Amy: You're listening to "Simply Money," presented by AllWorth Financial. I'm Amy Wagner, along with Steve Hruby. If you just woke up for the first time this year, we are in the middle of a presidential election year. And as you know, it is only going to get crazier and crazier the closer we get to November. It can be a tough time for investors to stay the course and to have that long term perspective. Joining us tonight, a good friend of ours, Apollo Lupescu. He's VP at Dimensional Fund Advisors. Maybe more importantly, for our "Simply Money" purposes, he's known as the secretary of explaining stuff. Apollo, I'm sure you have some interesting perspective for investors on what we need to focus on during an election year, because you know those calls are coming. If this person gets into Oval Office, I'm getting out altogether.

Apollo: Yeah, moving to Canada, I'm getting out of here. Well, first of all, Amy, thank you so much for the invitation to be on this show. It is actually a great topic, because it is not only one that comes from investors, but also in our daily conversations. Lately, you know, I'm hearing more and more at dinner conversations, just going around elections. And I have to say, the one big thing that I have observed is that elections and politics, they tend to really touch our deeply held beliefs, our core identity as individuals. And because of that, I think elections and politics tend to be very emotional. And I want to start there, because there's nothing wrong with emotions. I think that's what makes us human, having these emotions. What I feel is that emotions are what makes us human. And as investors, at the same time, I feel it's good to acknowledge the emotions, and at the same time try to disentangle them from investment decisions. And make those investment decisions based on pragmatic reasons, such as looking at data and evidence rather than how we feel. And I've seen over and over that a lot of the folks that you mentioned, the ones they want to sell and move to Canada, whatever they want to do. Quite often, those decisions are not driven by extensive research of data, but rather how they feel emotionally. And you want to be cautious on that. And that's what I want to do today, is not really try to convince you that one party is better than another, or make you feel good or bad about your political views. Not at all.

My goal today is to look at the data. When you look at the evidence, what does it suggest as it pertains to investors and what we should do with our money? So that is the tag that I want to take, not the emotional side, but the numbers. What do the numbers say? While acknowledging those emotions, they're real and they're fine to have. And by the way, Amy, I do think that people ought to actually express those emotions by voting. First of all, go and vote. Secondly, get involved in a campaign if you really feel strongly about it. So there's nothing wrong with that. I just think when it comes to investing in money, we ought to be very careful not to mingle our emotions with our investment decisions. And when we look at the data, let me start with just a broad look at this fact that it is an election year. And in an election year, a lot of folks are concerned that the additional uncertainty is not good for the markets. And perhaps election years are something that should cause you a little pause, and maybe consider that let's get out, because election years can really be good for the markets. And we have good data in the U.S. stock market going back to about the 1920s. It's about 100 years of data. And when you look at these 100 years of data, and you examine the 24 different election years that we've had, what's so fascinating is that, out of those 24 different election years, 20 out of the 24, the markets went up in an election year.

Steve: Isn't that amazing?

Apollo: So the overwhelming majority of the years when we had a presidential election... And all presidential elections are major events. But in 20 out of the 24 election years so far in the U.S. history, since we have good data in the market, in the stock market, we have had a positive outcome for investors. And just to be very precise, the U.S. stock market can be measured in a variety of ways. And Dow Jones is probably the most publicized. What professionals typically look at is a broader metric called the S&P 500. So when I refer to the U.S. market, the stock market, it is the S&P 500. But we did have those four years when the market did go down. And perhaps there are some lessons that we can learn. So when did the market go down in an election year? Well, the first one was in 1932. And yes, we had an election, but it was also the year of the Great Depression. [Crosstalk 00:05:09] And then eight years later, in 1940, another election and another market downturn. But that was the year after Germany just invaded Poland, and now we're in World War Two. And then it took 60 years until Gore versus Bush, and we had a negative market return in 2000. And indeed, we had a pretty contentious election, but Amy, that year was also when the dot-com bust started to happen. And the last time it was in 2008, and certainly that was the great financial crisis. So what's so interesting when you look at the data, is that 20 out of the 24 years when we had presidential elections, the markets went up. And the four years when it did go down, in every single instance, there was something bigger going on in the world at that time, that might have caused the market to drop. So simply being an election year, I don't believe that should cause investors anxiety, because that's not what the data suggests.

