Providing care without sacrificing goals

John_SolomonJohn SolomonExecutive Vice President, Wealth Advisory

In what should be peak earning years, many employees of American business owners encounter family situations that make it difficult to save for retirement at planned levels. As parents and grandparents live longer and medical and long-term care expenses continue to rise, millions of Americans are providing care to ensure elderly loved ones can remain at home.

The number of adult children who provide personal care and/or financial assistance to a parent has more than tripled in the last 15 years. Currently, 25% of adults, mostly Baby Boomers, provide some care to a parent.[1]

On average, most caregivers are women (66%) who are 49 years old, married and employed.[2]  Being a caregiver means attending appointments, providing hands-on support, and “checking-in” often during work hours, making it difficult to juggle those duties with the demands of a career. No matter how flexible the schedule, caretaking obligations can negatively affect earning power and ultimately impact an employee’s ability to save for retirement. A national study of women who provide care reveals the struggle of balancing care and career:

  • 33% decreased work hours to provide care
  • 29% passed up a job promotion, training or assignment
  • 22% took a leave of absence
  • 20% switched from full-time to part-time employment
  • 16% quit their jobs
  • 13% retired early

shutterstock_515950540-2

In addition to impacting the ability to save, caregivers often have to tap their savings to pay for the care of their loved one. Co-payments, prescription costs, food, transportation services, home heath aides, and home modifications typically are among the expenses caregivers cover to the tune of around $5,000 a year.

The family caregiver trend will only gain steam as each generation’s life expectancy elongates. Here are helpful tips from for your employees that may be required to take care of their parents:

  • Establish an emergency savings account, pay off debt and maximize retirement savings opportunities before caregiving demands hinder your ability to do so.
  • Determine whether long-term care insurance is a viable option for your loved one.
  • Consider how you could approach siblings or other potential caregivers to discuss the emotional and financial realities of caregiving. Caregiving is a tremendous responsibility which has the potential of serving as a catalyst for family conflict in the absence of clear communication and understanding.
  • Make a commitment to continue to save for retirement through either a traditional or Roth IRA or a Simplified Employee Pension.
  • Put safeguards in place to help you resist the temptation to spend your 401(k) or IRA money to pay caregiving expenses.
  • Engage with legal counsel who can help in executing the necessary legal documents, such as a durable power of attorney, health care proxy, living will, or living trust.

For nearly 30 years, Brinker Capital has followed a disciplined multi-asset class approach to build portfolios that integrate an investor’s investment objectives and goals to ensure that their assets are effectively meeting their needs. Brinker Capital Wealth Advisory provides customized portfolios for business owners, individual investors, and institutions with assets of at least $2 million. An overview is available of the services provided by Brinker Capital Wealth Advisory. Find it here >>

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

[1] The MetLife Study of Caregiving Costs to Working Caregivers. (June 2011). MetLife Mature Market Institute.

[2] Family Caregiver Alliance National Center on Caregiving. www.caregiver.org.

Happy Holidays from Brinker Capital

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer, Brinker Capital

I wanted to take a moment to wish all of our advisors, the clients they serve, our strategic partners, and all friends of Brinker Capital, a wonderful holiday season.

We are thankful for the many partnerships we have with you and the continued support you show us. We are looking forward to another year of commitment to taking great ideas and applying a strong discipline to provide better outcomes.

On behalf of Brinker Capital, Happy Holidays!

> Watch the video here


December 2016 market and economic review and outlook


magnotta_headshot_2016Amy Magnotta, CFASenior Investment Manager

The dramatic market shifts in November were not for the fainthearted. Risk assets ended the month mixed with domestic assets posting strong positive returns and international assets generally negative. November began with risk assets in a steady downtrend but abruptly reversed in the aftermath of the Trump victory. Markets surged with the anticipation of Trump policy initiatives such as increased infrastructure spending, tax reform and less regulation. Expectations of increased economic growth coupled with rising commodity prices heightened fears of higher inflation and continue to fuel speculation of a Fed rate hike during the fourth quarter. As political and central bank policy continue to unfold, we expect heightened market volatility to continue. We remain positive on risk assets over the intermediate term, although we acknowledge we are in the later innings of the bull market and the second half of the business cycle.

