Merry Retirement Facts & Stock Market Commentary
by SGL Financial
Our 2 Cents – Episode #160
Merry Retirement Facts & Stock Market Commentary
Join us today as we remember the late Charlie Munger, a great investor, philanthropist, and businessman. Then, we’re getting in the holiday spirit on this episode of Our 2 Cents with some “merry retirement facts.” Finally, Steve and Gabriel share some thoughts on stock market trends and projections.
- Remembering Charlie Munger:
- If you read any business news, you probably heard of the passing of Charlie Munger.
- In honor of him, we’re sharing some of his quotes that are our favorites.
- Merry Retirement Facts:
- We often share some of the scary stats about retirement, but today we’re taking a cheerier look.
- The steady growth of IRA balances, increased savings among Americans, and the embrace of retirement savings by younger generations.
- How Elections Affect the Stock Market:
- While there may be some trends, it is difficult to predict market performance based on political outcomes.
- How much do elections actually affect the stock market?
- Plus, a quick recap of what the markets did over the last few election periods.
- Quick Market Perspectives:
- Vanguard’s financial market projections for the next 10 years.
- Highlighting the expected growth rates for different asset classes.
- The importance of diversification and the potential for international investments to outperform US equities.
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Podcast Transcript
Announcer: You’re listening to Our 2 Cents with the team from SGL Financial, building wealth for life. Steve Lewit is the President of SGL Financial and Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies and more.
Gabriel Lewit: Welcome and we are back with Our 2 Cents. You’ve got Steven Lewit, Gabriel Lewit, and producer Katie in the background of course, here to serve you with our daily dose of insight, wisdom, knowledge, and entertainment.
Steve Lewit: That’s it, folks. Get ready for us to rock and roll on all levels here.
Gabriel Lewit: I’m ready. I just took a sip of coffee, so I’m ready.
Steve Lewit: Yeah.
Gabriel Lewit: Okay. Well, we hope you’re doing well.
Steve Lewit: You are lit up.
Gabriel Lewit: And we hope you’re doing well and gearing up for a merry Christmas. If you celebrated Hanukkah, happy Hanukkah to you. If you’re a Festivus for the rest of us, happy Festivus to you.
Steve Lewit: Whoa, I like that.
Gabriel Lewit: That’s my Seinfeld reference.
Steve Lewit: I like that.
Gabriel Lewit: Happy New Year’s in case you don’t listen to the next podcast where we’ll probably wish you happy New Year’s, and all of the good things that this holiday season may bring from us to you.
Steve Lewit: Ditto for me. Nicely said, well said. Well said.
Gabriel Lewit: Thank you, thank you. All right. Well, today we’re going to start off with, I just realized, a semi-depressing topic.
Steve Lewit: After all of that good news, we’re going to talk about somebody dying.
Gabriel Lewit: Yeah, as I was saying that, I was like, “Oh.” Well, just more so a celebration of his accomplishments.
Steve Lewit: Well, he was quite an extraordinary person.
Gabriel Lewit: Yes. We’re talking about Charlie Munger, who was the Vice President of Berkshire Hathaway and Warren Buffett’s longtime friend and business partner, and he died in November 2023 at the whopping age of 99 years old.
Steve Lewit: I love it. He died young.
Gabriel Lewit: It’s pretty impressive and pretty incredible there because he was also pretty with it all the way up to 99 too.
Steve Lewit: Oh, when he was 97, he gave a talk at the shareholders meeting, so he was very current.
Gabriel Lewit: Yeah, yeah. So that’s not a lying on your bed, can’t do anything 97, 99. That was a going, going, going, Energizer Bunny 99.
Steve Lewit: And an extraordinary amount of wealth, not nearly as much as Warren Buffett, but billions of dollars that he earned before he actually became chairman of… What is it, Coke chairman?
Gabriel Lewit: I don’t know the full background of him.
Steve Lewit: What was he? Yeah.
Gabriel Lewit: Well, I know he was an Omaha native, and I’m just reading this. It’s not like I know this-know this. I’m reading this off for you guys. He left the University of Michigan to become an army meteorologist during World War II and then he got a degree from Harvard Law School. Met Buffett at a dinner party in 1959 and then joined Berkshire Hathaway in the 1970s and he was on Berkshire’s board and a couple other boards of various newspapers and Costco of all places. And a lot of people considered him to be a very pragmatic investor. He was an active philanthropist and he also, like Buffett, lived relatively frugally and gave millions of dollars to universities and other causes that he cared about.
Steve Lewit: Cool. Very cool. I have some quotes of him here. The one I like the best is, “The big money is not in the buying or selling, but in the waiting.”
