TSP investors seem are getting more aggressive, judging by the mix of funds they’re investing in. The safe but slow-growing G-fund is no longer the favorite. With analysis of what’s going on, certified financial planner Art Stein of Arthur Stein Financial joins the Federal Drive with Tom Temin.

Interview transcript: 

Art Stein
So many people asked me about the election and what it will mean for investments returns going forward after the election. And there’s a real split, the Democrats are panic that if Trump wins, again, that’ll be bad, and Republican clients are worried about if President Biden or some other Democrat wins, that that’ll be a disaster. And so there have been a lot of studies on this, I look at it every four years, because people do bring it up, although not quite with the level of concern that I feel like I’m hearing now. And basically there’s just no discernible relationship that you can come up with. And people have split the statistics a lot of different ways, Tom, but one, investment markets do not tend to do better with either Republicans or Democrats. There’s just no statistically significant difference. And that’s partly because there just haven’t been that many presidential elections by the standards of statistical significance. The other thing is, in my opinion, that looking at what happened before World War II, it’s just not so relevant to what’s happened since World War II, because now the Federal Reserve is much more powerful, much more interventionist. And there’s a lot more transparency in the investment markets, a lot of things are different. But just as an example, if we rank investment returns per year for each of the presidents since World War II, by far the best was President Clinton. The Dow Jones average 16% a year. Then we’ve got five Republicans and one Democrat who are in the 10 to 11% range per year, that’s Ford, Eisenhower, Trump, Reagan, and George H.W. Bush, and then President Biden where he’s average 11% a year. Three presidents were the market actually lost during their term, President Nixon, and George W. Bush and Jimmy Carter all had a negative rate of return during their presidency. So there’s just not much there to hang your hat on. One of the things, a lot of this is from a firm called Bespoke Investment Group, and they really did a deep dive this time around. They looked at what would happen if you only invested when Republicans were in office, or you only invested when Democrats held the presidency. And if you just looked at it like that, then you’d be much better off only investing when the Democrats were in office, you’d have about twice as much money as only investing when Republicans were in office. But if you just stayed invested, no matter which party held the White House, you would have 30 times as much money over the period, they looked at.

Tom Temin
Right. In any way the Republicans say if they’re doing well, it’s because of their policies. And the Democrats say if we’re doing well, it’s because of our policies. And if things happen, good or bad, sometimes they’ll blame it on the previous administration of a different party, or the party out of power will claim it’s what we did that’s helping this next guy in power, who’s of a different party. So it’s all this gamesmanship. I guess, ultimately, what this says is that the economy itself in the investment markets are resilient, depending on what policies the administration might pose.

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Art Stein
And the fact of the matter is, in today’s world, the Federal Reserve Board has a lot more influence over the economy than the White House and Congress. And you may think that’s a good or a bad thing. But I think that’s what’s going on. They looked at a couple of other things, one thing that I liked was whether stock market returns 12 months before an election where there was a sitting president running, an incumbent president running, did incumbent presidents were they more likely to be elected. So they looked at every time, going back to 1900, where that was the case, and 52% of the time of the stock market was positive before the election, the incumbent won. Well, 52% is a coin flip, so what good is that? And they looked at, suppose the Dow Jones declined before the election, well, then the incumbent lost only 13% of the time, and the rest of it just didn’t fit.

Tom Temin
In any way, you’re talking about percentages of small samples.

Art Stein
Very small sample. And the extraneous things going on are so important. Wars, revolutions, COVID. It’s just, there isn’t a relationship, except that there’s a very strong relationship to just staying invested and not worrying about who gets elected president, and letting that take care of it. And for listeners, I’m posting a blog, today or tomorrow, with a lot of these charts in it and statistics, if people wanted to look at that and take their own look at it.

Tom Temin
We’re speaking with Art Stein of Arthur Stein Financial, near us in Bethesda, Maryland. And therefore, I’m guessing that the best advice than at this point is just leave your TSP alone, maybe make some adjustments in the funds if you feel like that. But don’t pull out because you’re afraid of Trump, don’t pull out because you’re afraid of Biden, don’t double down for the same reason.

Art Stein
Yeah, exactly. TSP investors need to choose an appropriate allocation between the stock funds and the bond funds. And if it’s appropriate, then they should just stick with it. And time in the market is a much better strategy than timing the market, the money that TSP investors have in the stock funds should be for long term needs, not for money they need to take out the next year or too. But for the money that someone retiring at 65 is going to need money 10, 20, 30 years in the future. And that’s where the stock funds are very likely to outperform.

Tom Temin
I guess sometimes events can cause gyrations in the stock market. I don’t know what happened, I don’t remember when Kennedy was assassinated, President Kennedy back in 63, or whether the markets jittered in the last few days after the near assassination of candidates Trump, but those tend to be like knocking a top. It’s going to go to its natural momentum after the little shock is over.

Art Stein
Most of those, there was a dip in the market after Kennedy was assassinated. And then it recovered and just kept going up. And the big event in our lifetime was 2008 when we had that massive crash in the real estate markets. That definitely had an effect, but that was an economic effect, not a political event. And things like Brexit. I don’t know if you remember years ago, that was supposed to have a huge effect on the markets, it didn’t. All these things just, and even when President Trump was elected in 2016, the general feeling on Wall Street was that would cause a market crash. Not everybody said that. But really the stuff I read was, that’s going to be a major crash if he’s elected. And what really happened was that the market had been going down until three days before the election, three trading days, then it started going up. And clearly no one knew that Trump was going to win. And it just kept going up after he got elected. So if you read anything from that, it’s just the stock market does better when there’s no election going on. And there’s a certain, there might even be a reason for that. Because they tend to say the stock market doesn’t do well with uncertainty.

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