Does the election effect where we put money?

[clifp]

Yesterday's sell off means that some people are (over) reacting to the election, but I think it reflects the realization that now the fiscal cliff is looming. Expect volatility until it becomes clearer that this will be addressed, which of course it will be. Meanwhile the underlying fundamentals of the US economy are improving.

I am getting ready to do some rebalancing and will wait for the next bounce before selling some equities.

I am not sure that it is an overreaction. I think the election which basically maintains the status quo, increases the likelihood that nothing will be done to deal with either the short term or long term fiscal problems.

The expiration of the Bush Tax cuts alone dramatically changes the investment situation, much less all of the other issues.

In my case I have a portfolio heavily invested in dividend stocks. Over the last few years, my formerly unloved and sleepy dividend stocks, have become the hot new girl in school, gained popularity and the price has risen. In many cases to levels which I think are too high on absolute basis but not necessarily on a relative basis to other investments.

The tax cuts expiring means that dividends are now treated as ordinary income. In fact since the preferential treatment for dividends was not part of the original tax cuts but came about in 2003 (I think) law. There is a reasonable chance the Congress will drop it all together.

Now normally, I'd look at stock with a 4% yield at this time of year and think. Is the price above my target? If yes (and it generally is) I'd say is there an alternative investments that I can make that will provide me an after tax income stream greater than the stock. Right now after accounting for the 15% capital gains tax the answer is generally no.

However, if I think it is likely that dividends will be treated as income the numbers change. Now suddenly the 4% yield which was 3.4% after tax now only provides an a 2.88% yield for a 28% tax bracket. That number could drop to just 2% for wealthy person in California.

Then I factor in that I gain an additional 13% if I sale this year as opposed to this year and suddenly holding the stock looks far less attractive even if I don't have an alternative investment. Then I ask myself have I figured out something the rest of the market hasn't, of course not. All the hedge fund manager etc know this. On the other hand do I think the Joe Blow who a Dividend ETF or mutual fund has figured this out or even some of the guys passively managing money. No I don't. So maybe I should join the "smart money"and sell now. Of course if they do extend the tax cuts I am probably better off holding, rather than timing the market.

Still I figure the expiration of the tax cuts means a roughly 15% decrease in the after tax cash flow of stock investments. (This is completely ignoring any economic effect like triggering a recession). If the election result increased the probability of them expiring to say 50% than a 7.5% or 1,000 point in DOW is completely justified.

 

[Sirka]

Does the presidential election effect where anyone is putting their money?

No changes in my investments. Waiting to invest more into stocks after this correction.

 

[frayne]

Staying the course here.

 

[ESRwannabe]

Does the presidential election effect where anyone is putting their money? Just curious.

No, no change for me. I've always invested in a tax efficient manner. I've always used my retirement accounts and my taxable account in what I consider to be the best way, in terms of what assets go where.

What it does do, is reinforce the importance of becoming financially independent ASAP. Romney might have been able to improve the economy, but with Obama, I think nothing is going to change much. The next four years will probably be like the last four years (or worse).

I feel pretty confident that I will be able to maneuver around whatever new tax-schemes get implemented. My needs are minimal. I can be very mobile if I need to be. I have useful work skills. Lastly I have been very proactive. I started saving aggressively ten years ago.

I will adjust to whatever happens. I feel very confident that I will be able to ESR by age 45, as I have been planning to do.

 

[rbmrtn]

I guess it depends where you are starting from. I don't anticipate much of an impact for myself. I plan on maintining my div/interest below the 15% bracket. Since I'm already in the 15% level I don't see any additionl impact. If the big boys sell off the dividend payers I plan on buying some from my shopping list. Also depends on much of your dividends were qualified as opposed to ordinary.

 

[M Paquette]

Actually, Oregon voted DOWN it's pot decriminalization proposal. It doesn't really matter though we already have "medical" dispensaries everywhere and the climate here is so ideal for growing the little herbs that the mexican mafia has moved into the forests and have elaborate plantations going on. Be careful with that little hike in the forest around these parts

Huh. "the mexican mafia has moved into the forests and have elaborate plantations going on"

Gosh. I wonder who funded the campaign to vote down legalization? Golly. Having law enforcement keep down the competition and provide that informal crop subsidy sure is handy...

 

[NW-Bound]

I did not know about the MJ propositions in OR, WA, and CO until this thread. And being the inquisitive type that I am, I have found a site that compares the 3.

Comparing Marijuana Legalization Measures In Oregon, Colorado, And Washington | The Weed Blog.

While CO allowed small amount of cultivation for personal use, WA did not, and OR had no limits. If the OR proposition passed, a resident could grow acres if he wanted, as long as he did not sell it and only gave it away. Yeah right! Sales would be allowed only to the state, which then resold it to individuals.

Could it be that the "unlimited personal cultivation" was what killed the proposition?

