Now that the race for the White House has been narrowed to two major candidates, it's time to consider the election from the standpoint...

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Now that the race for the White House has been narrowed to two major candidates, it’s time to consider the election from the standpoint of a fund investor, trying to decide which candidate is best for the portfolio.

The conclusion of most people is the business and investment community should favor Republicans, but that’s not clear at the presidential level. Historically speaking, the stock market has performed better with a Democrat in the White House than a Republican. On a short-term basis, analysts suggest that trend could continue.

“History has shown that the first two years of a presidential term tend to be the worst years for the stock market, but you could certainly expect that any policy that favors fiscal expansion would be better received by the stock market in the short term,” says Thurman Smith of Equity Fund Research in Malden, Mass.

“You can argue about what is the best course for the economy in the long term, but if you expect [Barack] Obama to increase government spending, then you would expect the market to do a little better for the first two years than if [John] McCain wins.”

Smith and others are equally quick to note, however, that the president only has a limited impact on the economy and has even less effect on the market, so that the short-run market potential is not a particularly convincing reason to vote.

A bigger reason might be who can help you best grow your nest egg. Neither candidate has said much on any savings policy — and there is nothing on the legislative horizon that calls for action — so that’s worth watching, but is currently a push.

The big area of concern for fund investors, therefore, is on the tax front. Reduced tax rates on capital gains and dividends will expire in 2010, and McCain is on record as saying he would like to keep current levels.

That doesn’t mean a tax boost is out of the question, but it might be some sort of compromise, where the rate on dividends and capital gains goes up, but not to ordinary income levels.

Moving from the current 15 percent rate to, say, 18 percent, is far better than eliminating the difference and taxing those items as ordinary income, which typically means 28 percent.

Obama’s policies here are not so clear. He apparently favors ending the special tax treatment for dividends and cap gains, but with an exclusion for people with lower incomes. Whether that means the dividend rate would stay low for average investors depends on how those levels would be set.

In the end, fund-specific issues probably aren’t enough to push a voter to one side or the other, at least not with what the candidates have told us to date about projected policies.

Investors with taxable accounts can give McCain the edge, people with mostly tax-deferred savings can go either way, and anyone hoping for a quick market pop could go for Obama.

Chuck Jaffe is senior columnist at MarketWatch. He can be reached at cjaffe@marketwatch.com or Box 70, Cohasset, MA 02025-0070.