Our macro outlook is biased in favor of the positives and recession is not our base case:

  • Reflationary fiscal policies: With the new administration and an all‐Republican government, we expect fiscal policy expansion in 2017, including tax cuts, repatriation of foreign sourced profits, and infrastructure spending, as well as a more benign regulatory environment.
  • Global monetary policy remains accommodative: The Fed’s approach to tightening monetary policy has been patient. The Bank of Japan and the ECB remain supportive, and the Bank of England may need to join in response to the Brexit vote.
  • Stable U.S. growth and tame inflation: U.S. economic growth has been modest but steady, and the reflationary policies discussed above should boost economic activity. Wage growth, a big driver of inflation, has remained in check.
  • Constructive backdrop for U.S. consumer: The U.S. consumer should continue to benefit from lower oil prices and a stronger labor market.

However, risks facing the economy and markets remain, including:

  • Risk of policy mistake: In the U.S. the subsequent path of rates is uncertain and may not be in line with market expectations, which could lead to increased volatility. Should inflation expectations move significantly higher, there is also the risk that the Fed falls behind the curve. The ECB and the Bank of Japan could also disappoint market participants, bringing the credibility of central banks into question.
  • Slower global growth: Economic growth outside the U.S. is weaker.
  • Risk of more protectionist trade policies: The new administration may impose tariffs and/or renegotiate trade agreements.

The technical backdrop of the market has improved, as have credit conditions, helped by the favorable macroeconomic environment. We have also seen some reacceleration in earnings growth. So far Trump’s policies are being seen as pro‐growth, and investor confidence has improved.

We expect higher volatility to continue as we digest the actions of central banks and the onset of the Trump administration; but our view on risk assets remains positive over the intermediate term. Higher volatility can lead to attractive pockets of opportunity we can take advantage of as active managers.

A PDF version of Amy’s commentary is available to download from the Brinker Capital Resource Center. Find it here >>

Source: Brinker Capital. Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. Indices are unmanaged and an investor cannot invest directly in an index. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Brinker Capital Inc., a Registered Investment Advisor.

Investment Odyssey

Dan WilliamsDan Williams, CFA, CFP, Investment Analyst

In Homer’s Odyssey there is a memorable section where Odysseus and his crew must shutterstock_369235274sail past the island of the lovely Sirens. He has been warned to plug his crew’s ears with wax so that they will not be susceptible to the Sirens’ call. However, wishing to hear the Sirens’ calls for himself, he orders his men to tie him to the mast of the ship and ignore his future orders until they are clear of the island.

The need to stay the course and to ignore distractions are relevant to many facets of life, but I find special meaning related to long-term investing. When people think of investment risk they normally focus on the volatility seen in recent investment returns. However, the returns of a random month, quarter or even a year has an overrated impact on an account’s growth over a 10+ year horizon.

Tolerance for this volatility/risk typically has more to do with investor psychological make-up than the mathematical impact of these short-term returns on much longer term account performance. For me, this volatility and other market noise represent the Sirens that threaten to take investors off course. Two investors who are the same in every other way and invest in the same portfolio, will have a different investment experience based on how often they look at their account and how they feel about what they see.

In other words, similar to Odysseus’ crew, the journey can be made less stressful and easier by turning off the noise. While feelings and emotions are important considerations, as lost sleep and stress meaningfully impact a person’s well-being, a better course is set by focusing on more objective investment risks. Among the most relevant objective risks for investors is shortfall risk.

Shortfall risk

Most investors invest to fulfill a future goal/need years in the future. Shortfall risk is simply the risk that the money allocated and invested to this future goal/need proves to be inadequate to pay for it when the time comes. This risk is very real and goes well beyond how an investor feels about it. If an investor needs $100,000 a year in retirement but finds that due to insufficient account growth he or she can only sustainably take out $80,000 a year from his or her portfolio at retirement, the math will simply not work. No solace is offered by the smooth but inadequate investment journey of an overly conservative allocation when the investment goal is not achieved.

