t know. I don’t know what’s going to happen.”

Ryan Isaac:
So we’re big fans of long-term, low-cost, globally diversified, frequently rebalanced portfolios that have high savings rates over decades. You can quote me on that, okay?

Matt Mulcock:
Quote. Put it on your wall.

Ryan Isaac:
It can go on my wall.

Matt Mulcock:
You should point that on your wall.

Ryan Isaac:
That’s how you make money in markets, man. You have a low-cost, globally diversified portfolio, rebalance frequently with a high savings rate for decades. There it is. Put it on a T-shirt or a hat if you want.

Matt Mulcock:
Boom.

Ryan Isaac:
That’s how you make money in markets.

Matt Mulcock:
Ooh a T-shirt. Yes.

Ryan Isaac:
So when someone asks me, “What do you think markets are going to do when whatever event, and this one’s the elections,” I always think, “Man, what the S&P 500 does, whatever ticker symbol you have on your phone as the go-to check stocks for the day kind of thing,” which is usually the S&P or the Dow, should be not representative of what is going to happen in your portfolio, let alone maybe the six or seven accounts that you have with different portfolios, of different risk types and time horizons and goals. In an ideal portfolio the way we think about it, I mean this is the way I do with my own money. It’s the thing I’ve advised my own parents to do. This is what we do for clients. Is carry a low-cost, globally diversified portfolio.

Ryan Isaac:
Which means, you don’t just own the S&P 500. You don’t just own the 30 stocks on the Dow. You have thousands and thousands, upwards of 14 to 15,000 stocks all over the world, and how the US fits into that is the US only represents about half of the world’s stock markets. And then, beyond that, you have a certain mix of stocks and bonds, depending on your time horizon, your goals, and how much risk you want to take, or volatility you want to feel, you have a mix of large companies and small ones. You have a mix of what are called growth stocks or value stocks. And all these things have different return patterns, they have different long-term absolute returns. And the mix of these things really determines the outcome of your portfolio over a long period of time.

Ryan Isaac:
So I hear this question, I’m like, “Man the way a portfolio’s built is so much more complex than the ticker symbol on your phone, or the S&P 500, so it’s a little divorced from reality.” What we think the markets are going to do versus what a well-built portfolio should be doing during an event like this, but over a long period of time.

Matt Mulcock:
Over a long period of time.

Ryan Isaac:
In which we’ll see many of these events, just with different names, different descriptions.

Matt Mulcock:
Yup. And what I was going to say, too, Ryan, just thinking about this while you were… Because we’re talking about specific events. But I’m also thinking of, this applies to themes you hear as well. So for example, you hear this theme now going on, which again in some ways it is true, stocks are too expensive. Right? You hear this.

Ryan Isaac:
I’ve heard this since 2012, by the way. Honestly.

Matt Mulcock:
That’s very true. But it’s the same thing. You’re hearing, “Stocks are too expensive.” And my first thought to that is, well what stocks are too expensive? Which stocks?

Ryan Isaac:
All 16,000 in the whole world?

Matt Mulcock:
Yeah. Okay. So you’re saying… Yes the S&P 500 stocks-

Ryan Isaac:
The giant US tech stocks are expensive right now.

Matt Mulcock:
Yeah. Giant US tech stocks, for sure, based on-

Ryan Isaac:
Tesla’s too expensive?

Matt Mulcock:
Exactly. Based on traditional measures of price to earning ratio, yes they are historically more expensive in those categories than in history of those stocks. But that does not mean emerging markets are too expensive, or that European stocks are too expensive. So that’s what I’m saying. I think it comes back to what you were just talking about is, it’s not just events. It’s also these general themes that get put out there that become cliché of, “Stocks are too expensive.” Again, my first thought is, “Okay. Well what stocks?” Tell me that.

Ryan Isaac:
And it’s doing more harm than good for anyone to even, not only repeat that but… Which is okay. I get why people ask that. We’re taught to ask that, because it seems logical.

Matt Mulcock:
Yeah it’s ingrained in us.