Gabriel Lewit: You were supposed to save the best quote for last.
Steve Lewit: Okay. That’s not my favorite quote. Actually, my favorite quote is the first one. I’ll let you read it.
Gabriel Lewit: Well, if it’s your favorite, you should read it.
Steve Lewit: I love this quote and it’s the first time I’ve heard it. The other one I’ve heard a few times. Here’s what he said, folks. “I realized that if I just avoid all the folly, maybe I can get an advantage without being good at anything.” In other words, just staying out of trouble was enough.
Gabriel Lewit: There you go, yeah.
Steve Lewit: Yeah, I love that.
Gabriel Lewit: There’s some good points to that phrase, for sure. I like the next one here. “To the man with only a hammer, every problem looks like a nail.” I didn’t know that that was directly attributable to him actually.
Steve Lewit: Neither did I. Because that’s very common, a lot of people say that.
Gabriel Lewit: Yeah, I use that phrase a lot. That’s a pretty popular phrase. He had another one here. “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time. None. Zero.”
Steve Lewit: Well, how do you feel about that?
Gabriel Lewit: I read a lot, so I’m on board.
Steve Lewit: Okay. How do I feel about that?
Gabriel Lewit: You don’t read?
Steve Lewit: I write. I don’t read. I read a lot in-
Gabriel Lewit: Well, I guess we know, according to Munger, we know what that says about you, Steve.
Steve Lewit: Between the two of us, who is the wise one?
Gabriel Lewit: Oh. Well, I read a boatload. I mean, not so much like novels.
Steve Lewit: Oh, I read a boatload-
Gabriel Lewit: Not like novels anymore.
Steve Lewit: I read a business boatload.
Gabriel Lewit: I don’t think he means like fiction books.
Steve Lewit: I read business boatload of stuff, but-
Gabriel Lewit: You just said you read nothing.
Steve Lewit: Well, if I’m on vacation-
Gabriel Lewit: You can’t just back out of this now.
Steve Lewit: … I don’t pick up a book and read, but I read everything else that has to do with our business. That’s how I stay current.
Gabriel Lewit: Exactly.
Steve Lewit: Yeah, I’m not backing out.
Gabriel Lewit: Climbing out of the hole you dug for yourself.
Steve Lewit: It wasn’t a big hole. It was like a pothole.
Gabriel Lewit: Okay. Well, back to his final quote here that Steve stole the thunder of but, “The big money is not in the buying or the selling, but in the waiting.” How true is that?
Steve Lewit: It is words of wisdom. I mean, really words of wisdom that few of us follow. We’re so impatient that we don’t want to wait. We want returns today. We want investments to prove out next week. We want our cake two weeks from now. We don’t want to wait 10 years to see results.
Gabriel Lewit: Well, I’ll give an interesting example. There’s a client that comes to us and says, “Why is my portfolio down?” And we’ll say to them, “Well, that market’s down.”
Steve Lewit: The market is down.
Gabriel Lewit: “Well, what do we do about this? How do we get out of this? How do we fix this?” And it’s like, well, we have a good diversified portfolio, we’ve done the research, we picked the right funds. We wait. We wait for the market to come back up.
And that is, for some reason, a very hard thing for certain people that really struggle thinking, “Well, I’ve got to be patient and wait,” and there’s not some magical sell-buy transaction that magically makes you money always.
Steve Lewit: Look, two months-
Gabriel Lewit: And that’s what he’s saying here, “The big money is not in the buying and the selling, but in the waiting.”
Steve Lewit: How many calls do people get or advisors get two, three months ago saying, “Should I get out of the market? What’s going to happen? Next year is an election year.” We’re going to look at that. “What should I do?” And the answer really is, if you have a good portfolio-
Gabriel Lewit: And a good plan.
Steve Lewit: … and a good plan, why would you want to do anything other than follow the plan?
Gabriel Lewit: Well, as well as I’m Munger says-
Steve Lewit: As Munger said…
Gabriel Lewit: “The money is in the waiting.” Yep.
Steve Lewit: Yep, it is.
Gabriel Lewit: And I assume there’s an asterisk there, assuming you’re waiting on the right things.
Steve Lewit: Oh, of course.
Gabriel Lewit: Yes, of course. Okay. Anyways, we just thought we would share a little bit about him because he was quite a well-renowned figure and certainly keeping him and his family in our thoughts.
Steve Lewit: Definitely.
Gabriel Lewit: And just celebrating his successes.
Steve Lewit: And long life.
Gabriel Lewit: Yeah, and long life.
