Every three months, I have to go see my financial advisor. Our principal discussion usually revolves around retirement. I intend to retire sometime in the next 15 years depending upon how much money I have saved.

I participate in The College of Idaho’s 403b plan (similar to a 401k but for non-profits) where I contribute 7 percent of my pay and the College matches it. Because this money is invested in the stock market, I like to keep track of the market and see how close I am to my retirement goal. In the late 1990s, I thought I might be retired by now. Based upon the market’s performance in the last seven years, I may be working until I am 80 (pity my poor future students). What has changed, and where is my money?

My review of the market is going to be based upon recent presidential terms. I do not contend that presidents have complete, or even significant, control over the economy or especially the stock market. There are many factors that contribute to the economy’s performance and even government as a whole is only one factor. That said, presidents do set the tone for the country and have an effect that goes beyond policies. For good or bad, presidents are evaluated by voters on the basis of the economy more than any other factor. With these qualifications out of the way, let’s get to the numbers.

First, let’s look at the performance of the market during the current administration. How has the most followed index, the Dow Jones 30 Industrials, fared? The Dow was at 10,587.59 on January 19, 2001, the day before Bush was inaugurated. As of last week (May 2, 2008 the last closing as I write this), the Dow was at 13,058.20 for a gain of 2,470.61 or 23.3% over seven plus years. That isn’t too bad but is little more than 3% a year. I could have done better with a good money market account. How about the NASDAQ, which is an index of high technology stocks as compared to the Dow’s industrials? At the beginning of the Bush administration, the NASDAQ was at 2770.38 while now it is 2476,99 for a loss of 293.39 points or 10.6%. Ouch. I should have just spent my money. For the tie breaker, let’s look at the Standard and Poor’s 500 Index, which is a broader indicator of market activity. It began the Bush Administration at 1342.54 and is currently at 1413.90 for a 71.36 point increase or 5.3% over seven years. Pathetic. I should have left my money in my checking account.

How about the performance of my retirement funds during the high tax years of Bill Clinton? The Dow was at 3,241.95 on January 20, 1993, which gave us a gain of 7,345.64 by January 19, 2001, or over 226%. Nice. The NASDAQ went up 2072.99 points or 297% and the broad-based S&P 500 increased a measly 210%. Even using the lower amount of the S&P and figuring on compound interest, you are still looking at around a 20% return per year. Just think, if you would have deposited $1,000 in a mutual fund that tracked the S&P 500 when Clinton was inaugurated and took it out when he left, that $1,000 would have turned into $2,100. You can see why I thought I would be retired now. Eight more years of those kinds of returns would have given me almost four and a half times my money.

Again, I know presidents are not completely responsible for the performance of the economy under their watch but sometimes their policies do not achieve the results the president had intended. George W. Bush cut taxes but I made more money from my investments during the higher tax years of the 1990s. I would gladly trade those tax cuts for the returns of the prior decade. Bush also has proposed eliminating the capital gains tax. He has done one better; Bush has basically eliminated capital gains.

Go Yotes.

Dr. Jasper M. LiCalzi
Professor
Department of Political Economy
The College of Idaho