Ryan Isaac:
Yeah. But it doesn’t help anybody to even ask it or try to have an answer for that because, yeah, I’ve heard that, you probably have too, about US stocks, more specifically large-cap US stocks, for the last four or five years. All-time PE ratios, and they’re really high, and unsustainable. But ignoring the fact that the other 50% of the world’s stocks are historically undervalued compared to their averages. Emerging markets in developed countries, small-cap stocks, value stocks. We’re not at historical peaks at all. Not even close. So yeah I think the principle in this section is just… We totally get it, why this question gets asked, why it’s phrased this way. There’s not a lot of education around this stuff.

Matt Mulcock:
It’s totally valid.

Ryan Isaac:
It’s totally valid. But just as the phrases go through your mind, as you’re asking that question out loud, as you’re having these conversations with friends or colleagues or whatever, and you’re saying things like, “What are the markets going to do?” Or, “Stocks are expensive,” start to just give yourself pushback and go, “Oh maybe that’s a complete picture. And maybe actually whatever I see the S&P doing or the NASDAQ, maybe that’s not representative of what my 401K is going to do next week when the elections happen. Or next year when dot dot dot happens, or so on and so forth.” I want to end this segment with a reminder of how often stocks, and this statistic is actually US stocks, this is where this data comes from. How often they go down. I think this gets forgotten, especially during good times, and then when bad times roll around again we’re like, “Oh my gosh I had no idea stocks go down in value sometimes.”

Matt Mulcock:
They actually lose value?

Ryan Isaac:
No, no, no. Treat this like an annual holiday. You knew this was coming because it happens pretty regularly. So statistically, this is US stocks over the last 100 years, a 10% correction, which is what they call a correction. So it’s a 10%… It goes down 10%. And it doesn’t mean the year ends at 10%. It just means at some point, it could be over a course of days or months, it goes down and touches -10%. US stocks. That is happening for the last century, on average, about once a year. So when you see the scary headlines like, “Are stocks headed for a correction?” The answer is yes, about once a year. It’s like an annual holiday. Yes they are.

Matt Mulcock:
You’re going to go to Hawaii, and stocks are going to correct 10%.

Ryan Isaac:
They’re just going to do it. Okay? So that’s happening once a year. What they call a bear market, which sounds scarier because bears can kill people and other large mammals. Like with one swipe.

Matt Mulcock:
Yeah, humans and berries.

Ryan Isaac:
That’s a 20% decline, and bear markets about 60% of the time they’ll coincide with a recession. So they’re a thing. Those are happening about every four and a half years on average. So just keep in mind, about twice a decade you’re going to see an actual bear market, and then-

Matt Mulcock:
So that European trip, in this case. Every four years or so.

Ryan Isaac:
Every for years. I like this.

Matt Mulcock:
International travel.

Ryan Isaac:
Yeah I like the analogy between trips. So twice a decade you’re going to see a bear market. Totally normal. A 30% decline, 30, 35% decline, is happening, again over the last century in the United States, about once a decade. And so when we saw 35, 36% decline in US stocks in March 2020, the last time we saw a decline that much was 10 years ago. About once a decade.

Matt Mulcock:
Yeah. Wait so real quick. So that’s like your Tesla? How often you buy your Tesla? Your luxury car?

Ryan Isaac:
I’m glad people are going Europe and Hawaii more often than they’re buying cars though. More frequently. That makes me happy.

Matt Mulcock:
That should be the case.

Ryan Isaac:
That’s a good spend of money folks. So let’s just end this segment saying the phrase, “The markets” probably is not representative of what a healthy portfolio should look like. And also, this stuff happens very frequently. We forget that. Half the time we don’t even realize it happens. Especially if it’s not really sensational. If there’s not a lot of really dramatic news, it just happens through a business cycle, we don’t really notice that it happens. And, since stocks end most years up, and especially most five and 10 year plus periods of time up, we forget that it happens. Like, “Oh it went down 20% in July, but now we ended the year positive.” Yeah, and then we forgot that we were in a bear market for two months. So it’s kind of funny. We’ll just end it there.

Ryan Isaac:
And if that’s confusing or frustrating or just seems like, “Man I don’t want to deal with that. Can someone else just do this for me because I clearly don’t understand how this stuff’s working and I just want to be a dentist and run a good practice.” That’s why we have a business folks, and it’s called Dentist Advisors.

Matt Mulcock:
Why Ryan and I have jobs.

Ryan Isaac:
What’s why we have jobs. It’s what we do.

Matt Mulcock:
I think.

