BONUS Episode | Pulse Check: The 2024 Election and Your Money

[INTRODUCTION]

Hilary Hendershott: Well, hey, Money Lover! Welcome to a bonus episode–it’s really more of a short interjection of Love, your Money®. I don’t do one of these every time some big event takes place. If I did, I’d rarely leave the mic. But I do find cause for chiming in when I can see something is sparking a lot of questions and curiosity, and potentially even concerns amongst my clients and community.

Hilary Hendershott: That something is the 2024 Presidential and Congressional elections which you know are officially in the books. As I’m sure you know, Donald Trump won the Presidency, and Republicans will now have a majority in the Senate and the House.

Hilary Hendershott: This isn’t the first time I’ve talked about the 2024 election. In fact, the first time was back in June before the election, when I recorded a 15 minute episode titled “Presidential Elections & Your Money.” I’ll link to it in the show notes here.

Hilary Hendershott: And in that episode I covered how geopolitical risks are already priced into markets, why the outcomes of elections, according to the data, don’t impact the markets as much as you think, how to think about current stock valuations and the importance of diversification, no matter who’s in the Oval Office.

Hilary Hendershott: I’m going to revisit a couple of those points today, and you can always go back and listen to the full episode at hendershottwealth.com/240, or just keep listening here.

Hilary Hendershott: So now at this point, I’ve been running Hendershott Wealth for and through more than five presidential turnovers. So I’ve had the opportunity to exercise a lot of mental acuity in evaluating implications of potential policies. And. I want you to know, the platform promises we’ve heard from the incoming administration are just that–words and theories.

Hilary Hendershott: They have not been put into policy yet. To discuss the implications would really just be talking about a future that hasn’t arrived yet. That means the advice I would give you is…

Hilary Hendershott: Drum roll, please. Do nothing.

Hilary Hendershott: Assuming you have a financial plan in place, including a well-constructed and diversified investment portfolio, stay the course of your financial plan until there’s a policy to react to and therefore action to take.

Hilary Hendershott: And that really is the conversation I’ve been having with my team and clients for the last couple of weeks, and it’s the main takeaway of the conversation I want to have with you today.

Hilary Hendershott: But here’s the thing. Whether or not the platform promises have come to fruition doesn’t change how we feel about everything, and our feelings have so much to do with financial freedom and our general state of being. And there’s still a conversation to have. And, I decided to scrap all the policy review for now to talk about the human piece, and how you might move through the days to come.

Hilary Hendershott: So let’s start here.

Hilary Hendershott: One. Whether you identify as red, blue, purple, or none of the above, we are all human. And if you’re listening to this podcast, you’re committed to creating financial freedom in your life. That’s our common ground. And that’s the ground we’re standing on today and every day in the future. There’s so much division and us versus them in the current landscape. And I want to focus on the places where we’re the same.

Hilary Hendershott: Two. You probably don’t know this about me, but in my twenties I went to work for public policy think tanks in Washington, DC and San Francisco. I was passionate about wanting to help design public policy that maximized social and economic mobility and disassembled frameworks that lead so clearly to corruption and malfeasance.

Hilary Hendershott: I believed at that time that that was my calling. But after physically lobbying in the houses of Congress, meeting with legislative aides, writing and publishing political action reports, and attending political protests, I did not find myself looking at positive changes or impacts that improve people’s lives. Instead, I saw a political machine that I couldn’t get on board with.

Hilary Hendershott: And I walked away.

Hilary Hendershott: I absolutely wanted to create policy change. I wanted to help improve the well-being of others. I wanted to see a world where everyone has the opportunity to thrive. I still want to work toward and accomplish all those things, and I had to accept that I wasn’t going to be able to make that happen from within the current system.

Hilary Hendershott: It was a little like trying to empty the ocean with a bucket.

Hilary Hendershott: Becoming someone who runs a company and leads a team whose impact I truly care about, and having channeled that energy here, plus being the mom of a young girl who’s had leukemia not once, but twice, has really helped me gain perspective.

Hilary Hendershott: My resources, my love, passion, ambition, intentionality, and time are best put to their highest use here, with my family, my clients, my friends, and you, my community.

Hilary Hendershott: I used to say, “Washington, DC chewed me up and spit me out.” But what it really did was give me an education, and I appreciate that education now. I still occasionally refer to that time in my life. But now, instead of the heartbreak I felt when I left policy work, I kind of laugh about it. It’s part of the path that led me here. I have a life I love, and I very much love this country.

Hilary Hendershott: So again, when it comes to your money. I don’t want you to act on campaign promises or potential policies.

Hilary Hendershott: I want you to act on actions and legislation which are at this time uncertain.