Steve Lewit: Long life. Terrific. All right.
Gabriel Lewit: Okay, well, let’s talk a little bit about-
Steve Lewit: He’s now my idol.
Gabriel Lewit: Is he?
Steve Lewit: No.
Gabriel Lewit: Oh, he could be.
Steve Lewit: But he could be.
Gabriel Lewit: Yeah.
Steve Lewit: I’d like to talk-
Gabriel Lewit: Although, I will say the one thing I didn’t like about his beliefs is he didn’t think that Bitcoin is going to become anything. He was very anti-Bitcoin.
Steve Lewit: A lot of people are. We should do a show on Bitcoin.
Gabriel Lewit: And I’m a little, I have a speculative side to me, not for my clients necessarily, but for me personally, where I have a little bit of money that I dabble, and I dabble that little bit of speculative money in Bitcoin and I think it’s going to go somewhere.
Steve Lewit: Kate, would you make a note? We need to do a session on Bitcoin. Okay, please?
Gabriel Lewit: We could certainly do that.
Steve Lewit: Yeah, definitely. Yeah, it is speculative. There are pros and cons. There’s a lot about it that’s really, really interesting. I think the problem with Bitcoin is it’s one of those things that’s evolving and nobody really knows how it’s going to be used in the future, but a lot of people think it will be, especially for a variety. I don’t want to get into it now, but we should run a show on that.
Gabriel Lewit: Sure, sure could. Sure can.
Steve Lewit: Okay.
Gabriel Lewit: All right, so we’ve got a different range of topics here lined up for you today. Steve hinted at one of them. We’re going to talk not… First things first here, we’re going to talk about the election year coming up ahead because we’ve started to get those questions. You know what those questions are, right?
Steve Lewit: Should I leave the country? Is there going to be a revolution?
Gabriel Lewit: Let’s not go there. Not political questions, please.
Steve Lewit: Oh, you mean the dull questions about will the market go up in an election year? What will happen? You mean those questions?
Gabriel Lewit: I don’t think they’re dull, but yes, the questions of what will be-
Steve Lewit: Not dull, not as exciting.
Gabriel Lewit: You’re on a roll here, Mr. Lew.
Steve Lewit: All right.
Gabriel Lewit: Here today.
Steve Lewit: I had coffee too.
Gabriel Lewit: Yeah. Well, we have questions obviously very commonly as we approach election years about how does the market impact my money during election years? So with that right around the corner here, we thought we would talk about that a little bit today. We’ve scoured the World Wide Web and gotten some data here for you, so we’re going to share that with you.
The other thing we’re going to talk about is what we’re calling Merry Christmas Facts. Okay?
Steve Lewit: And they are merry.
Gabriel Lewit: And by merry, they’re not so much Christmas-related, but they’re just facts that are positive and cheery.
Steve Lewit: Make you feel good.
Gabriel Lewit: Yeah, really unrelated to Christmas.
Steve Lewit: Yeah, the feel-good facts.
Gabriel Lewit: So, when I first found the article, I’m like, “Oh, Christmas facts, that would be fun,” and then I read it. I’m like, “Oh, they just mean merry like happy,” but then we decided we’re going to do it anyway. We’re going to call Merry Christmas Facts for you. We’re going to cover those.
Steve Lewit: Good news. These are good news, good-news facts.
Gabriel Lewit: Yes, good news. And then we’re going to talk about Vanguard released some upcoming projections for the next 10 years about various asset classes, and they revise these a couple times per year, and they’ve recently revised theirs and I thought we would share those a little bit with you as well because it’s similar to that question, what is the economy and the market going to do next year in an election year? Similar questions are where’s the market going over the next seven to 10 years based on where we’re at today? We hear people interested in learning more about that.
Steve Lewit: Definitely.
Gabriel Lewit: So that’s what we’re going to do.
Steve Lewit: Well, let’s go.
Gabriel Lewit: All right. So I thought we would start with our merry retirement facts for you. These are basically good-news facts as we talked about. I’m going to give you the first one. IRA balances have grown steadily over the last decade.
Steve Lewit: Yeah, and that’s really important. It kind of ties into the second one too, which is near retirees are saving at impressive rates. There’s a lot of savings going on. What’s really interesting about that is that a lot of savings were depleted during COVID and in 2022 in the market collapse, so it’s heartening to see that savings are on their way up throughout the economy.
Gabriel Lewit: Yes, indeed. And I think I just realized this, isn’t there… Is it “The 12 Days of Christmas”? Is that the song? Yes, that’s why they said, “12 Merry Retirement Facts.” I get it now.
