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Election Results and Market Returns Oh My!

The next presidential election is just weeks away and its potential impact on the market increases with each passing news update. A record number of voters have already cast their ballots. This year will be one for the record books in many respects.

At this point, the election’s outcome is anyone’s guess despite all the media hype to the polling contrary. However, history shows us some interesting trends that could point to where the market might be headed.

Historical Election Year Market Performance

Over the past almost 100 years, the Schwab Center for Financial Research reports the performance of the S&P 500® index (since 1928) ended on a positive note in 17 of the past 23 presidential election years—or 74% of the time —with an average annual return of 7.1%.

In the two calendar years following an election, however, returns tended to be slightly less positive, averaging annual returns of 5.8% and 4.5%, respectively. The real impact of an election’s results are historically seen in the third-year, which has ended in positive territory a whopping 82% of the time, with an average annual return of 13.7%.

In the 100 years analyzed, six presidential election years coincided with down markets and most of those had obvious explanations. For example:

  • In 1932, the Great Depression was the culprit
  • In 1940, the brink of World War II
  • In 2000, the tech bubble burst
  • In 2008, the fallout from the financial crisis.

In other words, market performance in those years likely had little to do with the presidential election as much as other prevailing factors. And this year may follow suit, because of the covid-19 pandemic.

 Political Parties and the market

Investors often question: Is the market driven by politics or is it the other way around? The answer is: It’s really a lot more complex than that.

Markets are typically influenced by many different factors such as business cycles, corporate profits, and globalization—to say nothing of black swan events like the 9/11 terrorist attacks.

So which political party administrations have historically performed better, Democrats or Republicans? If we look at the numbers alone, the short answer may surprise you because it’s so counter-intuitive to conventional wisdom. Over the nearly last 100 years, the market has performed better under Democrats!

Since 1929, the total return of the S&P 500 has averaged 57.4% under democratic presidential administrations, versus just 16.6% under Republicans. However, remember that there are many factors to consider. For instance, given that markets move in cycles and there is always a lag in the economy with policy changes by a given administration, this could be one reason for the disparity.

It may be more reliable to look at the market’s influence on election outcomes because that has a 87% success rate of predicting who will take the White House. Notably, when the S&P 500 has risen in the three months before an election, the incumbent party generally has gone on to win the white house; when it has fallen, the incumbent party has generally lost. Since 1928, this trend has been broken just three times – and it hasn’t missed since 1980.

While there are some interesting patterns between market performance and presidential elections, past performance is no guarantee of future results. Thus, the best option is to have a risk management game plan you’re comfortable with headed into elections—regardless of who prevails this November.

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Incapacity and Advance Medical Directives

At some point in your life, you may lose the ability to make or communicate responsible health-care decisions for yourself. Without directions to the contrary, medical professionals are generally compelled to make every effort to save and sustain your life. Depending on your attitude toward various medical treatments and your views on the quality of life, you may wish to take steps now to control future health-care decisions with one or more advance medical directives.

What Is an Advance Medical Directive?

The laws of your state may allow you to adopt one or more advance medical directives to manage your future medical care. There are three main types of advance medical directives:

  1. A living will
  2. A durable power of attorney for health care
  3. A do-not-resuscitate order.

Each has unique characteristics and is useful under specific circumstances. You may find that one, two, or all three advance medical directives are necessary to express all your wishes regarding medical treatment.

Living Will

A living will is a legal document that specifies the types of medical treatment you would want, or not want, under particular circumstances. In most states, a living will takes effect only under certain circumstances, such as a terminal illness or injury. Generally, one can be used solely to decline medical treatment that “serves only to postpone the moment of death.”

Durable Power of Attorney for Health Care/Health-Care Proxy

A durable power of attorney for health care (DPAHC), also known as a health-care proxy, is a legal document in which you appoint a representative to make medical decisions on your behalf if you become unable to make or communicate them yourself. It allows you to exercise control over your health care through this representative, who will have the authority to make most medical care decisions for you.

You may want to appoint such a representative to act on your behalf. If you don’t, medical professionals will generally be compelled to do everything possible to save and sustain your life. A DPAHC can resolve conflicts and help ensure that your choices regarding medical treatment are respected. A DPAHC may not be practical in an emergency — your representative must be present to act on your behalf.

Do-Not-Resuscitate Order

A do-not-resuscitate (DNR) order is a legally binding order, signed by both you and your physician, that directs medical personnel not to perform cardiopulmonary resuscitation (CPR) or other invasive procedures on you if you stop breathing or your heart stops beating. A DNR is the only advance medical directive specifically intended for use in an emergency. There are two types of DNRs: One is effective only while you are hospitalized; the other is used by people outside the hospital. ID bracelets, MedicAlert® necklaces, and wallet cards are some methods of noting DNR status.

More to Consider

  • The laws on advance medical directives vary considerably from state to state. If you spend a significant amount of time in a state other than where you live, you may want to research that state’s laws as well.
  • Review your advance medical directives periodically to ensure they reflect your current wishes and attitude.
  • Discuss your advance medical directives with appropriate persons (perhaps your doctor, your DPAHC representative, your family, and your friends).
  • If you have multiple advance medical directives, make sure your instructions are stated consistently throughout. In many states, the most recent document prevails in case of a conflict
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Sandwich Generation Caregivers Face Many Challenges

Individuals in the “sandwich generation” have the dual responsibility of providing care for an adult — often a parent — while also raising children. Caring for others can be very rewarding, but the day-to-day demands of supporting multiple generations can take a financial, emotional, and physical toll on sandwiched caregivers.

If you’re a sandwich generation caregiver and you’re making your retirement plans, there are some specific strategies to explore. Make sure you address your unique situation with your retirement advisor.

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