Addressing volatility

The challenge is often to achieve the long-term returns that can meet account balance requirements, volatility must be taken on. While Odysseus could have taken a long detour around the island of the lovey Sirens, his goal of getting home in a timely fashion would not have been met (and for those who know the story, he had a deadline). Similarly, an investor could ensure a very smooth investment journey by investing in a portfolio dominated by short-term bonds, but could find investment account growth inadequate to meet the goal of the investment. The good news is that if investors can find a way to plug their ears to the noise, they can get the longer-term returns they need and minimize the stress of the volatility along the way.

Multi-asset class goals-based investing is one way to have the investor take a longer view on his or her investing to see past the present sirens of volatility and recent returns to the goal at the end of the investing horizon. Without the ability to take the long-run prospective, we are like Odysseus hearing the Sirens call. Without an advisor to keep the ship on course, the journey is potentially doomed. Investing is only successful if the investor can stay the course and stay invested. The importance of keeping the investor from letting the heart rule the head is one of the most important roles of the investment advisor.

Brinker Capital understands that investing for the long-term can be daunting. That’s why we are focused on providing multi-asset class investment solutions that help investors manage the emotions of investing to achieve their unique financial goals.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

Give thought to how you give this holiday season

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

The holidays represent a time when many Americans express love and affection with gifts. Gift giving serves many purposes in our society. It helps define relationships, express feelings, show appreciation, smooth a disagreement, share good fortune, and strengthen bonds. While the joy of giving is undeniable, excessive spending could put your financial goals in jeopardy and ultimately stand in the way of happiness.

The American Research Group projects that the average person will spend $929 on gifts this holiday season. To put this amount in perspective, consider the following:

  • Last year, the average consumer spent $882, so this year consumers believe they will spend on average $47 more than last.
  • The last time consumers spending exceeded $900 was in 2006.
  • We’ve had a somewhat steady climb in spending since 2009 when the average person spent $417.
  • Gift spending peaked in 2001 when the average person spent $1,052 on holiday gifts.

live-simplyAs with any benchmark, the amount of money “the average person” spends on holiday gifts should bear little relevance on your spending. Whether you spend more or less than this projection is a personal choice that is best made with intention and with your own financial situation and goals in mind. These common holiday spending triggers, however, could get in the way of mindfulness and prompt you to spend more than intended.

Keeping up with others. If you try to match the amounts spent by colleagues, friends, family or peers, you could find yourself spending beyond your means and putting your financial goals in jeopardy.

Trying to be fair. A common cause of spend creep happens to create a sense of balance or fairness. When you overspend on one relative, you may be inclined to create equalization by matching the dollar value of gifts for others.

Just getting it done.  For some, holiday shopping is just another task in an already long list of things to accomplish by the end of the calendar year. It’s easy to overspend if you haven’t committed to a spending budget, decided who to buy for and what to get, and taken the time to seek out the best deals.

Autopilot. Sometimes we gift without considering whether the expenditure aligns with current realities. As families evolve, a discussion about how each member would like to celebrate the holidays may be worthwhile. For example, as your extended family grows, it may make sense to discuss a kids-only gift policy, put monetary limits on spending, or do a gift swap.

Self-purchases. Nearly sixty percent of holiday shoppers (58%) will buy for themselves and will spend on average of $139.61 doing so. This year’s projected self-spending is up 4% from 2015 and is at the second-highest level in National Retail Federation survey’s 13-year history.

The holidays only come once a year. Many people enter the holiday season as they would a free zone. They buy until they get to the end of their ever-growing list of recipients. They decorate until every square inch reflects the feeling of festivity in their heart. Unfortunately, many people do so without regard to the implications on short and mid-range financial goals and thus experience feelings of regret.

The act of gift giving has tremendous intrinsic and extrinsic value. A growing body of research suggests that the most important way in which money makes us happy is when we give it away. Gift giving at the expense of long-term financial goals, however, will bring anything but happiness.