Steve Lewit: “On the twelfth day of Christmas, my true love…”
Gabriel Lewit: I’m following along here. Okay. So yes, number one, IRA balances have grown steadily. If you can turn this into a song, Steve, that would be pretty impressive.
Steve Lewit: No, I was not-
Gabriel Lewit: You’re going to do it? I thought you were almost-
Steve Lewit: I almost did it but I-
Gabriel Lewit: You were going to bust into song for us there.
Steve Lewit: … I decided that maybe not now.
Gabriel Lewit: Okay. Number three, Gen Z has already embraced the IRA.
Steve Lewit: All right. Wait, wait, wait, wait, wait. Who is Gen Z?
Gabriel Lewit: Gen Z is younger than the Millennials.
Steve Lewit: How old is a Gen Z?
Gabriel Lewit: Gen Z, I’m guessing, is under 28.
Steve Lewit: It is. Kate, what-
Gabriel Lewit: Roughly something like that.
Steve Lewit: Kate had to Look that up for me, and Gen Z are kids 11 to 23? 26.
Gabriel Lewit: 26?
Steve Lewit: You were good.
Gabriel Lewit: Oh, 26.
Steve Lewit: You were close.
Gabriel Lewit: Okay, yeah.
Steve Lewit: I had no idea who Gen Z was.
Gabriel Lewit: Yeah, yeah. Gen Z is-
Steve Lewit: I can’t keep track of them.
Gabriel Lewit: It’s the one after Gen Y.
Steve Lewit: Yeah, it is. That’s brilliant. Munger would love you.
Gabriel Lewit: I read that up in a book. I’m kidding.
Steve Lewit: Yeah, brilliant. My son, so brilliant.
Gabriel Lewit: All right. So yeah, Gen Z’s already started to embrace the IRA. Significant spikes from Gen Z in starting to invest for their retirement, even at the younger age of 26 to 11, which I assume it’s not the 11 year olds starting their IRAs.
Steve Lewit: I doubt it, I doubt it.
Gabriel Lewit: Probably not, yes.
Steve Lewit: That’s who Gen Z is.
Gabriel Lewit: All right. The next merry piece of news here, number four is that most Americans have increased their savings so they have more to complement their future Social Security income.
Steve Lewit: Yeah. So the fact, I haven’t seen the recent facts, but the last facts I saw were that 60% of people in America live only on Social Security.
Gabriel Lewit: Something to that effect, yeah.
Steve Lewit: Something to that effect. And what this is saying is that more people are gathering assets over and above their Social Security to give themselves a better life, which is great. Great news.
Gabriel Lewit: Yeah, absolutely. I mean, it doesn’t say how much they’ve saved, but certainly some savings is better than no savings. Would you agree?
Steve Lewit: Any savings is better than no savings.
Gabriel Lewit: There you go, exactly.
Steve Lewit: Some, little, a tiny bit, anything. Now this one is like an advertisement for us. I’ll let you read it because you’re good at advertising.
Gabriel Lewit: The number five?
Steve Lewit: Yeah.
Gabriel Lewit: Well, it says Americans with financial advisors have very strong Social Security knowledge.
Steve Lewit: You bet they do.
Gabriel Lewit: They sure do.
Steve Lewit: Because we teach them everything about it.
Gabriel Lewit: We certainly do.
Steve Lewit: We tell them when to take it and when not to take it. We tell them that it’s not going to run out. We tell them that they’re going to get the full amount. We tell them all of that and we teach them.
Gabriel Lewit: Yes. It says here there is a nationwide survey that said 21 social security knowledge items that were questioned or evaluated. Only eight were answered correctly by respondents at least 50% of the time. However, those with financial advisors answered a much higher percentage of questions correctly across 20 of the 21 statements, which is pretty good.
Steve Lewit: We are responsible for rising or raising the intelligence level of our community.
Gabriel Lewit: We most certainly are.
Steve Lewit: We are great.
Gabriel Lewit: Yes. I hope you guys know we’re having just a little fun there.
Steve Lewit: We’re having a lot of fun.
Gabriel Lewit: Tooting our own horns. Okay.
Steve Lewit: Of course.
Gabriel Lewit: Number six of our 12 Merry Facts, we’ve got legacy giving efforts among workers and retirees are going strong, and Schwab Charitable granted more than $5 billion in philanthropic causes in fiscal year 2023, which was an 8% increase from the prior year.
Steve Lewit: Yeah. Now, that’s really interesting. I wonder about you, Gabriel, but in the folks that I’m working with, I think I’ve seen a little bit of an increase in charitable giving, but not that drastic. And yet this is one of the 12 merry whatever it is, whatever the… Have you seen a substantial increase in giving for your clients?
