What Impact Will the 2024 Elections Have on Your Financial Plan?
How are you feeling about the upcoming elections?
Until about a week ago, I think that many folks might have had November on the periphery of their radar, especially if they don't live in a contested swing state. But the tragic events in Pennsylvania and the Republican National Convention in Milwaukee have probably changed that perception for all Americans. And as interest -- and emotions -- start running higher, it can become very difficult to separate your politics from your financial planning.
On today's show, we discuss how elections typically impact the financial markets and what kinds of mistakes investors should try to avoid as we head deeper into election season.
Elections cause volatility ... until they don't.
One thing that the financial markets hate is uncertainty. And the uncertainty around who the next president will be and what the next Congress will look like tends to create volatility. According to data from J.P. Morgan, since 1932, S&P 500 returns have averaged 6.2% during election years and 9.6% during non-election years. While nervous investors might focus on that 6.2%, the larger rate of return in off years tells us that once Wall Street does know who’s going to be in charge, it adjusts to that reality and the markets keep doing what, historically, they’ve always done: grow over time.
We should also point out that, so far, 2024 has been different. Despite all our political divisions, as I write this, the S&P 500 Index is actually up double digits for the year. That could be because, for only the seventh time in our nation's history, and the first time since 1956, the presidential race is a rematch. Investors may feel like they know what to expect from a second Trump or Biden term, and the familiarity of both candidates might be easing some of the usual election year jitters on Wall Street.
Finally, when assessing more recent annual returns, it's also worth noting that some big, mostly non-political events that rattled the markets did happen to fall in election years: the dot-com bubble bursting in the spring of 2000, the 2008 financial crisis, and the COVID-19 pandemic in 2020. One could reasonably argue that these external events had a far bigger impact on the markets than anxiety around any of those elections.
The parties are different ... except when they're not.
As this isn't a political podcast, let's narrow the scope of our analysis to our main topic, retirement, and the two biggest spending categories on most retirees' financial plans: health care and taxes.
When it comes to Social Security and Medicare, we advise folks to ignore almost all of the noise you hear about pending bankruptcy. Yes, on paper, the program will exhaust its excess reserves funds by 2036. But that's assuming that our leaders in Washington do nothing, which would not bode well for either party. I'm confident that whoever wins the presidency and control of Congress in November will want to avoid the wrath of senior votes and keep these programs solvent.
There's also a decent chance that taxes won't change very much, either. While the Tax Cuts and Jobs Act of 2017 is set to expire next year, one would expect President Trump to work with Congress to keep his lower tax brackets from reverting to higher levels. And if President Biden is reelected, he'll probably be working with a divided Congress that will want to preserve at least parts of current tax law. Moreover, one of the most significant parts of the Tax Cuts and Jobs Act was a permanent reduction of the corporate tax rate from 35% to 21%. Wall Street knows that figure probably isn't budging, no matter who wins.
Plan around you, not a president.
Even when we decide to change our president, senators, and representatives, it's very hard for those folks to get together and change laws. And while "conventional wisdom" might lead some folks to think one party is better for certain types of investments or fiscal policies than the other, market history just doesn't bear out the kinds of snap judgments and emotional appeals that flood our screens during an election cycle.
So, rather than organizing your financial planning around what might or might not happen in November, Keen Wealth encourages you to work with your advisor on preparing for the things that you know are coming in your life: buying a new car, moving into a new home, paying for your grandkids' tuition in the fall, or retiring in the next year. Once we've incorporated your life transitions and goals into your comprehensive financial plan, you should feel more confident about your ability to adapt that plan to whatever comes around the bend.
And if you do start feeling anxious about how world events might impact your planning, please call up Keen Wealth before you make any moves on your own. During these complicated times, my team can help you stay focused on what’s most important to your financial well-being now and in the future.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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