Temptations beset all sides of the path to your financial dreams. During the holidays, temptations may take an altruistic form but still involve spending for today’s pleasures and forgetting about the Future You. This holiday season, give thought to how you give because the Future You is depending on your ability to be mindful, spot (over)spending triggers, and positively influence your ability to endure.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor

Trump’s free lunch: Avoiding a painful indigestion

Solomon-(2)Brad Solomon, Junior Investment Analyst

The aphorism “there is no free lunch” is one of those handy phrases used ad-nauseam in Economics courses. The seductively tasty platter currently set in front of investors is a lightning-fast reallocation of assets towards stocks that should “clearly” benefit from a Donald Trump presidency. Often, however, it pays to be a skeptic. I’m not critiquing the efficacy of the policies themselves towards promoting Americans’ well-being; I’m talking about the need to unhurriedly assess the second-level investment implications of policy and whether they have already been discounted into asset prices.

The ascendancy of the Trump administration and the degree to which President-Elect Trump will remain wedded to his campaign rhetoric have a number of moving parts. Now may be an opportune time to patiently exercise what Howard Marks of Oaktree Capital calls “second-level thinking”:

First-level thinking says, “It’s a good company; let’s buy the stock.” Second-level thinking says, “It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.”[1]

At Brinker Capital, we believe that second-level thinking is best nurtured by asking questions. Trump’s vision is to “transform America’s crumbling infrastructure into a golden opportunity for accelerated economic growth.” The number touted by greatagain.gov is $550 billion, and a recent paper by senior Trump advisors, Wilbur Ross and Peter Navarro, calls for spurring $1 trillion in privately-financed infrastructure investment over the next decade through use of tax credits.[2]  Buy infrastructure seems to be the screamingly obvious investment implication, but here are a few less obvious questions:

Is our infrastructure actually “crumbling?”

The American Society of Civil Engineers (ASCE) gave America’s infrastructure a “D” in its 2013 report card.[3] But coming from a professional trade organization of civil engineers, that’s probably akin to asking the cows from the Chic-fil-A commercials whether they prefer beef or chicken. Policy analyst Mark Scribner calls this the “Great Infrastructure Myth” and notes that the number of structurally deficient bridges has been declining for over two decades while pavements have become smoother in aggregate.[4]  A recent piece by Deutsche Bank Research[5] argued that infrastructure spending in the U.S. is not, as commonly assumed, lacking:

  • When using infrastructure-specific price indices, the share of real government investment to output has been stable for much of the last three decades.
  • After taking into account compositional changes in private capex, business investment has also remained steady as a percent of output.

How much “leakage” is there to the transmission mechanism by which government spending boosts profits in the private sector?

Investors would be wise to examine the intended and realized consequences of President Obama’s $840 billion American Recovery and Reinvestment Act (ARRA) of February 2009, much of which was directed towards infrastructure. Michael Grabell’s 2012 piece “How Not to Revive an Economy” provides a sobering look at what led President Obama to admit that “there’s no such thing” as a shovel-ready project.[6]

Which subsectors are winners of increased public spending on infrastructure?

Infrastructure is a blanket term that encompasses a large array of systems: energy, transit, ports, aviation, levees, dams, schools, roads, inland waterways, public parks, rail, bridges, drinking water, and waste treatment. Twelve of the 16 sectors reviewed on the ASCE’s 2013 report card received a grade of “C” or worse. Narrowing in on two subsectors, what evidence exists that Trump will favor oil and gas over renewable energy, for instance, and will he possess the means to undo the renewable energy investment tax credit (ITC) that was recently renewed in December 2015?

Okay, you’ve decided to buy an infrastructure fund. What’s under the hood?

There are 18 open-end funds focused on infrastructure and 15 ETFs with “infrastructure” in their name. Let’s say that you’ve set your sights on one of the larger ETFs in the group focused on income-generating infrastructure equities. By sector, utilities comprise 49% of the ETF, not uncommon for other members of the group. Is that an allocation you’re comfortable making? The Committee for a Responsible Federal Budget projects that the Trump administration’s plans will increase the national debt by $5.3 trillion, to 105 percent of GDP by 2026.[7] Profligate deficits tend to have the effect of raising benchmark interest rates, and high-yielding utility stocks have traditionally been rate-sensitive instruments.

