Wednesday, November 23, 2016

Pro-business vs Anti-business Presidents

We are two weeks out from the presidential election, and as the world begins to adjust to Donald Trump's shocking upset win stock market investors seem to be feeling comfortable that his presidency will be good for business.  All four major indexes reached all-time highs this week, and while rising rates have hurt bond prices in the short term in short order higher interest rates will mean more cash flow for investors in bonds and CDs as well.  So it looks like the outlook for our investments is good for the next four years, right?

Not exactly.  The chart below was published on this summer, and it shows that supposedly pro-business Republican administrations have seen S&P 500 returns significantly lower than their supposedly anti-business Democrat counterparts.

Or course this particular time frame includes horrible returns entering the Great Depression for the GOP and corresponding tremendous returns for the Dems coming out of that era.  But even dropping off those two outliers, Democratic presidents still have had a historical annualized advantage of about 9% to about 6% in market returns during their time in office.

Is this proof that Democrats are better for the economy than Republicans...or did the pro-business policies of the Republican presidents come to fruition in the ensuing years of Democratic presidents?  

Was George W. Bush a terrible president whose governance caused an eight-year drop in stocks...or was it that after four terms of returns in the mid-teens markets we were bound to have a pullback and Bush simply had the bad luck of being in office at that time?  

Did President Obama rescue us from destruction...or was he fortunate to be president after an eight-year correction and simply presided over the inevitable comeback?

The answer for me is - and should be for your financial decision-making - that it doesn't matter.  Whether you love or hate the current administration, the gains in the market during the Obama presidency are indisputable.  And whether you are excited or fearful of the next administration, we should expect lower stock returns over the next four years...because that's what always happens.

We know that history tends to repeat itself.  

And we know that predicting the future is impossible to do other than by luck.  

If we can remember (and follow!) these two simple truths, a successful investment experience is bound to follow

The key to financial success is having a plan and sticking to that plan.  That's easy to say but hard to do, especially when it's your own financial future on the line.  If you think fiduciary advice with no product sales could help you achieve financial success, we would be happy to help.

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