WEEKLY BRIEF | Don’t Vote With Your Portfolio

Hello, and welcome to the IVA Weekly Brief for Wednesday, October 28.

There are no changes recommended for any of our Portfolios.

With the midterm elections less than a week away, now is a good time to caution against mixing politics and investing.

Yes, midterms decide who controls Congress, not who sits in the White House. And the presidency is where investors’ political feelings tend to run hottest (“I’m not investing while that guy is in office”), so it’s the cleanest test case. But the lesson applies just as well to Congress.

Consider three hypothetical investors who each started with $10,000 at the end of 1976:

1. Democratic Dave holds stocks (500 Index, VFIAX) only when a Democrat is president. When a Republican is in office, he moves to cash (Cash Reserves Federal Money Market, VMRXX).
2. Republican Rachel does the opposite, owning stocks only when a Republican is president.
3. Steady Stevie ignores politics and holds 500 Index throughout.

Through September, Steady Stevie’s $10,000 has grown to nearly $2.5 million. Democratic Dave has $1,020,991, or less than half as much. Republican Rachel trails far behind at $222,301.

Dave’s edge didn’t come from spending more time in the market. Over this stretch, Republicans held the White House for two more years than Democrats.

Does that mean stocks do better under Democrats, despite Republicans’ reputation as the more business-friendly party? I wouldn’t read anything into it. It’s easy to slice the numbers into a winning “strategy.”

For instance, an investor who held stocks only in odd-numbered years (1977, 1979 and so on) would now have $1,411,517, beating Democratic Dave. An investor who held stocks only in even years would have just $160,797. Is there anything special about odd years? Of course not.

The real lesson is Steady Stevie’s consistency and the power of compounding. Partisans on both sides have had ample opportunity to say, “I won’t invest as long as so-and-so is in the White House.” The ones who acted on it paid dearly. Compounding takes time, and sitting out half of that time is a costly way to make a political point.

Elections are emotional for everyone, as voters, citizens and investors. If selling (or buying) some stocks helps you sleep at night, do it. But let the investor in you hold the remote, and turn down the volume on cable news and social media. You can stay informed without hanging on every headline.

The bottom line: Your portfolio will be better off if you keep politics out of it.

What’s a “Financial Consultant”?

Last week, I told you Flagship clients now get access to a “financial consultant,” and that I’d asked Vanguard what that means. The short answer: It’s a relationship manager, not a financial adviser.

Vanguard says your Financial Consultant is meant to be your ongoing point of contact. They’ll learn your goals and upcoming milestones, such as retirement, college savings or an inheritance. They’ll answer general investing questions, explain Vanguard’s products and services and connect you with specialists.

What they won’t do is give you financial advice or manage your money. For that, Vanguard will point you to one of its paid advice services.

Vanguard’s own job listing for the role fills in the rest. It calls the position a “consultative sales role” with an assigned book of clients. Consultants are expected to learn about your “outside assets,” and they’re eligible for bonuses tied to business results. Vanguard confirmed this is the same role serving Flagship clients.

None of that makes the help less useful. Having one person who knows your situation (and Vanguard’s lineup) beats starting from scratch with a new phone rep every time. But it should shape what you expect from the conversation. If a consultant suggests moving outside assets to Vanguard or signing up for a paid advice service, that may well be a good idea. It’s also their job.

The bottom line: Use the consultant. Just remember who cuts their paycheck.

Our Portfolios

Our Portfolios are showing solid gains for the year through Tuesday. The Aggressive Portfolio is up 13.4%, the Aggressive ETF Portfolio is up 11.6%, the Growth Portfolio is up 12.6%, the Moderate Portfolio is up 11.7% and the Conservative Portfolio is up 7.3%.

This compares to a 13.7% gain for Total Stock Market Index (VTSAX), an 11.2% return for Total International Stock Index (VTIAX), and a 0.8% decline for Total Bond Market Index (VBTLX). Vanguard’s most aggressive multi-index fund, Target Retirement 2070 (VSNVX), is up 11.4% for the year, and its most conservative, LifeStrategy 20/80 (VASIX), is up 2.0%.

IVA Research

Yesterday, I shared my annual capital gains sneak peek with Premium Members. Vanguard’s active stock funds are on pace for their biggest payouts in more than two decades.

Until my next IVA Weekly Brief, have a safe, sound and prosperous investment future.