The investment world lends mythical status to the “contrarian” who takes out-of-favor positions. But standing out from the crowd is also possible simply through exercising patience and requiring a fully fleshed out view as precedent for making a judgment.

Our founder, Chuck Widger, provides timeless advice in his New York Times best selling book entitled, Personal Benchmark: Integrating Behavioral Finance and Investment Management, that helps advisors and investors stay the course in times such as these:

What this boils down to is that advisors must develop and oversee the execution of an investment strategy that anticipates the inevitable potholes and stays the course of efficiently compounding the investment portfolio to create purchasing power. This requires both the management of the investment portfolio and the management of investor behavior. Skilled, experienced advisors know that one of their most important responsibilities is to help investors avoid making emotional decisions when volatility is high or when markets are irrationally exuberant.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor. 

[1] Marks, Howard.  “It’s Not Easy.”  Oaktree Capital Management.  September 2015.

[2] Ross, Wilbur & Peter Navarro.  “Trump versus Clinton on Infrastructure.”  October 2016.  Specifically, the paper assumes projects are funded by debt and equity at a ratio of 5:1 and proposes to award a tax credit to the equity investor at 82% of the equity contribution or 13.7% of the project cost, and then tax the labor component of construction and the contractor’s pretax profits to bring the program towards revenue neutrality.

[3] American Society of Civil Engineers.  “2013 Report Card for America’s Infrastructure.”  March 2013.

[4] Scribner, Marc.  “The Great Infrastructure Myth.”  Competitive Enterprise Institute.  November 2016.

[5] Tierney, John.  “America’s Fiscal Consensus—A Bridge Too Far.”  Deutsche Bank Research.  October 2016.

[6] Grabell, Michael.  “How Not To Revive an Economy.”  The New York Times.  February 2012.

[7] Committee for a Responsible Budget.  “Promises and Price Tags: An Update.”  September 22, 2016.

Veterans Day: A time to say thank you

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

Today we recognize those who have sacrificed careers, precious time with loved ones, and even their lives to answer our country’s call to service.

Please take a moment out of your busy day today to attend a Veterans Day event in your area or simply say thank you to those who are currently serving or have served in the military.

On this Veteran’s Day, we say thank you to our veterans at Brinker Capital—Chuck Widger, Tom Daley, Jimmy Dever, Lee Dolan, Jay O’Brien, Jim O’Hara, Jeff Raupp and Bill Talbot—and to everyone who has served and protected our country.

To be born free is an accident.
To live free is a privilege.
To die free is a responsibility.
–Brig. Gen. James Sehorn

If you’re looking for additional ways to get involved, click here for ideas.

Brinker Capital, Inc., a Registered Investment Advisor

Being right for the wrong reasons

Andy RosenbergerAndrew Rosenberger, CFA, Senior Investment Manager

Investors betting on a Hillary win should be grinning ear-to-ear with the outcome of the election. Picture this for one moment. Imagine if I had told you last week who would win the election – but nothing else. Odds are, particularly after listening to the “experts” that you would have sold everything. Maybe if you’re the type who likes to speculate, you would have also used those cash proceeds to short the market, buy some VIX, or perhaps buy long-term Treasuries. After all, the standard meme was Trump = Bad for Markets, Clinton = Good for Markets. Good thing that crystal balls don’t exist. It’s a classic case of being right for the wrong reason. Or, taking the other side of the coin, being wrong for the right reason. As we all digest the outcome of events and try to comprehend what this all means, here are a few ruminations that come to mind:

