Taylor Schulte

Politics & Investing Don't Mix

Published about 2 months ago • 2 min read

Hi Reader,

Today, I'm sharing some of my favorite investing and economic charts from the past month.

These charts cover topics like:

  • Market Drawdowns
  • The Middle East & Geopolitical Risk
  • Politics & Investing

Before we dive in...did you catch this week's podcast episode?

👉 How to Protect Yourself From Financial Scams (+ New Resources)

In this week's episode, I share a story about a couple who lost $2 million to an investment scam.

I also sharing (new!) resources to help protect your personal data in 2024.

Check it out on your favorite podcast app.

As I write this, the market is experiencing a 5% drawdown, the biggest drawdown so far this year.

Despite the fact that the market is still UP about 5% on the year, it feels like investors are starting to worry that this is the start of something bigger.

Maybe it is, or maybe it isn’t; there is truly no way to know.

But “what happens next” tends to be nothing more than a distraction from the long-term benefits of owning equities, as we’ll discuss next.

Drawdowns Are Normal

Here's the hard truth: Historically speaking, a 5% drawdown is nothing. The average annual drawdown since 1980 has been more than 14%. This means we should probably expect a bigger decline than what we’ve experienced thus far at some point this year. And we should expect the same thing next year and every year.

While market declines are never fun, it’s important to remember that enduring volatility has historically been well worth the discomfort in 100% of cases, with the average return over the period noted being more than 10% per year!

The Middle East & Geopolitical Risk

Whenever countries are in conflict, tensions naturally rise for investors. Over just the last couple of years, this has happened with increased frequency, including the Ukraine invasion, Israel/Gaza, and now, Israel/Iran. Our default response as investors is often to seek shelter, but should we?

As the chart below shows, there have been lots of worrisome geopolitical events since 1940, but the median performance in the twelve months following said events has been a positive 13%. While that doesn't offer us any guarantees about the current situation, the takeaway seems to be that these events are business as usual in the stock market.

Politics & Investing Don't Mix

It won't be long before politics will take center stage. When this happens, there will be countless predictions for what the election will mean for investors. These predictions are almost always wrong.

As evidence, I've found no better visual for political stock market surprises than the graphic below. A few stats stand out that deserve our attention:

  1. The top three performing sectors were the same under Trump as they were for Obama.
  2. Trump is best known for real estate, which was the second-worst performer during his tenure.
  3. Despite a focus on “green energy initiatives,” oil companies, in particular, have been incredible performers during the Biden administration.

The point is, we never know what will happen so we should never let our politics influence our portfolio decisions.

As I hope I've made evident through the charts above, Yogi Berra was spot-on when he said:

"It's tough to make predictions, especially about the future."

The world always has been and always will be an uncertain place. But progress has been the constant trend through it all.

As long as we collectively desire to make the world a better place—which I'd argue is what most people in the world rise in the morning striving to do—we should do well by focusing on what human intelligence, creativity, and innovation will likely mean for the future.

I hope you feel encouraged as we continue to work toward your most cherished financial goals.

If you have questions about these charts or anything else, hit reply to this email.

Make it a great weekend!

Stay wealthy,

Taylor Schulte, CFP®

When You're Ready, Here Are 3 Ways I Can Help You:

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🎙️ Stay Wealthy Retirement Show​. An Apple Top 50 investing podcast.

🏫 Retirement Podcast Network​. A safe place to get accurate information.

Taylor Schulte

Retirement and tax planning plain English.

I'm the host of the Stay Wealthy Retirement Show and founder of Define Financial, an award-winning retirement and tax planning firm. When I’m not helping people lower their tax bill, you can find me traveling with my wife and kids, searching for the next best carne asada burrito, or trying to master Adam Scott’s golf swing.

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