October 2020 – Ballast Advisors

How Do Presidential Elections Impact The Stock Market?

If there was one word for 2020, it very well might be “uncertainty” — rarely a positive noun in the investment world. Global pandemic aside, a presidential election is traditionally a time for some uncertainty among investors to the degree they believe a president’s party or policies can shift the market.

However, data suggests that degree of influence an election result has on the market is not always so clear. There have been 17 presidential elections since 1950, and each comes with unique variables that may impact market performance. Collecting and organizing the data from these elections is made easier using YCharts, a leading research firm for financial advisors based in Chicago, IL. “YCharts allows Ballast Advisors to collect historical data, like election data, export it to an Excel spreadsheet for analysis and detecting trends, and present it in a way that is easy to digest for clients,” says Steve Schmidt, a partner at Ballast Advisors. Schmidt makes it clear that the data and graphs from YCharts are meant to provide context, not as investment advice. Past performance should never be used to indicate future results.

“We often hear from our clients during an election cycle,” says Schmidt. “They often have concerns about the impact of an election on their financial plans.” While every investor is different, Steve Schmidt and the professionals at Ballast Advisors have taken the time to answer three common questions heard from investors during this election

How differently do markets perform when a Democrat or Republican candidate is leading in major polls?

According to trends observed in the data from YCharts, when presidential candidates are “tied” in polling, the S&P 500 daily and cumulative returns are negative. On average, the trends in the YCharts data reveals the market tends to favor a Republican candidate leading the major polls.

“Keep in mind, leads in political polls often vary depending on the source of the poll,” said Schmidt, “polls are not an exact science, and may also have inherit bias depending on the targeted participants of the poll.”

S&P 500 Performance By Party Leading Polls

Two strong examples of this pattern: S&P 500 percent change under poll leaders in the 1988 and 2000 U.S. Presidential elections. See disclosures below.

Does the market react differently when a Republican or Democrat candidate is elected?

Although, historically the market may initially react favorably to a Republican candidate because of the belief that their policies are more “Business friendly” and therefore more stock-market favorable versus Democrat candidates. However, data demonstrates that once a president takes office, in the long run the market has performed better under Democratic presidents on average.

“Today’s economic conditions and thus, market performance, is often a cumulative effect that can be a decade in the making,” Schmidt says. “Today’s economy often stems from the work of both current and previous administrations combined.”

How have other major asset classes performed under recent presidents?

According to YChart data, U.S. and Emerging Market Equities have been among the best performing major asset classes since Bill Clinton’s 1993 inauguration. In the last 30 years under four different presidents, U.S. and International Equities handily outperformed under Democrats, and Emerging markets have slightly outperformed under the Republican presidents (Performance through Set 14, 2020 for Donald Trump).

“At the end of the day,” Schmidt reminds us, “markets fluctuate for a host of reasons, many of which are misunderstood by seasoned investors. The best laid investment plan is to stay diversified.”

Summary – What does this mean for you?

What does this mean overall? If you’re basing your investment decisions on what party is or isn’t elected during presidential elections, you’re likely hurting your portfolio more than helping it. The person occupying the White House is just one of many variables that impact investment values. For example, the Dot.com burst in 2001, and the financial crisis in 2008 greatly impacted the markets beyond the control of Presidents Bush and President Obama.

“At Ballast Advisors, we recommend in the face of uncertainty clients ‘stay invested,’ because almost without exception we’ve accounted for money needed in the near-term,” Schmidt reminds us. Prominent investor Peter Lynch once said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” According the chart below, the S&P500 has consistently grown in value, no matter who is in office.

Rather than invest in stocks under only a Republican or Democratic president, stay invested in stocks for the long-term under all presidents.

Data & Disclaimers

The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. Past performance is no guarantee of future results. All investing involves some degree of risk. Nothing contained herein is an offer to buy or sell a security, investment strategy or product. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.