  • Event-driven investing is REALLY hard. Event-driven investing is the idea of speculating on the outcome of a specific event. It sounds easy. But think about all the factors that go into it. You have to be right on calling the outcome. You have to be right on how the market reacts to that outcome. You have to know how much is already discounted into the market already. You have to have better information than everyone else. You have to structure the trade in such a way that it’s profitable. Like many things in life and investing, it sounds easier than it is.
  • Income relative to duration matters. In one single day, over a year and a half worth of income was wiped out for anyone investing in long term Treasuries. Prior to the election, the 30 year bond was yielding approximately 2.6%. The Wednesday after the election, the Barclays Long Term Treasury Index was down -4.14%. So now investors will have to wait over a year for the income generated on their bonds to make up their losses. Or, maybe they could try out some event-driven investing tactics mentioned above.
  • Volatility is dynamic. When regimes change, low volatility may suddenly be high volatility. It seems like a no-brainer. You can outperform the market with less risk by simply investing in stocks with lower volatility. Forget that it’s the topic du jour. Forget that there are immense amounts of money flowing into this group of stocks. Forget that valuations for these types of stocks have never been higher. It’s worked in the past. Well, until it doesn’t. I acknowledge it’s only one day. But yesterday’s dramatic underperformance of low volatility reemphasizes the point that there’s more to investing than simply investing in what worked historically.
  • Consensus is usually right…until it isn’t. Unlike low volatility stocks, just a few months ago everyone hated financial and healthcare stocks. After all, the yield curve was going to stay flat forever hampering banks and insurance company’s ability to generate returns. Separately, politicians were going to destroy the profitability of pharmaceutical companies by reversing sky-high drug prices. Bad fundamentals. Check. Bad technicals. Check. Market experts agree with you. Check. Unfortunately, when these views reverse, as we’ve seen as of late, they do so extraordinarily fast.
  • In statistics, sample sizes do not represent the overall population. How is it that in an era of big data and interconnectivity that our methods for predicting elections have gotten worse, not better? Certainly the migration away from landline phones and the shy Trump voter effect were both major factors. But anytime we talk about polling, we have to remember that we’re taking small samples of a very large population. I, for one, have NEVER been asked by a polling authority who I’m voting for. With over 119 million voters this election, I would imagine there are quite a few others who weren’t part of the sample size either. Statistics matter but so too does the means with which they are applied.
  • Politics can be very emotional for individuals. Particularly within investing, emotion and outperformance rarely coincide with one another. Investing is hard enough as it is. Billions of dollars of research has been dedicated to the art and science of getting a competitive advantage over other investors. And most haven’t been very successful.

The bottom line is that investors should focus on the long-term outcome knowing that over time, Democrat or Republican, 2% growth or 4% growth, Fed rate hike or no rate hike, that their investments will work for them in the long-term.

Brinker Capital understands that investing for the long-term can be daunting, especially during a time like this but we are focused on providing multi-asset class investment solutions that help investors manage the emotions of investing to achieve their unique financial goals.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor. 

Investing involves risk, including risk of loss. Diversification does not ensure a profit or guarantee against loss. Past Performance is no guarantee of future results. 

Where will you be when the dust settles?

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

Since Donald Trump has been elected as the 45th President of the United States, the question we hear repeated most often is “what happens now?” While the immediate focus will be outlining transition of power plans, political appointments and the first 100 days of the Trump presidency, we’d be hard-pressed to find any expert who believes the uncertainty will end then.

Trump campaigned on a platform calling for sweeping change and dramatic deviations from the Obama administration. He wants to overhaul immigration policies, health coverage, taxation, and trade policies, all of which will have significant economic implications. His policies have yet to be clearly defined and we’ll have to wait to see if those policies will meet Congress and the Courts’ approval. There is also much speculation on who will be named to head the Treasury and whether he will follow through on his intention to replace Janet Yellen as Federal Reserve Chair. While these and many other economic dust particles swirl in the air, one thing we know for sure: the post-election uncertainties will create market volatility.

Even the savviest investor or most skilled asset manager cannot predict or control where the markets will land when the dust settles. So, instead of trying to glean actionable insights from uncertainty, we urge investors to focus on matters within control, such as:

  • An understanding that volatility is part of investing. In a recent blog, Dr. Daniel Crosby explained the impact elections have had on previous markets. It is worth re-reading and repeating that election cycles are like any other market cycles. Trends and patterns exist which may allow some securities and asset classes to outperform others. In light of the number and weight of the unknowns associated with a Trump presidency, the patterns of previous election cycles may bear little (if any) relevance to our experiences and decisions today. To put the volatility in perspective, try to repeat the lyrics of the famous Shirelle’s song, “Mama said there’d be days like this.” Volatility is part of investing and should not cause you to question your overall investment strategy. However, investors must seek to reduce volatility in their portfolio while maintaining the opportunity for appreciation.
  • Diversification can bring peace of mind. In addition to the economic benefits of investing broadly in a variety of asset classes, there are emotional gains to be made as well. When your portfolio spans asset classes, geographic regions, business sectors and investment styles, you know that while some conditions may be negative for one sector, they could be positive for others. You become less concerned about the performance of a particular asset class and focus more on how your total-return performance impacts your personal goals and benchmarks.
  • Your reliance on a competent advisor. Studies have shown that the greatest value provided by a financial advisor is behavioral coaching. It is in times of volatility and uncertainty that advisors earn their keep, so don’t be afraid to seek assurances and direction from your advisor.
  • A long-term perspective. Investing for the long-term can be daunting, so it may be helpful to remind yourself that it pays to wait. The worst return of any 25-year period was 5.9% annualized1. Time is on your side. As Crosby cautions, “Markets always have and always will climb a wall of worry, rewarding those who stay the course and punishing those who succumb to fear.”
  • Your goals are your benchmark. You have the power to control your actions, follow a plan, and make investment decisions on merit and not emotions. As John Coyne’s blog mentioned earlier in the week, it is important that you avoid emotions that could wreak havoc on a lifetime of careful planning. The degree with which you can maintain composure and stick with the plan put in place by your advisor is the single biggest predictor of where you will stand relative to your long-term financial goals when the dust settles.

Brinker Capital understands that investing for the long-term can be daunting, especially during a time like this but we are focused on providing multi-asset class investment solutions that help investors manage the emotions of investing to achieve their unique financial goals.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor. 

Investing involves risk, including risk of loss. Diversification does not ensure a profit or guarantee against loss. Past Performance is no guarantee of future results. 

Fun Facts on The Election & The Stock Market…and Why None of Them Matter

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes & Founder, Nocturne Capital

With less than one month remaining until the election, the already frenzied political coverage is sure to become even more fevered in the coming days. While each presidential election is unpredictable, it seems certain that this one is destined for the history books. For all of their sophistication, are there any political pundits that correctly predicted the rise of Bernie Sanders or that Donald Trump would emerge from a pack of 16 more politically experienced Republicans?

Adding to the confusion is that recent popular votes of all stripes—from Brexit to the Colombian peace deal—have not gone the way pollsters predicted. In the face of all of this uncertainty it is natural to wonder, “could the U.S. be the next surprise?” And a natural follow-on question is, “What does all of this mean for my money?” To begin to answer these questions, let’s look at some historical trends around U.S. elections and the stock market.

Incumbent vs. Challenger

Most considerations of political impact examine how potential candidates might influence the market, but let’s begin our study by flipping that on its head and ask, “How might the market help determine who wins the election?” As you might expect, incumbent parties are helped enormously by a rising market and challengers tend to be swept into power by a poor market.

washington_wallstreetSince 1928, 14 of the 22 presidential elections saw a rise in the broad market in the three months leading up to the big vote. In all but two of those instances, the incumbent party stayed in their comfy digs on Pennsylvania Avenue. But what of the eight instances where the market was down in the run up to the election? All but one of those more bearish periods saw the incumbent ousted from power.

This phenomenon was seen most recently in the failed reelection campaigns of George H.W. Bush (1992) and Jimmy Carter (1980). Bill Clinton, sensing the natural tendency of hard economic times to bring about change chided the senior Bush with his now famous “It’s the economy, stupid” line. The date to watch for this particular metric in this election cycle is August 1, at which time the S&P 500 closed at 2,170.84.

Democrats versus Republicans

Inasmuch as Republicans are broadly perceived as the more pro-business of the two parties, it may come as a surprise that the stock market has performed considerably better under Democratic than Republican presidents. In fact, since 1945 the average annual gain under a Democratic president is 9.7%, easily besting the average gain of 6.7% on the Republican’s watch.