Ryan Isaac:
It’s what we do all day long. So you can go to dentistadvisors.com, you can get a friendly, smiling, happy, dental specific advisor on the phone and ask these questions and have a chat and talk about your plan and your investments and your future and all that kind of stuff.

Matt Mulcock:
You can either get an illustriously good looking bald man that will help you, the smartest guy I know. That’s option one.

Ryan Isaac:
Option A.

Matt Mulcock:
Option two… Yeah that’s option A. Option B would be Seth Rogen or Kermit the Frog.

Ryan Isaac:
Hey Matt, what do you like to drink or snack on when we do our webinars every month?

Matt Mulcock:
Yeah that’s a good question. I’m usually hitting a Red Bull, but it’s hard because it’s an evening webinar.

Ryan Isaac:
Yeah. These evening webinars taking place 6:30 PM Mountain Standard Time.

Matt Mulcock:
Mountain time.

Ryan Isaac:
Once a month.

Matt Mulcock:
Where do you find it?

Ryan Isaac:
Well if you’d like to find the webinar, or you’d like to register for it, you go to dentistadvisors.com/webinar, or just go to the website and click on webinars under the education tab.

Matt Mulcock:
It’s a good time.

Ryan Isaac:
It’s a great time. What kind of things do we cover in our webinar, Matt?

Matt Mulcock:
So each month we’re going to hit an element. So it’s going to be some component of your financial life. We’re going to dive a little bit deeper than we would on the Dentist Money Show. We get to draw pictures. There’s live polls. You can ask questions.

Ryan Isaac:
It’s a great time.

Matt Mulcock:
Yeah it’s a good time.

Ryan Isaac:
Well, we’d love to see you in attendance at one of your fantastic webinars. Just go to dentistadvisors.com. Sign up today for the next one. Thank you very much.

Ryan Isaac:
If you want to push pause and go look this up, it’s a blog post by a very famous, amazing financial writer by the name of Ben Carlson.

Matt Mulcock:
Shoutout.

Ryan Isaac:
He writes a blog and has written on this blog for over a decade called A Wealth of Common Sense. And it’s so amazing. He’s a great, fantastic writer. Every subject you can possibly think of backed up with data and history, and really a like minded individual with the way we think philosophically about money and behavior. A Wealth of Common Sense. But I’m going from his blog post that’s called Don’t Mix Your Politics with your Portfolio. And I’m just looking at charts he put on there, which actually are sourced from other places. So he has a chart that came from S&P data, a chart that came from Fortune Magazine. So these are also sourced charts, but I just wanted to give a shoutout to where I’m just looking at this consolidated data.

Ryan Isaac:
But the first one I look at, it’s kind of hard to point this out. It’s kind of hard to explain this. But the overall arching thing, and I think it’s important to talk about because when we did this on the webinar, a few people commented like, “Hey I get so caught up in elections,” or any other big economic thing, “That sometimes I forget that markets, despite short-term ups and downs, that they still just do their thing and go up over time.” So basically I’m looking at a chart right now that starts… I’m going to paint this picture. Let’s see how good I am at describing things.

Matt Mulcock:
Paint it.

Ryan Isaac:
It starts in January-

Matt Mulcock:
Imagery. Imagery.

Ryan Isaac:
January of 1926, and ends in December 2019. And it’s a chart that, from left to right, it just steadily goes up. It’s like a rollercoaster, except for there’s little dips along the way.

Matt Mulcock:
Just baby little dips. It’s like a kid ride.

Ryan Isaac:
It’s a kid ride. Baby dips. In comparison to the overall trend, this thing is just going up. If you looked at this and were like, “Is this a thing that’s going up?” You’d look at it and go, “Yes that’s a thing that’s going up.”

Matt Mulcock:
If you’re on a rollercoaster, it’s the click, click, click, click, going up.

Ryan Isaac:
It never stops.

Matt Mulcock:
It’s like that pretty much the entire time, with maybe a little bit of drop here and there. And then click, click, click. It just keeps going up.

Ryan Isaac:
It never stops. And if you looked at this chart you’d be like, “Do you think it’s a high likelihood that this thing is going to continue in that direction?” You’d be like, “Yup.” So it’s this chart that’s left to right, it’s just inclining up and up and up. And it’s split up by presidents and their tenure. And it just shows what markets did during every presidency. Republican, Democrat, everything. And they’re color-coded blue and red, so it’s really cool and pretty to look at. It reminds me of an Otter Pop for some reason.