Hilary Hendershott: If and when policies or legislation are enacted in the coming months and years regarding taxes, student debt, healthcare, interest rates, social security benefits, etc., my team and I will be here to demystify those policies and give you insight into what actions you can take. We’re committed to staying educated about any legislative changes that impact your money.

Hilary Hendershott: And we take that responsibility really seriously.

Hilary Hendershott: But in this moment, none of those ideas have come to fruition, and I don’t want you to waste time speculating, because that’s not a good game to play.

Hilary Hendershott: What I do want to spend time on is, first, acknowledging that emotions are running high all around. I’m a big believer that you can’t talk about money without talking about feelings. And this podcast is about you being happy, satisfied, fulfilled and clear headed about your money.

Hilary Hendershott: And between the media headlines, candidate antics, polarization of our political parties, and more, there’s no shortage of feelings in the politics conversation.

Hilary Hendershott: I do have other episodes that go deep into the feels, like episode 255 with Jess Robson.

Hilary Hendershott: But the truth is, a good portion of my big picture message to you is, and always will be, that feelings–when it comes to investing for the purpose of building wealth–will too often lead you astray. And that’s true for all of us, including me and my team of investment professionals. And it’s true for you and the people you care about. So the focus of today is to acknowledge the feelings and to invite and encourage you to just stay the course of your investment and financial plans.

Hilary Hendershott: Of course I would be remiss in glossing over the emotional herd of elephants that’s listening to the podcast with us.

Hilary Hendershott: The feels, whether they’re anxiety or excitement or upset or hope, are real because your body and brain can’t tell the difference between a real or a perceived event.

Hilary Hendershott: That means whether you’re scared of a platform promise or eager to see things change, you’re having feelings about it.

Hilary Hendershott: And remember that there’s a difference between political messaging and enacted policy.

Hilary Hendershott: A lot of people are reacting to the politics in the moment, even though the policies aren’t real yet.

Hilary Hendershott: I’m not saying that we should all be waiting on the edge of our seats ready to jump into action the moment a new policy is enacted, because that really isn’t the case, either. 

Hilary Hendershott: What I am seeing and counseling my clients and you to do is take a breath, wait, and we’ll see.

Hilary Hendershott: I absolutely understand why you’d be feeling a little uneasy about the political changes coming in January or the public reaction to those changes, and your hard earned savings, anxiety and money don’t go well together, though. That’s why, I’m here to help demystify how elections impact the markets and give you some strategies to protect your portfolio in these uncertain times, regardless of your political affiliation.

Hilary Hendershott: Now let’s review some of the insights I shared in episode 240, which are timeless, evidence-based practices you can adopt to safeguard your wealth through the inevitable market ups and downs, whether they’re the result of a presidential election, global pandemic or unexpected life event.

Hilary Hendershott: Let’s start by talking about geopolitical risks.

Hilary Hendershott: The term geopolitical risks refers to how global events, like wars, elections and economic sanctions, impact financial markets.

Hilary Hendershott: I’ve heard from many people who are terrified of post-election violence, increased wars, and massive stock market drawdowns resulting from Trump potentially not fulfilling on campaign promises, or whatever else may come. But these are all unplaceable bets.

Hilary Hendershott: My main message here is that, counterintuitive though it is, geopolitical risks like the ones we’re feeling now, are already priced into markets. What that means is that to the extent the global community of investors who are very smart collectively is pessimistic about things/events/likely happenings, relevant stock prices have already fallen.

Hilary Hendershott: To the extent that global community of investors is optimistic about such things, stock prices have already risen.

Hilary Hendershott: In other words, what’s coming up on deck are not new scenarios.

Hilary Hendershott: It’s not different this time. Our markets have seen world wars, regional conflicts, political upheavals, and those markets have continuously evolved to factor those events into pricing. So what does that mean to you?

Hilary Hendershott: Well, it means there’s no investment related action for you to take. Just because you know conflicts overseas will eventually have a resolution, and that resolution may impact a region or a company, trading on that bet about that outcome is probably a fool’s errand.

Hilary Hendershott: I’m not saying it’s not intuitive. I get that part, and I’m not saying you’re not going to hear from the media that you should do it. You likely will hear those things. But I’m here as your voice of reason to remind you that markets price in known events, upcoming events–yes, events that haven’t happened yet–but events we know are on deck are likely to happen, and they do that instantaneously.

Hilary Hendershott: In fact, tens of thousands of investors have already beat you to the punch, and you placing your bet late is not a good use of your time or funds.