Anyway, regarding Mexican drug cartels, some Web sites I found said that the Mexican gangs would just stop smuggling/growing MJ and switch to other drugs. As long as there are Americans using drugs like cocaine and heroine, there will always be money for them to make.

Back to the OP, where do we put our money again?

 

[eytonxav]

Since nothing changed after the election, I took some $s out of equity side. I see a potential market decline due to impending fiscal cliff and gummit gridlock, which I suspect could be worse than the debt ceiling crisis back in August 2011. Hope I'm wrong, but I'd rather sit this out at a lower equity allocation until we are out of the woods, which I suspect may not be known for another couple of months.

 

[HFWR]

Since nothing changed after the election...

Yep

 

[NW-Bound]

Surely, nothing has changed.

And the market hates uncertainty.

 

[MichaelB]

Surely, nothing has changed.

And the market hates uncertainty.

Nothing has changed. The future is just as uncertain as it has always been.

 

[NW-Bound]

It's not about what we think, but what "the" market thinks.

Of course it is only with respect to the short term.

And in the long term, well, we will all be dead. Short term is all we get to deal with.

 

[clifp]

Nothing has changed. The future is just as uncertain as it has always been.

I think the election had an opportunity to make things more clear by giving one side or the other control over the government. The fact that it didn' t change anything and both sides have reacted by digging in their heels, makes the situation more uncertain.

 

[samclem]

I think the election had an opportunity to make things more clear by giving one side or the other control over the government. The fact that it didn' t change anything and both sides have reacted by digging in their heels, makes the situation more uncertain.

+1. The chance that things might change (for the worse, for the better, whatever that means to each person--but especially that control over the government might go to one side) was already baked into the pre-election prices. Now that we know what has resulted (a continuation of the previous power balance) we'll see how the market reacts. Maybe we're seeing it now.

 

[ERhoosier]

IMHO- Biggest 2-day point drop of year suggests election result was not priced into market, but only time will tell. I am decreasing overall equity exposure due to increased risk of another recession (due to probability of more US business regulation, ongoing Eurozone weakness, etc.). Rebalancing remaining equities towards dividend-paying economically defensive issues (consumer non-durables, non-coal utilities, water, waste management, etc.) and certain non-European foreign markets. Keeping all my fixed-income exposure high quality & short-term (~1yr max). When a gov't gets this far in debt with no clear repayment plan, risk of sudden, sharp rise in inflation (i.e. monetizing the debt) is ever present. Surely I'm not the only one who remembers "stagflation" or US Prime Rate of 20%.

 

[obgyn65]

I have changed nothing in my investments. Staying the course. Thinking of learning about funds and equities when I finally FIRE, maybe I will change the course then.

 

[Ronstar]

IMHO- Biggest 2-day point drop of year suggests election result was not priced into market, but only time will tell.

I heard some financial guru saying that people have been buying coal and banking stocks for some time, running up the price. When Obama (who is more anti-coal and more pro- banking regulation than Romney)was re-elected, these people sold immediately. This made some sense to me. I expect the market to be flat for awhile and for the gov't to come up with a solution that kicks the fiscal cliff down the road.

I'm going to stay put in my investments. But I think the election results will result in banking, coal, and defense contractor stocks not performing as well as if Romney was elected. There will be others that perform better under an Obama administration than under Romney. It will probably be a wash in the long run.

 

[frayne]

If the Mayans are correct, it's a moot point.

 

[Ronstar]

If the Mayans are correct, it's a moot point.

True, but at least we have a month and a half left.

 

[bolt]

I must agree with "The future is just as uncertain as it has always been". However this is a last term, so fewer consequences for any administration.

 

[copyright1997reloaded]

Given the election results, I've decided to sell some highly appreciated securities. I've already done some tax estimates and I will be likely selling until I reach the AMT threshold. So, I am actually going to pay a lot more in 2012 taxes that I would have.

For example, if one had bought AAPL in late 2001, their cost basis on the stock is about $10. Sell it now, collect the $546/share. So, on 100 shares this would be $53,600 in profit. 2012 capital gains tax is 15%, so $8,040 in taxes. 2013 capital gains tax (if not extended) is 20%, so $10,720 in taxes. Net "savings" by selling now is $2,680.

The above example is real (to me), as I did buy 100 shares of Apple in 2001. Sold 1/2 after they split (big mistake, but got my $ out of the stock), and own 100 shares now. [I'm actually leaning against selling it as I think it is under priced at $546/share.]. But I have other assets that do have significant long term gains which are candidates.

There are many others out there that are doing similar analysis. This doesn't mean that the market will collapse, as it depends on where the funds from those sales are deployed. However, I think at least some of them will go to other asset classes and geographies. (At least I'm thinking that way, that I need further geographical and asset class diversification.)

 

[Walt34]

Thank you everyone but this thread has run it's course.

Rare Porky the Pig Thats All Folks - YouTube