Political Fighting is Sorta Good…For the Markets

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Yep. That’s about the only thing our political strife produces: solid stock performance. According to S&P Capital IQ research, a mix of a Democratic president and Republican Congress produces the highest annual returns for the Standard and Poor 500 Index (over 15 percent annually).

Also, when there’s a Democratic president and Congress/Senate are both Republican, the performance is over 13 percent.

Not all gridlock is good, though. There are some scenarios where a mix of the three produces underperformance. One scenario is a Republican president and Democratic Congress/Senate, producing only about 5 percent yearly gains.

For this entire time period, starting in 1945, the S&P 500 averages 8.8% per year.

Here’s a link to the article I found explaining this phenomenon. Most articles and research look only at which party controls the presidency. This research is pretty unique in that it covers who controls both houses and the presidency.

 

Market Volatility: Are You a Victim or a Victor?

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Market volatility is very scary. It (temporarily) destroys our wealth, makes us hate watching the news and just freaks us out emotionally. But…volatility can be our friend. Or, at the very least, our frenemy.

How do we manage volatility?

The Number One way is to manage our emotions. The markets really are simply driven by fear or greed. It can be that basic. It’s such a predictable thing that there are quotes about it. Warren Buffett famously said to “be fearful when others are greedy and greedy when others are fearful.” Simple. Basic. But emotionally hard to do at times.

How did this strategy play out in the past? Well, in 1999 everyone was euphoric (greedy) over tech stocks. If you were fearful then you would have avoided arguably the largest stock bubble, and bust, in one hundred years. If you were greedy when others were fearful, in March 2009, the market would have roughly tripled your investment.

It seems like this approach might have some merit….

STRATEGY NUMBER TWO

Dollar-cost average into the markets: purchase investments on a regular basis with a regular dollar amount. If you’re young you can do this fairly easily through your paycheck. Even if you’re older, or retired, you can still do this. You may have a portfolio. That portfolio should be producing a large income, in percentage terms. So take that monthly and quarterly income and reinvest, if possible.

You can visit RetireIQ.com and request my free report “Producing Large Portfolio Income” to get an idea on how to generate 5-7% annual portfolio income.

STRATEGY NUMBER THREE

This multi-pronged idea is definitely for the “advanced students.” You can manage risk by using short mutual funds when the market is dropping; tactical allocation and cash for macro-events like dropping GDP; and options writing or buying for relatively steady income and hedges, respectively.

Again, these are more complex ways and you may want to get some professional advice before starting in this direction.

If you have any questions or comments you can always reach me at RonPhillipsAdvisor@gmail.com