We have all been told by our parents that you shouldn't discuss money, politics or religion. Every four years from around June to November it feels like many client interactions require two of the three to be addressed, which I succumb to. I guess I personally don't take advice that well!
The convergence of COVID-19, economic, political and investment news has become the perfect storm for recent anxiety. I'm sure every reader has endured these emotions in one form or another throughout 2020. Through all cycles and global events, our obligation to our Acadium clients is to follow all the data, extract our best thinking based on a long-term view, and impart our relevant findings in a way that can be applied and easy to understand. We think that some of the clearest vision we can have about the future comes from looking at the past.
As we brace for the next storm on the horizon (the presidential election), we should consider a few data points regarding investment returns that extend back through our last global pandemic (Spanish Flu), 2 World Wars, a Depression, and 4 Presidential assassinations to name a few. The resulting data shows us that the returns for a balanced portfolio through both democratic and republican held offices are almost identical. 8.4% annual compounded return when democrats held office and 8.2% when republicans were in power.
The second graph should help calm fears if reviewing returns for a balanced portfolio during election years (8.9%) vs. non-election years (8.0%).
Source: Vanguard calculations based on data from Global Financial Data through 12/31/2018
Given this sampling takes into effect almost 160 years of outcomes and the variance is less than 1% should tell you something about all the hype that is brought about every 4 years: when it comes to market returns, elections feel far more meaningful than they actually are. As humans, we tend to apply our recency and political biases to how the world will operate upon the outcome of each election. Our focus gets lost in the short-term noise vs. the potential earnings over one's investment lifetime. This loss of perspective can be toxic to the returns needed to achieve the returns you deserve. A few questions to ask yourself during this period of uncertainty might be:
- Has my financial life changed as a result of current events?
- Have my chances of achieving my long-term plan diminished?
America remains the greatest and most prosperous nation on the planet, and in the history of mankind. It remains so despite a pandemic, double digit unemployment, political unrest, racial division, an uncertain stock market. Throughout its history, our civilization has answered many challenges that were unprecedented and even existential, and emerged stronger each time. It is said that "history doesn't repeat itself, but it sure does rhyme." For this reason, in the long run faith in the future is the only conclusion supported by the historical facts. Our nation is blessed with the perfect storm of creativity, industriousness, determination, and liberty.
Since we have already talked about money and politics, we might as well conclude with religion. We believe in history, and as evidence-based investors, our faith remains steeped in the Acadium Principles. We believe that if we remain faithful to these truths, we are better able to help you achieve your most cherished goals.
Source: Vanguard calculations based on data from Global Financial Data through 12/31/2018
Risk and return are related. There is no return without risk.
Markets are efficient; it's difficult to get an edge and consistently outperform the indexes
Capitalism will make you money over time; stocks might be irritational in the short term but companies are not.
Patience and discipline are how you earn your return.
I will end with an extension of my gratitude to all those we have recently had the opportunity to engage in deeper and more meaningful conversations as a result of this emotional period we have all been thrust into. We take pride with the families we are able to serve and find solace in the fact that we are considered not just advisors but friends to our clientele.
Health and prosperity to all!
Sincerely,
Thomas Udovich, CFP®
Partner, Acadium Financial Partners
3601 PGA Boulevard, Suite 301
Palm Beach Gardens, FL 33410
Any opinions are those of Tom Udovich are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. member FINRA/SIPC. Acadium Financial Partners is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur.
Past performance does not guarantee future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.