Alabama financial pro gives fascinating insight into what prez race means for investments

(Video above: Cliff Sims interviews Jeff Roberts)

The financial markets don’t like uncertainty, and few things create more uncertainty than an open presidential election.

With that in mind, Yellowhammer Radio host Cliff Sims on Wednesday interviewed Jeff Roberts, who he called “the most knowledgeable and exceptional financial professional I know,” to get his take on what the presidential election means for investments.

A lightly edited transcript of their conversation can be found below. The full interview can be heard in the video above.

Subscribe to the Yellowhammer Radio Podcast on iTunes. Learn more about Jeff Roberts at JeffRobertsAndAssociates.com.

Cliff Sims

What does the U.S. presidential election mean for market volatility? Is there any data on the performance of the stock market during election years that we can look back on?

Jeff Roberts

There is. Our good friends over at the Wells Fargo Investment Institute did a report back in February of this year and it gives some insights about the S&P 500 index and election years dating back from 1933 until 2014.

(…)

If you look at the years when there is an open election, verses a re-election, the performance was dramatically different.

An open election is what we have right now — the election is going to result in a new president being named, period, not matter what. The previous president is not running; it’s new candidates altogether.

A re-election is what we had four years ago; a sitting president running for re-election.

If you look at the re-election years, the performance of the stock market, not including the reinvested dividends, is 9.7% on average. But when you look at the open election years the rate of return is 1.2% on average. There is a dramatic difference between those two.

Cliff Sims

What is it that causes that much of a deviation between open and re-election years?

Jeff Roberts

It’s anybody’s guess.

Generally speaking, the markets don’t like uncertainty. When you’re looking at an open election year, obviously there’s a lot more uncertainty… That’s reflected in the markets performing worse during open elections than in the re-election years.

Cliff Sims

For folks who have their retirement accounts or other investments and are finding out now that, historically, we can expect a low rate of return during an open election year and that there may be a lot of market volatility, what should they do with this information?

Jeff Roberts

Keep in mind the classic statement you hear people like me say: “past performance is no indication of future results.” But it does provide very important information. Information is what we use to help people make good decisions.

So with this information, broadly speaking, you can’t give advice and say “oh investors need to do this or do that,” but consider the time frame of the investment horizon you’re looking at.

If you’re looking at a long-term retirement portfolio, then you’re likely not going to be worried about the short term volatility of the election this year.

But if you are looking at an amount of money that you might have sitting in cash and you’re thinking about entering the market, then this could be helpful.

The study plots out every year since 1933, and the historical trend shows the markets typically peak around July and August in open election years, then start to decline in September and October.

That doesn’t mean people need to run out of the markets, but if you are sitting on cash, it’s information that you can use to determine what to do. It depends upon each persons unique situation. But again, this is information. Use it wisely.

Cliff Sims

Everybody listening can tell how knowledgable Jeff is on this stuff. If you’re interested in talking to Jeff a little bit more about he and his team can help you out, you can go to JeffRobertsAndAssociates.com.