Let us take a look at the historical stock market performance under a Democratic or a Republican President. The annualized S&P 500 return by President is quit consistent over history.
Before finding out the answer, I’d like you to guess under what party do you think the S&P 500 has performed the best? From there, we can compare the reality with your beliefs.
After all, one of the keys to being a good stock investor is to remove as much bias from your investing process as possible. It is suboptimal to invest on emotion.
For example, I know several people who decided to sell a majority of their stock holdings in 2016 once Donald Trump won the election. They hated Donald Trump. As a result, they missed out on over 50% in S&P 500 gains.
Stock Market Performance Under A Democratic Or Republican President
Below is a wonderful chart that shows the stock market performance under a Democratic and Republican president.
Your first reaction should be that the S&P 500 index doesn’t really care if a president is a Democrat or a Republican. The index keeps marching higher regardless of who is in the White House.
But upon closer inspection, it looks like between 1968 – 1978 and 2000 – 2009, both periods under Republican presidents, the S&P 500 didn’t go anywhere. In contrast, the S&P 500 has advanced higher under every Democratic president since 1933.
Therefore, if you are a stock investor, then at the margin, you should be rooting for another Democrat as president starting in 2021. However, let’s look at the stock market performance details by president a little more closely.
2022 so far has been an abysmal year for the stock market for President Biden. The S&P 500 is back in bear market territory, inflation is at 40-year highs, and there’s a war in Ukraine. It is unlikely a Democratic president will win if this keeps up!
Stock Market Performance By President
Eyeballing return charts is fine, but it would be better to get more specific numbers. Therefore, let’s get more granular and look at US equities annualized returns under each President.
From the chart, we see that Bill Clinton tops the charts with roughly an 18% annualized equities return during his presidency. Bush Junior was the worst performer with a -3% annualized equities return under his presidency. Bush Junior was unlucky because of 911 and the wars.
If we exclude Bush Junior, we see that of the top six performers, three are Republican presidents. Therefore, it seems like a push between having a Democrat or a Republican as president for the benefit of the stock market.
In my opinion, any annualized equity return 10% or greater is a home run. After all, the historical return for stocks since 1926 is about 10%.
Most investment houses have much lower future returns over the next 10 years. Check out Vanguard’s future return assumptions for stocks, bonds, and real estate.
S&P 500 Annualized Return By President
Now that Joe Biden has become President, here is the annualized S&P 500 return by President, including under Donald Trump.
The annualized S&P 500 performance under Donald Trump was 16%, higher than under Barrack Obama at 15%.
A President Doesn’t Really Matter For Investment Returns
The main lesson of this article is that a Democrat or Republican president doesn’t really affect your investment returns. As there are so many variables that influence the S&P 500’s index performance, who is president is not a significant factor.
The same thing goes for the CEO of a large publicly-traded company. If Tim Cook at Apple retired tomorrow, do you think the event would make a difference in Apple’s share price? There might be a knee-jerk move for one or two days, but after that, it would be back to business as usual. As a result, if you want to get rich, your goal is to try and become an overpaid CEO.
Instead of voting for a president who you think will be best for your investments, vote for a president who you think will do the most good for the most number of people. A country begins to rot if only some people get way ahead while others are left behind.
Since 2009, I’ve been driven to try and help people improve their financial lives no matter who they are or who they vote for. I’ve found that people who are more financially secure are nicer and happier people. More good comes out of the world as a result.
I don’t believe only the rich, powerful, and connected and their children should get ahead. They’ve already got all the resources in the world that money can buy. Therefore, Financial Samurai will continue to be free for as long as I’m alive.
How Each President Has Influenced My Financial Planning
One thing I do want to recognize, however, is how two presidents from different parties affected my financial planning. Presidents do affect tax policy. And tax policy affects behavior. Stock market performance is just one part of financial planning.
Financial Planning Under President Obama
Barack Obama was president from January 20, 2009 – January 20, 2017. He came into office just six months before I started Financial Samurai.
In a way, President Obama felt like a savior at the time because things were so bad in 2009. It was a very concerning time because I had lost 35% of my net worth in just six months and many of my friends and colleagues had lost their jobs. It was almost deja vu again in 1Q2020 until the Federal Reserve unleashed the largest economic stimulus package ever.
As the economy began to recover post 2009, I gained more peace of mind and confidence. I decided to work as hard as I could to build back up the net worth that I had lost so quickly.