Hilary Hendershott: That’s the nature of what we call efficiently priced markets. You’ve heard the phrase, “the stock market is efficient.” That’s what that means. The bad news is you can’t trade on your hunches. The good news is you can’t trade on your hunches.

Hilary Hendershott: And this lesson, that global investor sentiment is priced into your stock portfolio almost instantaneously, is applicable to so many aspects of investing, including everything that companies have already been projecting they’ll put into the market next year, the year after, new trends, products, and technologies, right? Companies we already know are coming online, but aren’t here yet.

Hilary Hendershott: Companies that seem like they have a technology that will be disruptive. Those events, those facts, have already been traded on. And yes, even presidential elections.

Hilary Hendershott: Historically, markets are surprisingly and shockingly resilient. Well, actually, they’re predictably resilient, because they bounce back after every global event that’s happened. That’s right. World wars. The dot com bust, the Great Recession, Covid, and many, many more. Markets adjust and recover from shocks over time. That’s because stock market prices are driven by a thousand different forces, not just the ones you read about or the ones that seem front and center right now.

Hilary Hendershott: Again, stock prices are forward looking and risks are priced in long before we have time to read about them in the headlines and react on your stock trading platform.

Hilary Hendershott: So when you hear news that makes you think the sky is falling, remember: the investment markets already know.

Hilary Hendershott: But here’s a question to ponder. Setting aside the buzz around the election and the incoming administration, are you comfortable with the historical swings in your own portfolio? This is really the vital question, because if the answer is no, you might be in for a stressful time, no matter what’s to come in the months ahead. If you’re feeling uncertain, it might be a good time to schedule a conversation with a comprehensive holistic, fiduciary financial advisor.

Hilary Hendershott: Together, what you can do with that person is review the overall risk profile of your portfolio. If you’re not comfortable with swings in your portfolio, you might want to decrease your exposure–which is a way of saying how much you’re invested in–to stocks.

Hilary Hendershott: Of course, you do have to remember that rewards, meaning returns, follow risks. In other words, the more risk you take, the more reward you’re probably set up to capture.

Hilary Hendershott: Returns follow risk. So you can’t achieve the highest long term expected returns without exposure to stocks. I find that the vast majority of my clients get comfortable with staying the course after experiencing a full market cycle together.

Hilary Hendershott: So we go from where it is, to a down market, maybe a bear market, right, down 10, 20%, and then it comes back up. So they suffer through all those emotions of going down, and they listen to our messaging as it goes down, and as it comes back up and they realize they’re still whole, and then they’re pretty good. They’ve got their, what I call your “investing sea legs.” Sometimes it takes two cycles, but you get it.

Hilary Hendershott: It’s a lot like going to the gym to build muscle. You lift, and the next day, you hurt. That’s the pain of having broken down your muscle cells, and it’s akin to the pain of watching your stock portfolio occasionally dip.

Hilary Hendershott: Muscle pain is not why you go to the gym, but it’s a part of the process, because within a few days that pain goes away and the new, bigger, prettier, toned muscles show up.

Hilary Hendershott: In the stock market, maybe it takes a little bit more time than muscles, but eventually those dips turn into peaks that exceed previous account balances. And now that you’ve gotten comfortable with that cycle, the next time it happens, you just don’t have to be as anxious.

Hilary Hendershott: All right. So what does the data say about what happens in the stock market around the time of presidential elections?

Hilary Hendershott: Well, research from the Ken French Data Library, which includes decades of US stock return data shows us that there’s no consistent pattern of stock market performance following a presidential election. We have absolutely no historical evidence that the market can be expected to react in any particular way, whether it’s a Democrat or a Republican that takes office.

Hilary Hendershott: The stock market is actually far more driven by broader economic policies and global market conditions than who sits in the Oval Office despite what that person would, I’m sure, like you to think.

Hilary Hendershott: When I recorded episode 240 in June, I mentioned that there are people out there who were afraid of what would happen to the markets post election, and as a result they may be tempted to pull out their investments and hold cash in anticipation of a negative market event. And there are plenty of investors who did exactly that. I even had some of my clients reach out about doing that. I’m happy to say they did not. But do you know what actually happened?

Hilary Hendershott: The S&P 500 went from around 5,700 on November 4th to 6,000, just above 6,000, on November 11th. That’s a 5% jump. And those people missed out on that. And that’s real dollars.

Hilary Hendershott: The reality is that all the pre-election fears were already priced into the index. And then the new information–the election results–created new price signals that drove values up. This is a really great way to evidence the fact that markets are anticipatory. They’re forward looking, which means they react to expectations about how these policies will play out in the long run, often before the policies are implemented.

