Presidential
Election
and Your
Portfolio
E
very four years, investors fi nd them-
selves wondering how the presidential
election will impact their portfolio.
With the 2016 campaign proving to be
more heated and contentious than usual, the
stakes are high for the economy and fi nancial
markets, as our new president will need to
address a wide range of pressing issues. From
free trade to raising or lowering taxes, will the
new administration foster an economy with
tight or loose fi scal policy? Companies and
consumers rely on a number of assumptions
from the government about spending and
taxes, and the theory is that any disruption to
these assumptions could have adverse effects
on the market. But is this really the case?
This theory may make intuitive sense,
however, when we look at the data, we can
see that the markets really don’t care which
party becomes president. While the govern-
ment may have some impact, the majority of
companies will adapt and advance regardless
of which political party is in control. Market
returns can vary greatly by four-year cycle,
but data shows the overall range of returns is similar in years with a Democratic president to
those with a Republican president.
In addition, many policies take time to
seep through the economy. Policy changes
made today may not produce tangible results
for many years. And all presidents take office
under the economic conditions, good or bad,
of their predecessors.
Lastly, in our tripartite system of govern-
ment, with all its check and balances on
power, presidents generally have a limited
ability to influence markets or the economy.
It is Congress that is directly responsible for
budgets and spending. And Congress itself has
often been divided. Since 1945, there have
only been 13 years when both chambers of
Congress were controlled by the same party.
But what about returns during election
year itself? Since 1928 only four presidential
election years saw negative returns. But before
you attach any significance to that, realize that
the average return on the S&P 500 during
only the election years was slightly lower than
the average return in all the years from
1928 to 2012.2
The take away is that laws and rules
change, and the goal of a good business is to
adapt to it and grow regardless. Corporate
executives and entrepreneurs still look for
ways for their businesses to win. This data
reinforces the ideas that a well-balanced and
diversified portfolio will bring better returns in the long run. Rhetoric from the campaign
trails may spook short term investors and cause
short-term volatility. However, staying the
course and sticking through the volatility is the
key to bringing in good, consistent returns in
your portfolio over the long term.
By Daniel T. Newquist,
CFP®, AIF®
Dan Newquist, CFP®, AIF®,
Principal & Senior Wealth
Advisor with RNP Advisory
Services, Inc., a registered
investment advisor, Morgan
Hill. He can be reached at
408-779-0699 or dnewquist@
RNPadvisory.com. Securities
offered through Foothill
Securities, Inc., member
FINRA/SIPC, an unaffiliated
company.
106
SOURCE DISCLOSURES
United States Elections Project; Data Source: DFA Returns 2.0
The S&P data are provided by MorningstarDirect, June, 2016. The S&P 500(Standard & Poor’s 500
Index) is a broad-based U.S. equity index. The S&P 500 Index is an unmanaged market value-weighted
index of 500 stocks that are traded on the NYSE, AMEX and NASDAQ. The weightings make each
company’s influence on the index performance directly proportional to that company’s market value. In-
dexes are unmanaged baskets of securities that are not available for direct investment by investors. Their
performance does not reflect the expenses associated with the management of actual portfolios including,
but not limited to tax deductions and management fees. Past performance is no guarantee of future results,
and values fluctuate. All investments involve risk, including the loss of principal.
GILROY • MORGAN HILL • SAN MARTIN
SEPTEMBER/OCTOBER 2016
gmhtoday.com