But a closer look at the statistics tells a more nuanced story as, to borrow a Dickensian turn of phrase, Republicans have presided over both the best of times and the worst of times. The market’s most successful run occurred under Republican Gerald Ford—a whopping 18.6% annualized. However, the elephants also own the only two losing records in modern (post-1945) market history, with George W. Bush (-4.6% annualized) and Richard Nixon (-5.1% annualized) both overseeing periods of extended bearishness.

electionThe Election Cycle

Having now examined the market’s ability to predict the winner of the election and the impact of parties on performance, let’s look at the influence of the presidential cycle on market returns.

Since 1833, the market has typically produced the best returns in the year preceding an election, averaging 10.4% annualized. Election years themselves have tended to be good as well, with average returns at right around 6%. The worst years in the election cycle have been the first and second years of a president’s term, averaging 2.5% and 4.2% respectively. The conventional logic has been that familiarity breeds comfort and that the uncertainty surrounding the economic policies of a new leader have driven low returns early in the cycle.

Why None of This Matters

Having gone to some pain to research the relationship between the election and the market, let me now suggest that none of what you have read above matters. None of it. Our desire to look for signal in the unending noise surrounding political campaigns is a waste of time at best and can be dangerous to our financial well-being at worst. The government produces data on 45,000 pieces of economic each year and when they are laid on top of the mountain of data collected by political scientists, correlations emerge and most of them are spurious. To quote political pollster Nate Silver, “The temptation that some economists succumb to is to put all this data into a blender and claim that the resulting gruel is haute cuisine.” To make this point more concretely, consider some of the following:

  • Since 1928, election years like this one without an incumbent running for reelection have been some of the worst on record, clocking a -2.8% annualized return. Had you been aware of and acted on this information, you would missed the 5.37% gain for the large cap index year to date.
  • As discussed above, the market tends to gain 6% in election years. Great, but small comfort to those who lost 34% in 2008, an election year. It has been joked that a six-foot man can easily drown in a river that is three feet deep on average (since many parts of the river might be much deeper). The same can certainly be said of market returns where long-term averages tend to mask the more dramatic volatility underneath. The performance of the market is more attributable to economic conditions than superior policies. Democratic Presidents Roosevelt and Obama both inherited markets broken by the Great Depression and Great Recession respectively. While both deserve credit for guiding the nation during difficult times, they are also the beneficiaries of a tendency for stock prices to mean-revert and bounce back from dramatic lows. Bulls and bears may have less to do with donkeys and elephants than the statistics might suggest.
  • Finally, consider the research suggesting that the first year of a President’s term leads to the most paltry returns. Had you acted on this knowledge, you would have missed the 23.45% rise in the market in Obama’s first year in office and the double-digit advance in the first year of Bill Clinton’s presidency. By definition, averages are generalities that are not true of any specific situation and relying on them can cause deviation from an otherwise sound financial plan.

Election years introduce volatility and uncertainty into financial markets that leave investors and advisors alike searching for a calm port in a wild political storm. But in our efforts to make sense of the political and economic landscape, we run a real risk of finding connections where none exist. In 2016, one of America’s most powerful political dynasties was nearly upended by an independent and self-proclaimed democratic socialist. The Republican Party is now helmed by a reality television star who has never held office. The Cubs are in the playoffs.

At uncertain times like this, investors must return to what Jason Zweig refers to as “controlling the controllable.” The outcome of the election and the accompanying market reaction are very much unknowable. What remains very much in your control are your ability to diversify across multiple asset classes, maintain a long-term focus and work closely with a competent advisor to manage your own behavior. I don’t know who will win the White House and neither do you, but I know with some certainty that patient investors adhering to first principles will always come out ahead.

Sources:

http://www.kiplinger.com/article/investing/T043-C008-S003-how-presidential-elections-affect-the-stock-market.html

https://tickertape.tdameritrade.com/investing/2016/08/can-election-predict-market-performance-10313

https://www.ml.com/articles/how-presidential-elections-affect-the-markets.html

http://money.cnn.com/2015/10/28/investing/stock-market-democrats-republicans/index.html

http://www.comstocksmag.com/article/data-driven-0

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.