Hilary Hendershott: I know that might take a minute to really wrap your brain around, because it’s not what the candidates say. It’s not what the media says, and it’s often not what Wall Street says, but that is the evidence-based truth.

Hilary Hendershott: And the appropriate, prudent, and justified kinds of tactics and actions we’ll recommend you take when these policies evolve into laws in 2025 and beyond, most likely look like making changes in your tax deferrals into your company 401(k). You might pay more or less income tax on a particular type of income, be that ordinary income or capital gains.

Hilary Hendershott: You might get more childcare tax credit, which your tax preparer would help you implement on your tax return after the end of ‘25.

Hilary Hendershott: You might make changes in your estate plans because of new changes in the estate planning laws. You might choose to gift money to people while you’re alive versus leaving it in an inheritance based on new tax changes. You might donate money to charities to increase taxable deductions if they repeal the SALT limitations.

Hilary Hendershott: It’s almost never to make investment changes. Okay? So there’s certain kinds of actions that are reasonable and make sense after a law gets passed, and those actions are almost never run out and trade your stocks.

Hilary Hendershott: I do believe that one of the biggest long-term economic challenges is the government’s growing size. As you probably know, our elected officials in Washington have overspent for almost the entire history of the country. At this point, according to thebalancemoney.com, our national debt is now 122% of GDP.

Hilary Hendershott: We owe more than we earn, and with interest rates increasing, servicing that debt is an increasing burden as well. And if debt isn’t good in your finances–and you know it’s not–of course, it’s not good in our public finances, because it’s likely to lead to slower economic growth.

Hilary Hendershott: Globally speaking, though the US is better positioned than most developed countries, and should be more resilient to financial risks.

Hilary Hendershott: That said, I don’t recommend having all your investments in the US.

Hilary Hendershott: You probably want to diversify globally. That’s not an individual stock recommendation, but as an investor, I recommend that rather than thinking about political and economic risks, you keep your attention on how a company’s stock price compares to the earnings it generates. In other words, how expensive is that company compared to what it’s actually producing for you?

Hilary Hendershott: Currently, if you make that comparison in a US stock market, what we know is that US stocks are pretty expensive for the earnings they generate. US stocks have had more than a handful of banner years, and you wouldn’t run out and buy something for your home or your wardrobe if you knew the store was charging twice its retail value. But for some reason people like to do that with stocks. I always say stocks are the only thing Americans don’t like to buy on sale.

Hilary Hendershott: But the good news here is that international stocks and emerging market stocks are relatively close to historical valuation levels. In other words, buy the thing at the retail price or below it, please. Even in the US stock market, while large company stocks are priced high, smaller, and more value-oriented companies have valuations closer to historical averages, which could offer more attractive opportunities to buy.

Hilary Hendershott: The message here is that it’s important to diversify and avoid the temptation to chase the highest returns of last quarter. During election years, it’s really common to see shifts in what the media is covering, the drama of the day, and even the terrifying planned policies of the candidate you don’t support.

Hilary Hendershott: By diversifying your portfolio across different sectors, geographical regions, and asset classes–including stocks and bonds–you can buffer against these potentially negative outcomes.

Hilary Hendershott: For my clients we hold, as I’ve mentioned before on this show, a broad mix in their portfolios. We hold international stocks, small and large stocks, and high credit quality bonds. They even have some real estate investment trusts, REITs thrown in there, and research indicates that this diversification can provide a more stable growth trajectory.

Hilary Hendershott: Diversification, and the concept of diversification, doesn’t just include buying lots of different things. It also includes time diversification, in other words, being invested in this time period, the next time period, and the ones after that. It’s important to remember investing is a long term game.

Hilary Hendershott: Market dips and swings seem smoother if you take a big picture view, so keep that long-term perspective. That really is crucial, especially during election cycles which heighten emotional reactions.

Hilary Hendershott: The basic moral of the story is don’t worry, diversify, and remember, no one can predict the future– not a politician, not the media–but being informed and prepared, can help you navigate through it with confidence.

Hilary Hendershott: If you’re feeling unsure about your investment strategy or how to proceed in these uncertain times, I’d love it if you’d reach out. Reach out to my firm. We can have just a friendly chat. I can give you a second opinion. There’s no cost or obligation. We’re just having a meeting; a conversation to find out if we might be a good fit to work together.

Hilary Hendershott: You can just fill out my contact form at hendershottwealth.com/contact. That’s hendershottwealth.com/contact.

Hilary Hendershott: And finally, if you have questions or there’s something you want us to cover in a future episode, we’re always listening. And we always provide expertise and reason where we can. Email us at hello@hendershottwealth.com. I’m eager to hear from you. Until next time, keep your investment smart and your future brighter.