Steve: Well, emotion is such a big factor in how people make decisions when it comes to investing. We talk about money being green, not red or blue. So we try to remove any kind of a political bias from when we talk about presidential elections, for example. And I love what you're bringing up with these black swan events, are the only four times that the markets actually went down during an election year. Because Chief Investment Officer of AllWorth Financial, Andy Stout, he put together a chart that I pull up in meetings when I'm working with folks, when they're spooked about the markets in an election year. And it does show that these numbers you're talking about line up. Now, I'm curious to hear about the four years after, and if there's any correlation that you've seen when it comes to who's controlling government, one side of the aisle versus the other?

Apollo: Yeah. So, absolutely. So we've looked at that. And let me start with just looking first at presidents, because certainly, the election that dominates the news is the presidential election. And rather than going back to 1920s, I want in my lifetime. So Steve, I am 55 years old, born in 1969, about to be 55. And in my lifetime, there was, you know, about nine different presidents who have completed terms. And what was interesting for me, was to look at the average return per year on an annualized basis during the different presidents, and their time in the White House and see what we can learn there. And to set a benchmark, a yardstick, in my lifetime, the S&P 500 has grown at an annualized rate of about 10% per year. So let's just use that as a yardstick. So going back now to 1969, when I was born that year, President Nixon was in the White House. And when he was there for about five and a half years, the market, in fact, did not grow, but the annualized return for President Nixon's five and a half years in the White House was negative 2.9% per year. So here's a President, a Republican that actually had a negative annualized, and his Vice President comes in for about three and a half years. And guess what? A Republican President now, the market skyrockets on average per year by 20.2% during President Jerry Ford, when he came in the White House after President Nixon left.

And then if you fast forward, then in 1977, President Carter gets elected, four years in the White House, the market goes up, on average, by about 11.7%, a little bit above average. And then for eight years, President Reagan comes in, and it's 15.8%. And I don't want to overwhelm people with numbers, but let me tell you this much. You know, the presidents that made the market go up or down, they're not really tied to a political party. Because we had three different Democratic presidents, and the markets went up in every single instance. Whether it was President Carter, President Clinton, or President Obama. In every single case, it goes up. And we had Republican presidents that the market certainly goes up, and quite substantially. So we don't see in the data that the markets are driven by the political affiliation of the president, not at all, not at all. And what's even more interesting, Steve, is that you have a president that is highly focused on business. And that would be, for example, President Reagan, well known for the tax cuts, and then just promoting business in general. And the market, you know, seems to have rewarded that. On average per year, the S&P 500 during the eight years of the Reagan administration went up by 15.8%. So let's just remember that amount,15.8%.

And then you take a president that is focused perhaps more on social programs, and that's President Obama, certainly known for Obamacare more so than tax cuts or, you know, business priorities. And during the eight years of the Obama administration, the markets went up on average, by 16%. You had President Reagan, 15.8, President Obama, 16%. They're virtually identical, even though a lot of folks are saying, well, listen, he's not focused on business. The markets are going to tank because you don't have a business friendly president. That's not what the data suggests. And one more thing. I'm not sure to begin with that presidents should receive credit or blame for how the market does during their time in office. And to me, I start with President George W. Bush. He actually cut taxes to long term capital gains, to dividends. Very business friendly. And you'd imagine that this is a great President for the markets. And yet, on average, for the eight years that he was in the White House, the markets dropped by 4.4%, the S&P dropped by 4.4% on average for eight years. So it's a negative 4.4, which is...you know, again, it just seemed like, oh, he was terrible for the markets. No, he wasn't. So should we blame him and say he wasn't good for the markets? Well, think about this, Steve. He walked in just as the dot-com was going bust. How much did he have to do with that? Nothing. 9/11 happened nine months into his term, and he walked off at the very bottom of the financial crisis.

Amy: And we say that often, Apollo. We say that, you know, the economy, the American economy, and I think there should be some piece in this, right, is bigger than this political office, regardless of whether it's the President of the United States or someone in Congress. I love though your perspective tonight on, it doesn't matter political party or even political agenda, markets are still going to do what markets are going to do. Great perspective from Apollo Lupescu. Thank you for your time.