Matt Mulcock:
Yeah it does.

Ryan Isaac:
So anyway, here’s the overarching thing that’s important to realize, is that, back to our first segment, markets will go down frequently for any number of reason all the time. But markets go up. Why do markets go up? Because markets are just a collection of thousands and thousands of businesses just like your dental practice, around the whole world, that every single day owners who, this is their whole life. It’s their whole livelihood, are walking through the doors and they’re running businesses for the sole purpose of adding value to the world and the economy, providing jobs, making money, and having profit. And never stopping that process.

Ryan Isaac:
The stock market is just thousands of businesses like yours, like your practice, with one goal in mind, and it’s to make more money next year than you made this year. And to always be profitable, and always be contributing to the world and the community and economy that you exist in. That’s it. And so that’s why these things eventually, over time, they’re always going up. And what’s more, is since these are public companies, we’re talking about public stocks. These are public companies, so unlike your dental practice, these people have tons of funding, boards of directors, tons of advisors, and insane scrutiny and transparency every quarter of their lives to disclose how they’re doing. So they actually probably have more pressure than the average dentist to perform and disclose their performance than most dental practices do. I’m just saying there’s more motivation than there needs to be.

Matt Mulcock:
Massive incentives there.

Ryan Isaac:
Yeah, the incentive’s there to always grow. So the point is, if you are a long-term investor, you’re committed to building and holding a low-cost, globally diversified portfolio, rebalanced frequently with a high savings rate held over decades. That’s my new phrase. If you’re committed to doing that-

Matt Mulcock:
That’s your T-shirt.

Ryan Isaac:
That’s my T-shirt. Then look, the presidency tenure is going to have less to do with the person who got elected and more to do with just the wild ride that the world is, and human beings are, and cycles and businesses and disease and attacks and scandal. So you look at the chart and overall the takeaway is that companies still grow, and that chart will still keep going up and to the right until companies don’t exist anymore.

Matt Mulcock:
And if you zoom out far enough, and you put that time horizon out long enough, those are blips on the radar.

Ryan Isaac:
Can’t even see them.

Matt Mulcock:
March 2020 is a blip. The 08/09, with enough time, ends up being a blip. You look back after 20 years, 30 years, and you look back you’re like, “Oh yeah that was a crazy time.” But, “Oh wait. I’m still a millionaire.”

Ryan Isaac:
Yeah. And I looked at this chart, we talked about this on the webinar, most people’s investing careers… Here’s another thing too is, people assume sometimes that their investing years are their working years. And that’s not true.

Matt Mulcock:
Yeah like it shuts off on that date.

Ryan Isaac:
Like 60, you’re done working so you’re done investing. No, no, no. You’re investing time horizon, the whole thing’s, probably closer to eight to 12 presidencies, depending on how many people get re-elected. So if you look at that chart and you just count back eight to 12 presidents, you’re like, “Oh this will just keep going up. It’ll keep going up.” And the day that all 14,000 or whatever publicly traded companies in the world stop producing products and services and jobs and profit and revenue is the day that, well, we have bigger problems to worry about because…

Matt Mulcock:
Yeah. The day that humans stop-

Ryan Isaac:
Running companies.

Matt Mulcock:
Again, majority of humans stop wanting to contribute to society and grow-

Ryan Isaac:
Because we can’t or we don’t want to or something.

Matt Mulcock:
Get better.

Ryan Isaac:
That’s a different set of problems.

Matt Mulcock:
Yeah again, if that day stops, then we’ve got bigger problems on our hands for sure.

Ryan Isaac:
Here’s another thing. I’m on that same blog post if you want to go there and follow along again. But then there’s this chart, this one came from Fortune Magazine. But there’s this chart about the… And the heading of it is that stocks go down no matter who the president is. So this chart was a chart of all of the biggest declines during every president’s tenure. So the small-

Matt Mulcock:
And we’re just saying intrayear declines, right? Meaning it didn’t necessarily end.

