gmhTODAY 10 gmhToday Sept Oct 2016 - Page 106

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