Gabriel Lewit: Probably along an 8% increase. I mean, not like… I hadn’t statistically measured it, but it’s a little more than before maybe.
Steve Lewit: Yeah. My clients are-
Gabriel Lewit: Grinchy.
Steve Lewit: Grinchy. I have to talk to my client base. Hey, guys out there, let’s get on the bandwagon and give some more.
Gabriel Lewit: Well, I do think some people think that you have to, if you’re going to be charitable, you have to be very charitable with big dollars to make a difference.
Steve Lewit: No, you give $50 bucks.
Gabriel Lewit: But you could… Yeah, I’ve got a couple clients. They donate like $100 bucks a month to charity or they do some Save the Children thing or they do… What’s the one with the cats, the commercials where it’s always playing the music and the sad dogs? You guys know.
Steve Lewit: I know exactly.
Gabriel Lewit: “In the eyes of an angel,” they’re singing the sad song with the puppy dog eyes on the screen?
Steve Lewit: I don’t remember. I know the commercial, I don’t remember the name of it.
Gabriel Lewit: Yeah. Well, my point is help the poor doggies out, you know?
Steve Lewit: Katie’s going to work on that one.
Gabriel Lewit: Are you going to sing this one for us?
Steve Lewit: No, I’m not going to sing it.
Gabriel Lewit: Yeah, okay. Oh, Sarah.
Steve Lewit: I’m still working-
Gabriel Lewit: Sarah McLachlan’s ASPCA commercials. Yes, there we go. Okay.
Steve Lewit: Yeah, I’m still trying to work on the other song I’m designing for you.
Gabriel Lewit: Oh, goodness. Okay, seventh merry fact here. We’ve got healthcare costs inflation is finally slowing, it appears. So for the first time in a decade, it stayed flat, which is less than increasing.
Steve Lewit: I hope that was you and not the article.
Gabriel Lewit: That was me, yes.
Steve Lewit: Okay. Yeah, flat is normally-
Gabriel Lewit: Well, finally slowing meant it didn’t mean it was going backwards, but it didn’t raise the costs.
Steve Lewit: Yes. Flat means just that, it didn’t go up.
Gabriel Lewit: Yes. So the inflation was flat for healthcare.
Steve Lewit: I’ll take it slow with you, but that is great news.
Gabriel Lewit: Yes, yes.
Steve Lewit: I’m really surprised at that actually, so we’ll see what next year delivers.
Gabriel Lewit: Now, Fidelity, in not so merry news, still estimates with that same set of data that you would need about $157,000 over your retirement to pay for all your healthcare and medical expenses.
Steve Lewit: That is lower than the one… Is that a single? I think that’s a single person.
Gabriel Lewit: That’s a single person.
Steve Lewit: Because they had, for a couple, $352,000 a couple of years ago. I think that’s about a little bit lower, a little bit lower. Yeah.
Gabriel Lewit: Anywhos, but the good news is it didn’t get higher much this last year. Okay.
Steve Lewit: A lot of that has to do with drug costs coming down.
Gabriel Lewit: Yeah. Okay. Our eighth merry fact here is Americans are more widely embracing the opportunity to save at work. So it’s showing a record-high participation of 83% in workplace retirement plans according to Vanguard, How America Saves.
Steve Lewit: Yeah, that kind of connects with the two savings things we did earlier. Yep.
Gabriel Lewit: It’s saying number nine, merry fact, there’s more readily available retirement advice in the world, whether it’s through advisors or robo-advisors or other services. More advice is getting into the hands of people. Number-
Steve Lewit: Which is great, but it also has another side to it is it makes it more confusing.
Gabriel Lewit: To some extent.
Steve Lewit: To some extent, yeah. So you got to be careful there.
Gabriel Lewit: Number 10, more workplace savers can pursue tax diversification in their retirement savings. So there’s more people saving in after-tax Roth accounts than there were in the years past, which is a good idea.
Steve Lewit: Excellent idea, yep.
Gabriel Lewit: Yep. The number 11 here said the COVID shock has basically been all but recovered from completely at this point.
Steve Lewit: Yeah. Supply chains have opened up, money is flowing better, more fluidly. A lot of good things have happened, which is one of the reasons the economy continues to do well and the stock market is up.
Gabriel Lewit: And last but not least, younger retirement savers are getting richer.
Steve Lewit: What does that mean?
Gabriel Lewit: It means their accounts are increasing.