Historical market performance for the S&P 500 and other asset classes accessed via https://go.ycharts.com/hubfs/Guide_to_How_Presidential_Elections_Impact_the_Stock_Market.pdf

Presidential term dates can be found https://en.wikipedia.org/wiki/List_of_presidents_of_the_United_States

Polling sources: 1952-2012 elections: Gallup; 2016-2020 elections: Marist College, Monmouth University, Siena College/The New York Times Upshot, ABC News/The Washington Post ( A+ rated pollsters FiveThirtyEight). How this polling data works: https://projects.fivethirtyeight.com/pollster-ratings/ How this polling data works: Pollster data sourced from FiveThirty Eight and is good through May 19, 2020. FiveThirtyEight’s pollster ratings are calculated by analyzing the historical accuracy of each firm’s polls along with its methodology. Accuracy scores are adjusted for the type of election polled, the poll’s sample size, the performance of other polls surveying the same race, and other factors. FiveThirtyEight also calculates measures of statistical bias in the polls.

Data was aggregated by YCharts with the end-date of each poll’s collection period serving as the charted poll date.

©2020 YCharts, Inc. All Rights Reserved. YCharts, Inc. (“YCharts”) is not registered with the U.S. Securities and Exchange Commission (or with the securities regulatory authority or body of any state or any other jurisdiction) as an investment adviser, broker-dealer or in any other capacity, and does not purport to provide investment advice or make investment recommendations. This report has been generated through application of the analytical tools and data provided through ycharts.com and is intended solely to assist you or your investment or other adviser(s) in conducting investment research. You should not construe this report as an offer to buy or sell, as a solicitation of an offer to buy or sell, or as a recommendation to buy, sell, hold or trade, any security or other financial instrument. For further information regarding your use of this report, please go to: ycharts.com/about/disclosure

The S&P 500 index is an unmanaged market-capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. The index is provided for comparative and informational purposes only. It is not possible to invest directly in the index shown.

Open Enrollment Season is Around the Corner

Reviewing your benefit choices to maximize what your employer offers

Open enrollment for employee benefits kicks off on November 1st. Before you plan your Thanksgiving menu, you should make the time to review your benefit choices. Employee benefit experts expect benefits to change next year like few years before – given the rising costs of health care and the impact of COVID-19 on businesses this year. Even if little changed in your life in 2020 – and that’s probably unlikely – you should aim to maximize what your employer offers. Here are a few pointers.

Medical

Even if you carry the same plan as in many past years, spend a few minutes evaluating which one is best for you and your family when you choose – especially High-Deductible Health Plans and traditional plans.

Switching from the traditional plan to a high- deductible option might save money if you don’t visit the doctor much. Perhaps too your spouse’s company now offers a better plan and you can switch the family coverage to the better alternative. Improved employer plan descriptions lay out plans’ differences and costs and do that much better this year. Take advantage of their free help, online or in person.

Dental

Often you receive only one choice for dental coverage, but you might be surprised at how many people decline to pay the relatively small premium for this coverage. Even if young and cavity-free, you take care of your teeth now to potentially prevent large dental bills in retirement.

If nothing else, dental insurance provides a teeth- cleaning twice a year.

Vision

This benefit works great if you wear glasses or contacts and need regular eye exams. Those with perfect vision may opt out of this coverage.
Life Insurance Most employers offer some basic life insurance, the coverage usually a multiple of your salary. If you are married, own a home or have kids, this basic coverage usually falls short. Consider paying extra if possible, to increase life coverage through your employer. If that’s not an
option, consider supplementing this minimal coverage with a term policy from an independent provider. These policies come with set duration limits on coverage and you decide whether to renew once the policy expires.

Remember that whatever life coverage your employer pays for vanishes if you leave that company.

Long-Term Disability

Standard coverage in this category usually pays 60% to 66% of your compensation if you become disabled and unable to work. As this coverage often comes with a cap, if you are highly compensated, this insurance might also fall short to sustain your standard of living. Estimate your
minimum to live on if you become unable to work and, if that number scares you, consider purchasing a supplemental policy.

Long-Term Care Insurance

This pays for assisted living, a nursing home or in- home care late in your life. Even as our lifespans increase, long-term care premiums escalate. If your employer offers any coverage at a relatively inexpensive group rate, consider locking in some protection. Financial advisors normally recommend LTCI when you turn age 50 – getting it while you are young and healthy under an employer plan may still make sense.

See Related Post:

Flexible Spending Account

This savings account reduces your taxable income and funds medical co-pays, orthodontist appointments and prescription drug orders, among other expenses. Figure your out-of-pocket medical costs and sign up to set aside that amount, up to $3,550, pre-tax in an FSA and $7,100 for families. Remember that if you participate in an HDHP, you maintain a related health savings account and can only take advantage of a
limited FSA. Either way, pay for the most of out-of-pocket medical costs with pre-tax dollars.

