Focusing on INCOME when investing for retirement, and following a strategy that addresses the RISKS that can affect your future income and standard of living is extremely important! Many are saving and investing to support future spending, but most are focused on a magic number, not the income that a that number can support. Check out this short but informative clip on developing an income focused plan!

Fall is open enrollment in the American workplace, and you’ve probably already received you packets, forms, memos, meeting invites and apps for the benefits enrollment season. Navigating your benefits package can be overwhelming, and has a direct effect on your long-term savings. Park + Elm wants to help. Below is your quick guide to navigating your benefits booklet from start to finish:

Health Insurance – pay close attention to the following variables to the health insurance options:

• Coverage – compare what’s covered to your anticipated needs, i.e. maternity?
• Co-payments and Prescriptions – if you go to the doctor often, or have a recurring prescription to fill, evaluate these fees closely.
• Deductibles – the amount you have to pay out of your pocket before coverage begins. A high deductible plan typically means lower premiums, but participants pay more out of pocket if an unexpected illness occurs.
• Premiums – the monthly fee for coverage. A higher premium usually means lower deductibles, co-pays and more coverage. But that’s not always the best financial choice.

Tax advantaged accounts – beyond health coverage, these accounts allow you to save pre-tax dollars for ancillary health and other expenses.

• FSA (Flexible Savings Account) – similar in tax savings, a FSA allows you to use the funds for medical and child care services. There are limits to contributions and to carry over funds.
• HSA (Health Savings Account) – contribute to this account to help cover medical expenses you are paying out of pocket. Choosing a high deductible plan warrants opening an HSA due to the anticipated higher out of pocket costs. These funds roll over from year-to-year.

Vision and Dental – Simply put…

• Dental care is expensive. Insurance doesn’t cover a lot, but what it does cover usually outweighs the cost of the dental care without it.
• Vision care is inexpensive, but sometimes unnecessary. If you have healthy eyes you need a checkup only every 2 years, so vision premiums may not be worth it.

Life and Disability – Important Voluntary Benefits!!!

• Short-term Disability – are you covered for a short-term illness or injury?
• Long-term Disability – if you are unable to work for an extended period of time, how will you pay your bills?
• Life Insurance – How much should you leave your family if something happens to you?

401(k) – the likely #1 source of retirement savings, this benefit is the major player in your ability to retire. (Please Note: Contribution Limits are increased for 2019)

• Make a goal to increase your contributions every year
• Take full advantage of your employer’s match
• Make catch-up contributions if you are eligible
• Evaluate the need to defer some of your funds to a Roth 401(k) to provide future tax diversification.
• Evaluate your risk tolerance and allocate appropriately
• Choose low-cost funds

The best way to make the most of open enrollment is to simply set aside adequate time to review all your options carefully and ask any questions you may have. Consult with your financial advisor, as these benefits choices will affect your long-term savings. To make the most of open enrollment, read the fine print, consider your family’s needs and make an educated, rather than a rash, decision. We are here to help you navigate these important choices. Please let us know if you would like a more detailed COMPLIMENTARY REVIEW of your benefits booklet!

It’s almost Election Day in the US once again. For those who need a brief civics refresher, every two years the full US House of Representatives and one-third of the Senate are up for reelection.

While the outcomes of the elections are uncertain, one thing we can count on is that plenty of opinions and prognostications will be floated in the days to come. In financial circles, this will almost assuredly include any potential for perceived impact on markets. But should long-term investors focus on midterm elections?

MARKETS WORK

We would caution investors against making short-term changes to a long-term plan to try to profit or avoid losses from changes in the political winds. For context, it is helpful to think of markets as a powerful information-processing machine. The combined impact of millions of investors placing billions of dollars’ worth of trades each day results in market prices that incorporate the aggregate expectations of those investors. This makes outguessing market prices consistently very difficult. While surprises can and do happen in elections, the surprises don’t always lead to clear-cut outcomes for investors.

The 2016 presidential election serves as a recent example of this. There were a variety of opinions about how the election would impact markets, but many articles at the time posited that stocks would fall if Trump were elected. The day following President Trump’s win, however, the S&P 500 Index closed 1.1% higher. So even if an investor would have correctly predicted the election outcome (which was not apparent in pre-election polling), there is no guarantee that they would have predicted the correct directional move, especially given the narrative at the time.

But what about congressional elections? For the upcoming midterms, market strategists and news outlets are still likely to offer opinions on who will win and what impact it will have on markets. However, data for the stock market going back to 1926 shows that returns in months when midterm elections took place did not tend to be that different from returns in any other month.

Exhibit 1 shows the frequency of monthly returns (expressed in 1% increments) for the S&P 500 Index from January 1926–August 2018. Each horizontal dash represents one month, and each vertical bar shows the cumulative number of months for which returns were within a given 1% range (e.g., the tallest bar shows all months where returns were between 1% and 2%). The blue and red horizontal lines represent months during which a midterm election was held, with red meaning Republicans won or maintained majorities in both chambers of Congress, and blue representing the same for Democrats. Striped boxes indicate mixed control, where one party controls the House of Representatives, and the other controls the Senate, while gray boxes represent non-election months. This graphic illustrates that election month returns were well within the typical range of returns, regardless of which party won the election. Results similarly appeared random when looking at all Congressional elections (midterm and presidential) and for annual returns (both the year of the election and the year after).

Exhibit 1.       Midterm Elections and S&P 500 Index Returns, Histogram of Monthly Returns
January 1926–August 2018

Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. S&P data © 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

IN IT FOR THE LONG HAUL

While it can be easy to get distracted by month-to-month or even one-year returns, what really matters for long-term investors is how their wealth grows over longer periods of time. Exhibit 2 shows the hypothetical growth of wealth for an investor who put $1 in the S&P 500 Index in January 1926. Again, the chart lays out party control of Congress over time. And again, both parties have periods of significant growth and significant declines during their time of majority rule. However, there does not appear to be a pattern of stronger returns when any specific party is in control of Congress, or when there is mixed control for that matter. Markets have historically continued to provide returns over the long run irrespective of (and perhaps for those who are tired of hearing political ads, even in spite of) which party is in power at any given time.

Exhibit 2.       Hypothetical Growth of $1 Invested in the S&P 500 Index and Party Control of Congress
January 1926–August 2018

Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. S&P data © 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

Equity markets can help investors grow their assets, and we believe investing is a long-term endeavor. Trying to make investment decisions based on the outcome of elections is unlikely to result in reliable excess returns for investors. At best, any positive outcome based on such a strategy will likely be the result of random luck. At worst, it can lead to costly mistakes. Accordingly, there is a strong case for investors to rely on patience and portfolio structure, rather than trying to outguess the market, to pursue investment returns.