Steve Lewit: All right. Okay, I don’t…
Gabriel Lewit: Maybe they were stretching for the 12th merry fact.
Steve Lewit: I think they dug this one up. “What do we do for number 12? Well, let’s put this in.”
Gabriel Lewit: I mean, one would assume that one’s accounts would grow over time.
Steve Lewit: If you’re saving.
Gabriel Lewit: Yes, if you’re saving.
Steve Lewit: Right, got it. Well, I feel merrier now that we went through all of those. I feel on top of the world.
Gabriel Lewit: Well, it’s interesting. It’s interesting. We often talk about retirement problems, right? I know we do. You go to challenges, risks, problems. So here we were spreading some merry cheer of good news for those out there this holiday season.
Steve Lewit: Yeah. You always talk about the glass half full and half empty, and I know you’re a glass-half-full guy, but when we do planning, we’re looking for problems. We’re saying, “Where could something go wrong and how can we protect assets against things going wrong?” So we are always talking about problems, but this is nice. It was a good selection, Gabriel.
Gabriel Lewit: Well, thank you. Thank you.
Steve Lewit: You’re very welcome.
Gabriel Lewit: All right. Well, let’s talk. This is really a-
Steve Lewit: Let’s get to press now.
Gabriel Lewit: We’re actually very off the wall on this show, just kind of all over the map, but that’s okay. Sometimes we have deeper dives and we are just on one topic. Today, we’re going around the horn here on all sorts of different things. So let’s talk about the stock market in an election year. How about that?
Steve Lewit: Oh, we’re going to go there? I thought you’re going to Vanguard.
Gabriel Lewit: Well, we’ll do this one first. We’ll do the Vanguard one second.
Steve Lewit: Okay. Let me get my papers, all the papers you gave me.
Gabriel Lewit: Sort away, my friend.
Steve Lewit: Sorted. I’m ready.
Gabriel Lewit: Okay. So the question here we started getting from, as I mentioned, a lot of clients is what’s the market going to do next year? Well, of course, if you know anything about Steve and Gabriel Lewit and SGL Financial, our first answer to that’s always going to be, “Well, we do not have a crystal ball.”
Steve Lewit: Actually, that’s not true. I have a crystal ball.
Gabriel Lewit: Oh, it’s broken.
Steve Lewit: It just doesn’t work very well. Yep.
Gabriel Lewit: That’s right, okay. You’ve got one, it just doesn’t work, yes. So we cannot predict the future. We can’t out-market time. And even if you have all sorts of great data, like we’re going to share with you here momentarily, it still doesn’t mean you should market time as it’s very risky and doesn’t necessarily mean you’re going to generate higher profits or income as a result of market timing. Boom, there’s our disclosure.
Steve Lewit: Okay.
Gabriel Lewit: All right. So how do election years impact the stock market? Well, let us give you some data point here. And just because these data points have happened in the past of course doesn’t mean you should immediately go out and take action on this. Okay.
Equities. In the year leading up to a presidential election, equities gained an average of less than 6%. During non-election years, the average is more than 8%.
Steve Lewit: Yes. And that actually surprised me. I thought the election year would have a bigger growth rate because the administration in that year is trying to support the market.
Gabriel Lewit: Yeah. So the general data that was found is that the market performance is more muted in the year prior to an election.
Steve Lewit: But now after the election, what happens?
Gabriel Lewit: Well, basically I haven’t gotten there yet.
Steve Lewit: Oh, sorry, sorry.
Gabriel Lewit: Yeah, I don’t want to shuffle around too much in my paper here. But bonds also similarly had a slightly lower return prior to an election than they do in years not prior to an election. So I just thought that was interesting.
Now, what are you going to do with that information, Mr. Lewit, if you have that?
Steve Lewit: You know, I’m going to tuck it in and place it in a little box and really-
Gabriel Lewit: Does that mean you don’t go and invest?
Steve Lewit: Well…
Gabriel Lewit: So, it’s hard to really say what to do with that, but everybody likes to know, and that’s the news to put you now in the know.
Steve Lewit: Well, here’s the deal: the real money is in the waiting. You heard that before, right?
Gabriel Lewit: No.
Steve Lewit: You’ve never heard that, right?
Gabriel Lewit: No.
Steve Lewit: Yeah. So this is where I was headed. My understanding, and I don’t have this details, is that the market actually performs better after the election than before the election. And this piece of data here says if a new party is elected to the presidency, the stock market returns average 5%. When the same president is re-elected or the party retains the presidency, returns were slightly higher than 6.5%. So something about the election may be disturbing, nobody knows-
Gabriel Lewit: Stability.