Apollo: Yeah. And Steve, I'm going to wrap up maybe with one quick comment. You asked not only about the presidency, but the Congress as well. And I don't know if Amy and Steve, you remember about three and change years ago, we had a special election in Georgia in January.

Steve: I remember.

Apollo: And at that time, it was the two Democrats who won their races. And at that point, the Democrats controlled the White House, the Senate, and the House. And I think what's interesting about that, in my mind, was that it provided a natural experiment. What if you look at times when the entire government in D.C. is controlled by one party? Because you can't split hairs at that point. Well, they control this, but not that. No, they control everything. And you look historically to see, how did the markets do when one party controlled everything and compare with the other party? And to me, there was like a more natural experiment than trying to say, well, they had the Senate, but not the House, the White House, but not Congress. And back then, in 2021, I actually ran that study. And it's quite interesting, because if you look the 1920s, the Republicans had control of the Senate, the House, and the White House for 13 years out of the 90-plus years. And in those 13 years, if you average out a simple average of the market returns, which mathematically it's a little bit higher than the annualized, a simple average of the 13 years is 14.52%. So let's just remember that 14.52 as being again a yardstick. Because now what we can do is compare with the Democrats. When the Democrats had control of the White House, the Senate, and the House, how did the markets do?

And it turns out that during the same time horizon, 90 plus years since 1926, the Democrats controlled these three, the House, the Senate, and the White House, for 34 years. So quite a bit longer than the Republicans. And the question now is, well, you know, how did the markets do in those years? Because that would give you almost like a bit of a more definite answer onto who is better or worse for the markets, Republican or Democrats. And also because of those emotions that I mentioned earlier, I wanted to be very careful with this number, because I'm not going to give you the number kind of to try to make you feel good or bad about your views, or try to promote one party. No, not at all. It is simply the data. What does the data say? And we actually had other folks double check these numbers to make sure that it's correct. So for the Republicans, it was 14.52%. For the Democrats, on average, during the 34 years of their control, the markets went up on average by 14.52%.

Steve: Get out of here. That is amazing.

Apollo: It is identical to the second decimal, to the second decimal.

Steve: That's surprising to me.

Apollo: That was quite revealing to me, because it kind of goes back, that when you look at the data, there's nothing in the data to suggest that one party's better than the other, but rather that it's the emotions, it's how we feel that translates into what we want to believe. And why is that the case? I mean, first of all, if you think about the markets, those are companies. You buy ownership in companies. And the value of the ownership, whether it's Apple, or Microsoft, or McDonald's, Coca Cola...and the value and the ownership in these companies depends on what earnings, what profits, what cash flows will they give back to investors. And if you take a company like Apple, just to throw an example out there, well, what matters more for their earnings? You know, what products they have, what services, the strategy, how they execute it, or who's in the White House? What might matter more? And ultimately, I'm not here to tell you folks that politics and elections don't matter, but of course, they matter. What I'm here to tell you is that politics and elections are one of the many, many, many variables that impact the performance of a company. It is just not, in my opinion, a primary variable, one that you can directly single out and saying, the market behaves one way or another because of that variable.

And when it came really obvious to me, baking cookies with my daughter, because when you put in the eggs, the flour, the sugar, the butter, and you mix everything in, when the cookie is baked, you can't just break it apart and say, "Aha, I recognize the egg yolk in there." No, you don't. It's one of the many, many ingredients in there that it's indistinguishable once a cookie is baked. And I think that politics is pretty much the egg yolk in a cookie more so than the garlic in a cookie. It stinks it up badly, not that you can recognize it. No, you can't recognize it. It's the egg yolk in it, not the garlic. So because of that, again, I look at the data, and I would not suggest to anybody to make a move with your money because of the elections, because of politics, irrespective of of this. Because companies will figure out how to navigate whatever political waters are ahead of them. And ultimately, their main goal is to make money. And they're going to try to make money irrespective of who is in the White House or who controls Congress.

Amy: Great perspective from Apollo Lupescu, our friend of Dimensional Fund Advisors. You're listening to "Simply Money," presented by AllWorth Financial, here on 55KRC THE Talk Station.