Chart by: Tommy McCall/The New York Times
Your Vote: Democrat, Republican, or Compound Interest
On October 14, 2008 Tommy McCall of the New York Times proposed the following interesting experiment: Imagine that since 1929 you had to invest $10,000 exclusively under either Democratic or Republican presidents. Who would you choose and how would you fare?
As it turns out, since 1929 both Democrats and Republicans have each controlled the presidency for nearly 40 years. As of the writing of his article, McCall had determined the average annualized return for Republican presidents to be 0.4%. However, if you remove the outlier of Herbert Hoover during the Great Depression the average annualized rate of return during Republican tenure would have been 4.7%. Therefore, a hypothetical investment of $10,000 would have grown to $11,733 under Republican presidents, or $51,211 if Herbert Hoover were excluded. On the other hand, the average annualized rate of return for Democratic presidents stands at 8.9%. In the event of investing $10,000 under only Democratic presidents, such an investment would have grown to $300,671.
Let’s take things one step further than Mr. McCall though. What if you simply invested your $10,000 in January of 1930 and took the good with the bad (the S&P at that time was standing at 21.71). During this time span you would have gone through a multitude of financial crises including the Great Depression. In this scenario, you would be looking at an average annualized rate of return of roughly 4.75% over the span of 78 years. During this time the initial $10,000 investment would have compounded and grown to nearly $375,000. That is nearly $75,000 more than the other option of only investing under Democratic presidents.
What is the point? Regardless of the political party for which you vote, always vote for compounding interest when it comes to your investments.
– Stuart Hollenshead, WA Chemistry Teacher and Investments Club Advisor