Ryan Isaac:
Right. It was the worst draw down. It could’ve happened over two days or it could’ve lasted two years during any of these presidencies. The smallest one, during any president, was Jimmy Carter, 1977. That was the start of his term, was negative 17%. That was the smallest draw down during any president in history, was -17. The biggest draw down, of course Great Depression, Herbert Hoover, -86%. Franklin Roosevelt was right after that, -54. George Bush was -51.9. Let’s see. More recent that we’ll all be more familiar with. The biggest draw down so far during Trump’s presidency, -33. Obama, -22. Bush was, like we just said, -51. Clinton, -19. George H. Bush, -19. So the point of this chart and the point of just relaying this data is that it’s still going to happen. And if you went back to these periods of time, I think you’d be hard-pressed to be like, “Every single one of those one individual people were responsible for those draw downs.” That’s just not true.

Matt Mulcock:
Or, even more importantly, you could predict when those draw downs were going to happen, and you were going to make some changes to your portfolio based on that draw down.

Ryan Isaac:
You don’t know the magnitude, you don’t know the timing, you don’t know the duration. I mean it’s just very hard. One more piece of data. I’m on the same blog post. Again it comes from Fortune Magazine. The average S&P annual returns based on who’s in control of the White House and Congress. So the lowest average… Okay this is the average rate of return for the S&P 500, biggest 500 stocks in the United States. This is not the world’s market. But this is the data we’ve got. The smallest average S&P return comes from a Democratic Congress and a Republican president at just shy of 5%. That’s the average rate of return for that. The highest is a Democratic Senate, a Republican House, and a Democratic president at 13.6%, which is kind of interesting because the 20-year average of the S&P’s close to 10, not almost 13 and a half. So that’s kind of interesting. Really close to that, Republican Senate, Democratic House, so the reverse, and then Republican president, basically the reverse of what I just said, is 13.4. Those are the two highest.

Matt Mulcock:
It sounds like just having a balance of some kind.

Ryan Isaac:
Imagine that.

Matt Mulcock:
Checks and balance. Weird.

Ryan Isaac:
It’s kind of cool to think about, that as imperfect as systems are, that when there’s this balance of opinions and power, maybe, that that’s when we’re squeezing out the highest amount of returns out of our public markets. But think about how complex that statement even is. That’s tax policy. That’s economic policy. That’s monetary policy. That’s interest rate. I mean that’s so many things that contribute to those different things. But those are the highest returning years is when there’s a good mix of things in Congress and the presidency. So that’s our second segment. We’re going to end with… Well here’s what I’ll say in this segment, is that data is just interesting and entertaining and nothing more. This episode comes out after the election already happened.

Matt Mulcock:
I would say insightful. I’m going to say insightful.

Ryan Isaac:
You’re going to say insightful. Okay. I guess that’s what I mean by interesting, too. Yeah, insightful. It’s interesting.

Matt Mulcock:
Illustrious.

Ryan Isaac:
It’s illustrious. But it does not mean anything for your decision making. These are not the statistics or these are not the numbers that will drive a change in your investment strategy. Or they shouldn’t. This episode comes out after… You’re listening to this after the thing already happened, so it’s going to be interesting to see. We already called our shots.

Matt Mulcock:
But we don’t have a president yet.

Ryan Isaac:
Yeah you called your shot.

Matt Mulcock:
We don’t have a president yet. I’m calling it.

Ryan Isaac:
But that event yesterday, as you’re listening to this, should not have changed your long-term investment philosophy. We’re going to come back. We’re going to take another quick break, but we’re going to come back and finish out this segment with, what kinds of things would actually change your investment strategy? We’ll give a couple of examples. You’ll notice a theme in these examples. And we talk about them. But that’s about… You’re going to notice a few things here.

Ryan Isaac:
Have you been enjoying our Dentist Money Show Podcast?

Reese Harper:
I think so.

Ryan Isaac:
I hope so. Let’s set up a consultation so you can find our how our services can help you. It’s easy to do, and, Reese, it’s completely free.

Reese Harper:
Really?

Ryan Isaac:
Did you know that?

Reese Harper:
It’s not for me. I’m paying these guys to answer the phones everyday.

Ryan Isaac:
All you do is go to the website dentistadvisors.com and click the huge green button you cannot miss called Book Free Consultation. Or call us, or text us, at 833-DDSPLAN.

