All about the challenges of Midlife Finance

Lessons Learned From The Election

Now that the yearly election is upon us (or, depending on when you read this, just after), is there anything to be learned from it?  

Surprisingly, yes. 

Although people have tempted to say that when a Republican’s elected as president, the stock market gains, the truth is actually the opposite. “The Presidential Puzzle: Political Cycles and the Stock Market,” a 2003 study done by  Pedro Santa-Clara and Rossen Valkanov of the University of California, analyzed stock market returns in a variety of ways, including value-weighting (simplistically speaking, giving larger corporations more ‘weight’) and equal-weighting (basically treating all stocks equally.).

      Instead of looking at just total returns, Santa-Clara and Valkanov analyzed three-month Treasury bills, as well. And what they found was fascinating. When a Republican president was in office, value-weighted returns were nearly 2% higher than a T-bill — but when a Democratic president held power, the premium was nearly 11%. Equal-weighted portfolios were even higher: more than a 16% difference!

So does electing Democratic candidates help your investment portfolio? (After all, a Democrat-dominated Congress would encourage the tactics of the current Democratic presidentright?) It’s not as clear-cut as that, considering that one of history’s best-known Democrats, Franklin D. Roosevelt, presided over the era of the Great Depression. Jimmy Carter got his licks in, as well, during the gas shortages of the late 1970s, as have other Democratic presidents during unstable periods in our history. (Unfortunately, Republican presidents have, as well.) And stock market returns have been “predicted” by all sorts of wacky things, including who wins the Super Bowl.

     What is clear: voting can literally change a state overnight. Ask Coloradoans, who went to sleep one night, with marijuana possession illegal. Amendment 64 passed in 2012 (one of its reasons ostensibly to help make medical pot easier to get), and literally changed the Centennial State in business, tourism and made it the butt of national jokes in just a few weeks. A national push to include this initiative in every state is in progress.

Other issues strongly affect not only our investments, but our lives — like same-sex marriage and abortion. These have all come to votes in states throughout the Union. And although they invariably end up before the U.S. Supreme Court, like gay marriage recently did, these all tend to start as items to be voted on.

So what’s going to happen this year? 

Many poll-takers believe that the GOP will not only hold its majority in the House, but Republicans will take back the majority in the Senate, as well — something that hasn’t happened since 2007, when George W. Bush (yes, a Republican) was in office. If that’s the case, then President Obama will be dealing with a Congress that probably won’t rubber-stamp every one of his suggestions. All 435 seats in the House are up for election, as are 36 Senate positions.

The same pundits suggest that the stock market traditionally does slightly better (2.5%) just before and after elections, while people are still reacting and adjusting to election results. But beware of third-quarter performances; they’re generally lackluster, in comparison.  (Go here for more.)

“Many issues could affect the economy and financial markets from a government action—meaning increased regulation—and a geopolitical point of view,” says JJ Kinahan, one of TD Ameritrade’s chief pundits. “So we see great potential for increased stock market volatility heading into mid-term elections, as many outcomes are not as ‘sure’ as we have seen in past contests.” The truth — no one knows for certain what the outcome will be.

What is important, though: VOTE.

*It will cut off those irritating phone calls, postcards and other flotsam. Once you’ve voted, your local election board takes you off the list — something I learned recently, as an election judge. And political parties, who get those updated lists regularly, are much more apt to turn their attentions elsewhere.  (Too bad cable and television networks can’t provide the same info.)

*It will give you a say in what’s happening. Voting may not put your chosen candidate in office — but not voting may make their chances for success much more uncertain. Elections have been decided by one vote — but more have hinged on a narrow margin. It is clear, at least, that motivated voters can actually capture counties for their chosen candidate or cause — as well as the state.

*Voting expresses who you are, and what you believe in. Some argue that the U.S. is becoming more polarized in political beliefs. Whether that is true or not, our system of government is based on the right to vote. And it shouldn’t be given up easily. A thoughtful, informed (hopefully on every side of the issues and candidates) vote can be satisfying. At least you tried.

*When you do vote, do it right. Don’t suddenly decide to experiment with your signature, for example; it will be compared to signatures already on file, and your ballot will be put on hold until you confirm that it’s actually yours. Warning: 19-year-old and twenty-something guys (and some girls), this message is especially for you. (Something else I learned as an elections judge this year. Please don’t scribble, either!)

Fill out the boxes on the ballot exactly as specified. Don’t mess around with fancy Xes or check marks, unless you’re told to.

Make sure your ballot is in the envelope addressed with your name. Not your spouse, partner or child.

     And finally: put on enough postage, and if mailing, give it enough time to get there. Just postmarking the ballot on the day of the election doesn’t do it. (At least in my state — and, I suspect, everywhere else.) It must be received the day of the election in order to be counted.

Good luck — and may the best man, woman or cause win. 

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