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Republican or Democrat: Historically, Which Party Does a Better Job Growing Your Investments?

Republicans and Democrats each make strong and compelling arguments as to why their approach and strategy will be better than their opponent. The media, think tanks, and experts are constantly making solid arguments for one candidate or the other. And in many cases these arguments and research findings conflict with each other.

Conventional wisdom suggests that a Republican President will do a better job helping businesses grow, which will in turn increase the return on your investments. Yet, the Democrats have released some interesting information that suggest otherwise.

Lots of research supports the idea that the stock market (and your investments) do better when the incumbent party keeps the office. And yet, there seems to be many exceptions to that statistic when one factors in market volatility or look at a wider time frame.

So how do we as investors and voters determine if it’s better to have a Democrat or Republican in the White House when everything appears to be shades of grey?

If there’s no clear research showing that one party is better for the stock market than the other, chances are there is no statistically significant correlation. In other words: The presidential election itself has little bearing on investment performance. And all of these headlines, articles and research we read pushing one candidate over the other may just be marketing fodder.

Here are a few strategies to keep in mind over the next few months:

  • Expect volatility as the election draws near. The markets do not like it when there are looming questions about the future direction of the country. Most likely this volatility is short term and will clear up as investors digest the implications of one president over the other. This will be especially true if the candidates target a particular industry (such as health care or defense)
  • Remember you are a long-term investor. Much of the noise and headlines will not have a long term impact on your investment future.
  • Stay the course with your investment strategy. The candidates, their respective parties, think-tanks, experts, pundits and the media will try very hard to rattle your cage to sway your opinion and to get your vote. They will use fear tactics or they will paint rosy pictures of the future. And unfortunately, many investors will make poor investment choices prior to the election. They will move to cash if they are afraid or they will move into an asset class they believe will soar if their candidate wins.
  • Any significant policy changes will take months to develop and potential a year to roll out.

Why We Shouldn’t Mix Politics and Investing?

We can’t help but hear about the election on the news. And when it comes to each candidates economic policies, we are quick to imagine how it will affect our investments. We assume that Trump’s determination to bring jobs back to the US could boost US stock prices and perhaps hurt foreign stock prices. We think that because Clinton has talked about reform on Wall Street, that financial companies would be hurt if she were elected President.

But the connection isn’t as clear as the media makes it out to be. Both politics and the markets are very complex systems with many, many moving parts. We are quick to arrive at various conclusions as to cause and effect. Or quick to identify patterns. In reality, it’s nearly impossible to predict how presidential policies will affect the stock market. We may think we see a pattern or understand cause and effect, but there could be more factors contributing to the expected outcome

All of these thoughts can be connected to a set of common investing errors that are discussed in a growing field of behavioral economics. The following article does a great job of capturing some of these elements

Making A Plan To Save For College

Recently we introduced The Money Management Tool to help clients better organize their financial lives. The tool has lots of features and we will occasional explain how some of the features are being used by our clients (or should be used) to help them reach their financial goals.

This post will deal with a client who is trying to save for college.

Situation: A client recently had a child and wanted to start saving for her college education. He is a hands-on client who likes to dig into the numbers himself and run multiple scenarios. His concern was: “If I fund my child’s education, how will it impact my retirement plans?”

Problem: He didn’t have a framework to think through the various scenarios.  All the calculators he found online were too simple and lacking the detail he needed.

Solution: The Money Management Tool provides a suite of workshops to help people just like my client. There is a specific workshop to help clients plan for college. He was able quickly enter his assumptions to see what the outcome would be for him.  From there, it offered some options to help him reach his goal.  Once he was satisfied with his plan, he was able to pull me into the process to make sure it made sense.

College

Britain Exits

Sixty years ago, the nations of Europe began uniting under one European Union.  The first goal was to define themselves as Europeans instead of separate nationalities which repeatedly started a war with each other. The second goal was to integrate their economies to achieve greater prosperity for everyone. The European Common Market was formed and it worked for a while. Over time a total of 28 countries joined. The next major step was the creation of one common currency called the Euro. 19 of these countries discontinued their currency and adopted the Euro (the Eurozone).  The goal here was to further simplify financial transactions across Europe by using just one currency. While Britain was the second largest economy within the European Union, it never joined the Eurozone and kept its own currency known as the Pound.

Each European nation not only had its own national government, but also the new supranational government created by the European Union. Unfortunately this additional layer of government formed by the European Union grew and metastasized into an overreaching giant that regulated, interfered, and constrained all aspects of activity.  Due to this and many other reasons, the European economies are in decline.  This, in addition to the unmanageable flood of immigration mandated by the European Union’s open border policy, brought Britain to the edge. Last week the British voted to leave the European Union and all of its rules.

The question now is, will Britain leaving the European Union for the sake of self-determination bring economic calamity or long term prosperity? And what effect will that have on the rest of the world?

The Relationship Between Happiness and Income Is Being Turned Upside Down

New research on the relationship between happiness and income is changing the rule of thumb. For years, it has been touted that an annual income of $75,000 is ideal and earning more than that results in a diminishing return of happiness.

Contrary to the old rule of thumb, there is a linear relationship between money and happiness, suggesting the more some makes, the happier they are in life.

So, maybe money can buy happiness after all?

You can read the study here

Your Roadmap to Becoming a Multi-Millionaire

Becoming a multi-millionaire is a realistic goal, especially for recent college graduates. In fact, they only need to do one thing – save. If 20-somethings save consistently, start saving early and invest it in the markets, there is a good chance that by the time they retire they will have over a million dollars.

Maybe you got a late start in saving for retirement. It can still be a realistic goal to achieve.

What you need is a roadmap and a savings plan.

The following article on the Motley Fool has that road map all set for you – using your age and a hypothetical rate of return, you can see how much you need to save and invest each month to retire with $2 million.

Class of 2016, Here’s How You Can Become a Multi-Millionaire

If you’re stuck, send us a note and we can help.