Ryan Isaac:
Let’s end this here with a couple examples of people who took money out before an election. But you could say, before a big event. Before a big event that could possibly make markets go down, make their portfolio go down to be more specific than just markets. You’ll notice a theme here. And I’ll keep these really general, but you’ll notice a theme in both of these. And these are conversations I had with people in the last seven days. One is a client one is not. So one person’s in retiring years. Income is just now Social Security and withdrawals on a portfolio. And this person starts a conversation with me saying, “Should I pull my money out of stocks before the election?” Again you’re listening to this after the election, so I hope I gave the right advice. Maybe I didn’t. But the conversation started there, but then it went to a quick no, and we talked about that. That’s just my opinion. “No I don’t think you should do that,” because this person doesn’t need every penny of their portfolio this week to spend.

Matt Mulcock:
So was the question, should I be taking out-

Ryan Isaac:
All of it.

Matt Mulcock:
All of it for the year.

Ryan Isaac:
No, no. We’re getting to that.

Matt Mulcock:
Just all of it? Completely? Like sell all of it?

Ryan Isaac:
It’s a common question that lots of people have asked. “Should I just pull all of my money and all of my portfolio out of stocks until…” And people always say things like, “Until this blows over.”

Matt Mulcock:
I was just going to say that. “Until we figure out what’s going,” or something along those lines. I’m like, “What does that even mean?”

Ryan Isaac:
No one knows what that means. So the conversation started there, and it ended up on this part, and this is where I think this could be rational and it could be justified if someone felt like they were going to do this. So this person living on social security and living on withdrawals from a portfolio eventually said, “Well okay, maybe not my whole portfolio because you’re right. I got 20 years on this thing. So why pull all of my money our for an even I won’t even probably remember 20 years from now, unless it’s really bad.” Unless it’s horrible. Maybe you will. That’s always possible.

Matt Mulcock:
It is. Yeah.

Ryan Isaac:
But it won’t be consequential to all of my money 20 years from now. So okay. So they said, “All right. Well I do need a fixed amount every year that I pull out. That’s my spending. That’s where I get my money. I supplement my Social Security from that. Does it make sense then, I know I’m going to need this money. Does it make sense to pull out my money for the year ahead of time?” Let’s call it 30 grand, just to put a number on it. “Should I pull out 30 grand out of my whole portfolio that’s still got 20 years left? Because I know I’m going to spent it this year, it has to get liquidated and spent in the next 12 months. Because there are some events that could make the value of that money go down during that period of time when I’m going to need to pull money out.”

Ryan Isaac:
So I thought that, hey, if someone told me they were going to do that, I couldn’t blame them for that, and I don’t think that would be terrible. I don’t think on that little chunk of money they’re going to miss out on some astronomical compounding interest gain or something. That didn’t seem too consequential for me. Now, as Larry David would say, curb your enthusiasm. Having said that… I can’t not think of him when I say having said that these days. Having said that, strategically, logistically, when you pull money out of a portfolio, you can pull it from different places, assuming your portfolio’s diversified-

Matt Mulcock:
Well-diversified.

Ryan Isaac:
You’ve got different types of assets. You’ve got stocks and bonds and US, international, that kind of stuff. You can look at a portfolio during any market cycle and go, “Okay here’s the most efficient place to pull this money from. We’ll leave this stuff over here. We’ll take a little bit from over here because of taxes or gains or losses,” or whatever the decision is at the time. So I still think that even if there’s an event like an election or anything else, put any other name on it you want, that it still makes sense to just leave money in there. But if there is an exception to pulling money out because of an upcoming event that has the possibility of making that money temporarily decline in value, I think it’s fine. Here’s a finite amount of money I know I have to spend on this thing in this very short period of time. Is it okay to just set it aside? I think that’s acceptable. Do you think that’s acceptable Matt?

Matt Mulcock:
I think that’s totally rational. I would say it’s inconsequential to the event itself. It’s just-

Ryan Isaac:
Dependent of the event. Yeah.

Matt Mulcock:
Yeah. Whether there’s an election or not, or some event we’re dealing with, for someone to say, “Hey should I have some short-term cash for the next year that I know I’m going to spend no matter what?” I’d be totally fine with that. You could argue that’s the way to do it. I’m fine with that.