However, when President Obama raised income taxes and introduced the additional 2.3% Net Investment Income tax, I started to lose steam. I was already burning out from working 70-hour weeks. Getting pin-balled around in the game of corporate politics wasn’t fun either.
Not one to complain, I decided to negotiate a severance in early 2012 to be free. I’ve credited my severance package and passive income as factors that helped me retire early.
However, I should probably also credit President Obama for giving me added motivation to finally take it down a notch. Once I started paying higher than a 40% marginal tax rate between federal and state, I no longer wanted to work as much.
Forsaking money and relaxing more since 2012 has been very good for my mental and physical health. Once I left work, a lot of my chronic pain began to go away. I was happier.
Financial Planning Under President Trump
When Donald Trump officially became president starting January 20, 2017, I also noticed my financial outlook began to change.
After President Trump passed the Tax Cuts And Jobs Act of 2017, I started getting motivated again to make more money. I had taken a five-year break from the grind and felt ready to earn again. I became a little more excited about stock market performance to make more money.
The tax cuts also corresponded with the time my son was born. I don’t know what it is, but there must be some genetic predisposition to try and make more money once you have a child.
The idea of going back to work started consistently entering my mind in 2018. Not only could I start making more money to take care of my family, I could also get some subsidized healthcare.
At the time, our monthly healthcare premium had grown to $1,890. With another $2,000 a month in upcoming preschool expense, my retirement income streams were to finally be tested.
Another thing that happened under Donald Trump was a massive increase in the estate tax threshold. When it doubled to $11.18 million per person in 2018, it was as if someone pressed my internal “Let’s go make some money!” button. In 2022, the estate tax exemption amount is $12.06 million per person.
Instead of going back to work, I decided to focus more on online entrepreneurship. Further, with the global pandemic keeping me at home more, I thought I might as well try to make more money online. Progress has been made so far. Both my wife and I are still able to be stay at home parents to our two children.
However, I don’t think I’m happier.
The main reason why I’m not happier with more money is mainly due to the lockdowns. I’m not able to live as freely as I once did. But the other reason is that the endless pursuit of more money is not fun.
It feels better to be satisfied with what you have.
Financial Planning Under President Joe Biden
With Joe Biden as president, financial planning comes full circle. I retired under President Obama and I plan to retire again under Joe Biden.
Because the Democrats have control of both houses and the presidency, more taxes will be passed. There will also be more spending to help all citizens. As a result, I plan to take things down a notch once I get vaccinated or once taxes go up, whichever comes first.
I’m tired of the hustle during the pandemic. Instead, I want to spend my money and live it up more. I think everybody is.
Luckily for investors, stocks and real estate have performed well during the pandemic. Therefore, we have an even larger cushion to live our lives as freely as possible.
The Upside To Higher Taxes
There’s always a never-ending amount of money to be earned. So if money is what you start mainly focusing on, you’ll eventually become miserable. Once you get over one hurdle, there is always another income or wealth hurdle to overcome.
The pursuit of money can be very exhausting.
Therefore, if and when taxes are raised in the future, it may help quell the desire to earn more money. If taxes are raised, all I ask is that more families get more healthcare relief. Healthcare is truly on of the largest and most ominous expenses all Americans face. We need healthcare reform!
If you enjoyed this post, you should also read about stock market performance during rate-hike cycles. 2022-2023 is a rate hike cycle that is really hurting stocks. However, longer term, the stock market tends to recovery and do well.
Track Your Stock Market Performance
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Diversify Into Real Estate
Stock market performance has been strong over time. The same can be said for real estate. Given interest rates have come way down, the value of rental income and cash flow have gone way up. Therefore, I’m personally buying multifamily properties and rental properties for capital appreciation and income. Stocks also tend to be more volatile than real estate.
One of the best ways to invest in real estate is through real estate crowdfunding.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eREITs. The real estate investing platform has been around since 2012 and has consistently generated steady returns for investors. Fundrise is my favorite platform due to its funds. It has over 300,000 investors and $3 billion under management.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields. They also have potentially higher growth due to job growth and demographic trends.
I’ve personally invested $810,000 in real estate crowdfunding since 2016 to diversify my investments. It’s nice to earn income 100% passively as I spend more time taking care of my children.
Stock Market Performance By President is a FS original post.