MINNESOTA LIVE:
We appreciate you watching Minnesota Live. Today is Money Monday, and with the elections coming up, you might be feeling concerned about what could happen to your money in the markets depending on what party takes control.
Today’s expert, though, says don’t let short-term political noise disrupt your overall financial plan. John Schwalbach with Freedom Financial Partners is here to explain how to invest your money for the long term.
John, nice to have you back.
JOHN:
Yeah, thanks for having me back.
MINNESOTA LIVE:
Good to see you. So let’s talk a little bit about folks who are investing their money and thinking about the election when it comes to their money. Is there reason for worry or concern right now, do you think?
JOHN:
Yeah. So first of all, elections matter and policy matters, and people do have strong opinions about who they want representing them locally and in Washington.
What we have to be careful of is not having our political outlook become our investment outlook. Our investment strategy should largely be based on our goals, our risk tolerance, and our time horizon. And history has some pretty compelling evidence to back that.
MINNESOTA LIVE:
So when you take a look at the market in particular, you have some data here to help give some perspective to this.
JOHN:
Yep. So this is a chart from Capital Group, and it goes back to 1933. What it’s showing is that the blue parts of the chart are the times when Democrats occupied the White House, and the red parts are when Republicans occupied the White House.
If you put $1,000 into the S&P 500 in 1933 and did nothing other than reinvest the dividends, by the end of 2025, that $1,000 would’ve grown to $31.7 million.
MINNESOTA LIVE:
Wow.
JOHN:
So we’re investing in companies, not political parties. And I think that the key is that companies really want to grow and innovate and create value for shareholders, regardless of who occupies the White House.
MINNESOTA LIVE:
So when you show your clients a graph like that, do they immediately go, “Oh, okay,” and it kind of puts them at ease?
JOHN:
It can help. But we are human, right? And so I think something that investors sometimes fight is that their political views can sometimes become their economic views.
And we have some studies to back this as well. J.P. Morgan put out a good chart on this.
At one point during the Biden administration, 41% of Democrats thought that the economy was good or excellent, compared to just 10% of Republicans. Well, let’s fast-forward to right now under President Trump, and that’s essentially flipped.
Forty-nine percent of Republicans think the economy is good or excellent, compared to just 10% of Democrats. But the stock market, again, tends to do well regardless of who is controlling the White House. And so we don’t want to let, again, our political views dictate our long-term investment strategy.
MINNESOTA LIVE:
I think that it’s sometimes easier said than done, though. I mean, for you to say that. But on the other hand, I’m just thinking the thing that’s moving the markets right now seems to be the situation in Iran.
JOHN:
Sure.
MINNESOTA LIVE:
And there’s probably a certain percentage of people who think if we get Democrats in control, the situation in Iran, we’ll get it ironed out, blah, blah, blah.
So I think people think three or four steps ahead when they think of politics—maybe not necessarily of that politician—but I think they’re trying to be a little bit too smart, maybe. Does that make sense?
JOHN:
Yeah, it does. And especially when you think about the balance of power right now and what that can mean for policy.
Because right now, what we have is called united government. So the Republicans control the presidency, the House, and the Senate, and that could change in November. People tend to get nervous when there is potential change that could take place in Washington, and it can impact policy decisions.
And so these are things that we have to be aware of. But regardless of if we have united government or divided government, markets have tended to have double-digit returns regardless of the configuration in Washington.
MINNESOTA LIVE:
Is there any specific information relating to midterms as far as investing goes and what we see?
JOHN:
Yeah. I think this is probably the most interesting chart and probably just the most relevant for the here and now.
So if you think about midterm elections, they do create uncertainty because we don’t know what the balance of power in Washington is going to be.
If you go back to 1950, there’s been 19 midterm elections, and the one year following the midterms, the market’s been up all 19 times.
And the average annual return has been 15.4%.
So again, I’m not trying to predict what’s going to happen after the midterms, but 19 for 19 has been a pretty good record going back to 1950. And it certainly, I think, can make the case that we shouldn’t be jumping in and out of markets because we’re concerned about the upcoming election or our preferred candidate maybe doesn’t win that election.
MINNESOTA LIVE:
That’s interesting, that percentage that you just told us. Is part of that because once there is certainty and there is a decision and we know who won the midterms, then it gives more stability to the markets because at least a decision has been made?
JOHN:
Yeah, I think that’s exactly right. Markets don’t tend to like uncertainty.
So once you know what the balance of power is going to be for the foreseeable future, the market reacts to that, companies react to that, and it tends to bring some stability to the market.
I think that’s why you’ve seen good long-term returns following midterm elections historically. Again, not predicting what’s going to happen.
MINNESOTA LIVE:
Yeah, sure. Well, I mean, we never know.
But it sounds like regardless of whether you’re entering the market and are very young or you’re toward later years in life and maybe your investing has changed a little bit, you think staying the course is probably the best thing to do right now.
JOHN:
Yeah. No doubt about it.
Again, policies are very important, elections are very important, but we can’t let those things drive our long-term investment strategy.
Our investment strategy’s got to be based on goals, risk tolerance, and time horizon.
And the thing that we come back and tell our clients all the time is that you have to invest with a long-term plan, buy great businesses, and try and separate your politics and your portfolio.
MINNESOTA LIVE:
Well, John, it was good to talk. Thanks for stopping by. And then after the midterms, we’re going to have you here and we’re going to hold you accountable every single day.
JOHN:
I’d love that. Thanks for having me.
MINNESOTA LIVE:
We’re going to do, “We told you.” Right?
JOHN:
That’s right.
MINNESOTA LIVE:
Good perspective. Thank you.
If you’d like to work with John, you can learn more about Freedom Financial Partners. Head to MinnesotaLive.com. We’ll put a link to their website right there.