Ryan Isaac:
It’s kind of like tax money. It’s like when people say, “Should I invest my tax money I have to pay in 10 months?” I’m like, “No because you know you got to pay it. There’s nowhere to put it. Don’t worry about it.”

Matt Mulcock:
It’s like someone says, “Hey I already have a plan to buy this thing or invest in the practice in this new cone beam.” Or-

Ryan Isaac:
“Down payment for my building.”

Matt Mulcock:
Down payment. Exactly.

Ryan Isaac:
It’s due in six months.

Matt Mulcock:
Exactly. I’m going to do it in six, nine, 12 months. Should I invest that money from now until then? The answer is absolutely not. That money has a job. And that job is not to be invested for the next 30 years. It’s to invest in whatever this thing is.

Ryan Isaac:
To be spend in six months.

Matt Mulcock:
Or to buy whatever this thing is. To spend right now. Exactly.

Ryan Isaac:
And the risk of maybe making that piece of money go down even a few thousand bucks just isn’t worth it over the next few months.

Matt Mulcock:
It’s not worth it.

Ryan Isaac:
It’s just not worth it. Scenario number two, different person, different time in their life, but similar. It’s the same principle. Scenario number two is, person mid-career, great income, no debt, lots of liquidity, good savings rate. Just in a great financial position.

Matt Mulcock:
Just balling basically.

Ryan Isaac:
Balling out.

Matt Mulcock:
Just balling out.

Ryan Isaac:
And still years ahead to earn more money and save more money. This person wants to buy some real estate and they want to pay cash for their real estate, which has been the goal for years. They’ve saved it up in an account, waited until they had the whole chunk, and they’re going to buy some real estate with this money. That was the goal of the account. So this person says, “Well it’s time to buy the real estate, the title company needs it in 30 days.” Like you just said, it has a time frame. It’s got a purpose. It’s getting spent in 30 days. “Should we just pull it out before the elections just in case there’s some volatility, because I know I’m going to use the money anyway.” And I say, “Heck yeah.”

Matt Mulcock:
The answer to that one is yes.

Ryan Isaac:
It’s been growing. You know you’re going to spend it. Absolutely. That’s not market timing, that’s just being smart and saying you’re using the money within the next month anyway, so let’s just get it out of there while it’s fine and not have to deal with the emotions of, “Oh crap it did go down.” Jeez this was a long episode but I felt like, man it needed to be said.

Matt Mulcock:
Yeah I think it did.

Ryan Isaac:
I hope the world exists on this day of release.

Matt Mulcock:
I hope so too.

Ryan Isaac:
Based on some of the things I see on social media, I’m like, “Does it end next Tuesday?”

Matt Mulcock:
Doomsday. I’m nervous.

Ryan Isaac:
Is the world ending on November 6?

Matt Mulcock:
I didn’t think we were going to go there. I hope we’re around.

Ryan Isaac:
I hope we’re around people. I feel like-

Matt Mulcock:
I hope you’re listening to this and you’re alive.

Ryan Isaac:
I feel like some things I see makes me wonder. Should I be that alarmed? Because that person’s pretty alarmed. I think the world’s ending next Tuesday.

Matt Mulcock:
That’s why I had to shut it all down, man. I had to shut it down. I can’t be on any of this stuff.

Ryan Isaac:
We’re going to end with some advice. Turn off social media and go pet a dog. And that’s how we’re going to end the show right there.

Matt Mulcock:
A puppy.

Ryan Isaac:
Go pet a puppy. Pet a puppy and please hold low-cost, well diversified, frequently rebalanced high savings rate portfolios over longs periods of time, preferably decades, and we have confidence in you. Thanks for tuning in. Thanks for listening. If you have any more questions, check out the webinar where we talked about all this stuff in just about the same amount of time actually now.

Matt Mulcock:
Yeah pretty much. But the webinar has visuals though. You can see our faces.

Ryan Isaac:
You can see our faces.

Matt Mulcock:
And not just my Seth Rogen voice.

Ryan Isaac:
Which I love. And dentistadvisors.com. Go to the education library, click on Webinar. If you have any questions, just click on the Book Free Consultation, have a chat with us. Thanks for joining us. Thanks for tuning it. We’ll catch you next time. Carry on.

 

Investing, Behavioral Finance

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