Steve Lewit: Stability, it’s unstable before the election.
Gabriel Lewit: Well, and this has… What I’m about to say seems political, but it applies to both sides equally, so it’s not me going down one path or the other.
But what’s interesting is when you ask individual people what they think about the stock market and how it will do in the year following, they will say… Well, if they’re a Republican, they say, “Well, if a Republican gets elected, it’s going to be booming, and if so-and-so on the Democrat side gets elected, it’s going to tank the economy.” And then if you ask a Democrat, they say, “Well, if Republican gets elected, it’s probably going to tank the economy, but if Democratic so-and-so stays, it’s going to be booming.” It’s basically people’s self-bias, their thoughts on what the market’s going to do based on their political affiliations.
Steve Lewit: Look, when Trump was elected the first time, people were bailing out of the market thinking it’s going to straight down and it went straight up. So you don’t know. When Biden was elected, everyone said, “Oh, the market, terrible, terrible, terrible.” It’s been pretty good. So you don’t know and nobody knows. And it’s such a hard message to hear because we all want to know. We want to think we know because it gives us stability to know something, and we don’t.
Gabriel Lewit: Well, and there’s nothing concrete enough here for you to, not that there ever really is concrete enough data to do market timing because it’s risky and speculative, but there’s really nothing here that’s going to say, “Okay, you should go do X or go do Y or go do Z because of the data here with prior elections.”
So let’s give you just a little bit of more data here. In 2020, we’ll go backwards, Joe Biden got elected. The performance of the S&P in the 12 months prior was 7.5%. The 12 months after was 39.9%.
Steve Lewit: Yeah, nobody expected that.
Gabriel Lewit: Okay. Now then you say, “Well, that was the COVID recovery,” which there’s some truth to that.
Steve Lewit: Yeah, but still, that’s the performance.
Gabriel Lewit: Yeah. Donald Trump, 2016, 1.7% 12 months before, 21.5% 12 months after.
Steve Lewit: Yeah, and he was such a controversial figure. I remember having all these conversations with clients saying, “Look, it’s going to tank. It’s going to tank.” And all the pundits, everybody was tanking, and then it goes straight up.
Gabriel Lewit: 2012, Barack Obama, 13.1% 12 months before, 24.4%, the 12 months after. You’ve got Barack Obama 2008, -35.8%. the 12 months before, that was the 2008 crash, 8.2% the 12 months after.
We’ll just go a little bit back here. 2004, George W. Bush, 7.6% the 12 months before, 6.4% the 12 months after. And then 2000, George W. Bush, 4.5% the 12 months before, -21.9% the 12 months after, which is the dot-com crash.
Steve Lewit: That’s correct.
Gabriel Lewit: Now, here’s what’s interesting. I think a lot of people attribute immediate successes in the market to who became elected as president. I don’t think it’s that directly correlated personally. You look at George W. Bush. He gets elected, the dot-com is bursting literally as that takes place. That’s not-
Steve Lewit: That’s not on his watch. I mean, it’s on his watch, but he had nothing to do with it.
Gabriel Lewit: Yeah. Joe Biden gets elected in the middle of a pandemic recovery. I think that was 2020, right? Was that? Yeah. And market’s recovering because of the pandemic, and again, not directly attributable to Biden.
Steve Lewit: If the market goes up, every president says, “It has nothing to do with the guy before me. I did it all.”
Gabriel Lewit: Yeah. It’s just funny with politics, man. But that’s our data we wanted to share with you here. What does that mean for you? I don’t think it means a whole heck of a lot, which is what I say to most of my clients that ask me that.
Steve Lewit: I just think it’s data and it’s fun to look at.
Gabriel Lewit: Yeah, it’s interesting.
Steve Lewit: I tuck it in that same little space in my head that I can forget about it.
Gabriel Lewit: Yeah. And then we go back to building well-diversified plans, well-diversified portfolios and-
Steve Lewit: And investing wisely.
Gabriel Lewit: And investing wisely and not market timing, yeah. All right.
Steve Lewit: Really, we have a few minutes.
Gabriel Lewit: We do.
Steve Lewit: Can we get to this?
Gabriel Lewit: Yeah.
Steve Lewit: I really am intrigued by these numbers.
Gabriel Lewit: Now, let’s go a couple of years beyond next year’s election. So Vanguard does a study that we like to reference periodically where they forecast the next 10 years and what they anticipate various rates of returns being for different asset classes.
I always think this is good to review once, twice a year. Why? Because in your plan, you have assumptions of how various accounts are going to grow. How do you choose what those growth rates are going to be? It should be weighted in some sort of factual data.
