July Newsletter to Clients

Enjoy this month’s edition that features an investing exercise across multiple presidential administrations plus a summary of the first half of the year.

We get asked occasionally if we are making changes in clients’ portfolios to prepare for the presidential election and beyond. If you’re like me, you’re already sick of the silly season that is an election year and don’t really want to think about it much. But, of course, we do think about it because that’s our responsibility as citizens – to educate ourselves about the candidates at every level and then vote. But, we don’t make changes to your portfolios – or ours - based on who we think will win elections because timing the markets ups and downs is a fool’s errand. Instead, we invest each client’s portfolio in the way we believe is in their best interest based on their individual needs.

Consider a recent study conducted by Jeff DeMaso, editor of The Independent Vanguard Adviser, a newsletter focused on Vanguard funds, that helps prove my point.

He took three hypothetical investors with different views on politics and finance and started each with $10,000 in 1977 and calculated their returns through May, 2024. One person held the Vanguard 500 index stock fund only when a Democrat was in the White House and moved to cash when a Republican was elected. One person held the Vanguard 500 index stock fund only when a Republican was in the White House and likewise moved to cash during Democrat presidencies. The third was apolitical and held the Vanguard 500 fund at all times from 1977 through May, 2024. Here were the results:

• The Democrat only portfolio totaled $849,016;
• The Republican only portfolio totaled $162,578;
• The third portfolio that was invested the entire time totaled $1.6 million.

The message here is that timing the market – selling or buying stocks or stock mutual funds based on one’s guess of what the market will do over a relatively short amount of time – does not work out well. This experiment spanned 24 years of Republican administrations and 23.5 years of Democrats which, in investing timelines, are relatively small sample sizes and timing of purchases and sales can make big differences in returns. And that proves the point – a market timer has to choose both when to sell and when to buy back in again. We believe a well-diversified selection of investments suited to each client’s specific goals and needs is a much better way to go than guessing what the collective judgment of millions of investors making decisions based on a variety of factors will be.

We are now halfway through the investing year and it has been varying degrees of positive so far. Here are the details:

• S&P 500 of large, U.S. stocks – 15.29% total return through June 30;
• Dow Jones 30 – 4.79%;
• NASDAQ index of mainly technology companies – 18.57%;
• MSCI EAFE index of companies outside the U.S. – 5.75%;
• U.S. Aggregate bond index - -0.71%.

A collection of technology companies – Nvidia, Microsoft, Amazon, Alphabet (Google) and Meta (Facebook) - have been the primary drivers of both the S&P 500 and NASDAQ returns so far this year. In fact, 36% of the value of the S&P 500 is concentrated in just 10 companies – the most concentration in the last 50 years. Much of these returns have been driven by the excitement of Artificial Intelligence and the potential earnings from employing that new technology. As always, investors price company’s stock prices based on what they think the company’s future earnings will be. As the greatest hockey player ever once said about the key to his success, “I skate to where the puck will be, not where it is.”

Thank you for your continuing confidence.

Ramsey Bova, President and Owner, CFP®