Dependent Care Flexible Spending Account

If you pay for day care, after-school programs or summer day camps for children under age 13 or for elder care for a dependent parent, DCAs help you offset that cost with pre-tax dollars. Again, a working couple can set aside up to $5,000 from paychecks.

Life Planning Resources

This wide-ranging employee benefit is being offered more and more, from simple mental-health hotlines to complete menus of services. For instance, if you lack a will, many companies now offer reduced-rate or even complimentary legal services to establish your basic estate planning
documents. Others offer financial planning and weight-loss programs – sometimes even gym memberships.

Your Financial Advisor

Finally, while your employer will offer resources to help you navigate the menu of employee benefits, your financial advisor is well versed in ensuring your benefits are consistent with your overall financial plan and is a great resource too.

The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.

Temporary Payroll Tax Deferral: What You Need to Know

Potential tax deferral under CARES Act:

• Withholding of employer share of Social Security tax not required from March 27, 2020, to December 31, 2020

• Makeup of withholding required by December 31 of 2021 and 2022

Potential tax deferral under recent guidance:

• Certain withholding of employee share of Social Security tax not required during September to December 2020

• Makeup of withholding required during January to April 2021

On August 8, 2020, the president issued an executive order to allow the deferral of certain payroll taxes during the last four months of 2020, and the IRS recently provided related guidance. This has implications for both employers and employees. Here’s a brief summary of the issues.

Already-existing payroll tax deferral provisions

There are generally two separate contributions to the Social Security payroll tax (technically, the Old-Age, Survivors, and Disability Insurance, or OASDI, tax) — a 6.2% employer portion and a 6.2% employee portion.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March 2020, already allowed eligible employers (and self-employed individuals) to defer the payment of the employer’s 6.2% share of Social Security tax from March 27, 2020, to December 31, 2020. Any deferral of the employer Social Security payroll tax under the CARES Act must be repaid over a two-year period, with half of the deferred tax due by December 31, 2021, and the other half due by December 31, 2022. Similar deferral is available under the railroad retirement tax.

Employee portion of Social Security tax now eligible for deferral

The recent executive order and related IRS guidance expand the payroll tax deferral opportunity — generally allowing employers to defer withholding and payment of the employee’s 6.2% share of the Social Security tax for payroll dates that fall on or between September 1, 2020, and December 31, 2020.

While employers are eligible to defer the employee portion of the Social Security payroll tax, the IRS guidance does not address whether self-employed individuals are also able to do so. Additionally, the employee portion of the Social Security tax cannot be deferred for any employee with wages or compensation of $4,000 or more in a biweekly pay period (or the equivalent amount with respect to weekly, monthly, or other pay periods). This dollar threshold applies per pay period, so it’s possible for an employee to qualify for deferral in some pay periods but not in others

It’s important to note that nothing in the IRS guidance indicates that the payroll deferral opportunities described here are mandatory. Employers can take advantage of the deferral provisions if they find them beneficial, but can continue to withhold and pay payroll taxes as normal if they wish.

An employer may ask employees whether or not they wish to defer their 6.2% portion of the Social Security payroll tax, but the guidance released does not specifically require it.

When do deferred amounts have to be paid?

If an employer defers the employee portion of the Social Security payroll tax during September, October, November, and December 2020, employees may receive larger paychecks, but this deferred payroll tax must be repaid in 2021 (absent new legislation that specifically forgives deferred amounts). Specifically, employers will have to withhold extra money from employee paychecks during the first four months of 2021 — January through April — to make up for the four-month deferral. This is in addition to the payroll tax employees must normally pay during 2021. As a result, employees who benefit from deferral of payroll tax between now and year-end are likely to experience reduced paychecks during the first part of 2021. An employee in this situation may wish to consider putting any extra funds from a larger paycheck in 2020 into a savings account to compensate for a smaller paycheck in 2021.

While it’s expected that many employers will opt not to defer payroll taxes, the Defense Finance and Accounting Service has announced that the Social Security payroll tax deferral will start automatically in mid-September for military members and civilian employees; they are not eligible to opt out.

Many questions remain, and additional guidance is expected.

IMPORTANT DISCLOSURES The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Past performance is not indicative of future results. Nothing contained herein is an offer to purchase or sell any product. This material is for informational purposes only and should not be considered investment advice. Ballast Advisors reserve the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.