The way we do that here, and we have some clients that ask us about this, is we look at Vanguard, BlackRock, Schwab’s, Fidelity’s, Morningstar, all these big research firms have 10-year, forward-looking expectations of what they think asset classes will do based on economic environments and interest rates and valuations, but they can start to give you a sense of what to expect, and on a more macro level than things like what’s going to happen next year in an election year?
Steve Lewit: Yeah, 10 years is a reasonable projection time and there’s a lot of data that can be drawn out of history, and the current economic data to forecast, understand they have these huge economic models driven by computer programs and these models are so sophisticated, and Vanguard, I think, Gabriel, I would say Vanguard probably is the most accurate of the ones that we’re looking at.
Gabriel Lewit: I think, yeah, they generally do a very good job and have been proven to be pretty close with their projections. So how about you say a couple of the big things that jump out of you here, Dad, and I’ll say a couple of things and then we’ll wrap things up here for today?
Steve Lewit: Well, I think what’s really, really interesting to me here is that US equities, most of the portfolios that we see, folks, that are self-managed portfolios are concentrated heavily in US equities. And Vanguard is projecting US equities over the next 10 years to grow between 4.2% and 6.2%. Historically, if you take the S&P over a lifetime period, it’s over 8% or 9%.
Gabriel Lewit: The longer back you go, the higher it is initially, yeah.
Steve Lewit: Right. Over the past 20 years, 23 years, the S&P has grown at about 5.7%. So those ideas of, “Well, I’m going to beat the S&P because it’s at 8% or 9%” are unrealistic.
Gabriel Lewit: Yeah. And what confuses people too is if you look at your 401(k) statement, you’ll see 10-year history of the S&P and you’re going to see like 12, 13%. There was a huge bull market there that started right at the starting point of that 10 years. And if you go back to 10 years before that, it was a very low-performing period. So people look at and say, “Well, 10-year history, 10, 12%. I expect my large caps to do 10, 12%.” This is painting a very different picture that I think is important to be aware about.
Steve Lewit: Yeah. The second piece that really struck me is that emerging markets, which has always been volatile, is that 6.6% to 8.6%, better than the US. Global ex-US is 7% to 9%. Real estate is 4% to 6%. Leave real estate out for a second. What this data is saying is that if you had a portfolio and you don’t have international in the portfolio of all kinds, you’re going to miss the higher growth rates because those are expected to beat the growth rates of the US.
Gabriel Lewit: That’s what this is saying, yeah.
Steve Lewit: That’s what this is saying.
Gabriel Lewit: And a lot of people tend to ignore-
Steve Lewit: Focus on U.S.
Gabriel Lewit: … ignore international, so we always talk about the importance of a well-diversified global portfolio.
Steve Lewit: Yeah. During the years 2000 to 2010, internationals way outperform the S&P, which made nothing, zero, during that period of time.
Gabriel Lewit: Yeah. And Vanguard’s also saying here, bonds more in the 4% to 5% range, 4.8% to 5.8% even, which seems a little high to me, quite frankly, based on current bond rates.
Steve Lewit: Yeah, but bonds have improved after a disastrous 2022 when they had their worst loss in history of 16.6%.
Gabriel Lewit: Yeah, yeah. So we thought we would share that with you. If you have questions or want to see the whole report, you can reach out to us here at info@SGLfinancial.com, email us, call us, (847)499-3330, or go to our website and you can fill out a contact request form. We’d be happy to respond to you.
Steve Lewit: We should have merry SGL facts, like the 12 Merry SGL Facts.
Gabriel Lewit: There you go. Maybe next time.
Steve Lewit: Next time.
Gabriel Lewit: Well, we are wishing, from all of us to you, if you are a Christmas celebrator, merry Christmas to you. And we, I believe, are planning on having our next show next week, and we’re going to have a shorter week here at the office due to the holidays, but we’ll hopefully get another one here to wrap up the year. That would be our last show of the year next week.
Steve Lewit: Yeah. Looking forward to it.
Gabriel Lewit: And I don’t know what we have planned just yet, but we’re going to make sure it goes out with a bang.
Steve Lewit: A firecracker.
Gabriel Lewit: Maybe we’ll just get a drum or something.
Steve Lewit: Folks, have a wonderful holiday. We’ll talk to you next week.
Gabriel Lewit: Take care now. Bye-Bye.
Steve Lewit: Bye.
Announcer: Thanks for listening to Our 2 Cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at (847)499-3330 or visit us on the web at SGLfinancial.com, and be sure to subscribe to join us on next week’s episode.
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