How Will Presidential Election Impact Your TSP?

What impact would the election of John Kerry have on TSP funds? One financial analyst looks at his economic positions and makes a prediction.

A variety of polls show that the current opinion of the American public in presidential preference polls in very close. A poll published this week showed President Bush with a very small lead. The same poll showed John Kerry with a very small lead just one week earlier.

As we have noted in previous polls, federal employees tend to be more liberal in their political views than nationwide polls. This trend has continued as in our most recent poll, readers expressed a preference for John Kerry over George Bush 49% to 41% in the upcoming presidential election.

In the poll, hundreds of readers sent in their opinions in addition to their voting preference.

Groups of people tend to vote their own economic self-interest and federal employees are no exception. For example, people who sent in their reasons for supporting a candidate often cited reasons such as contracting out of federal jobs or the impact of administation policies on their pay. For example, a reader from Michigan said this: “Bush has done everything he can to decrease federal employee’s rights and job security. I can’t imagine why any federal employee (except for political appointees) would be interested in supporting him.”

A number of readers also cited the Iraq war as a reason for voting for or against a candidate. For example, an HR specialist with the Forest Service wrote: “Bush is out of control. He has put the country so far in debt and his management of the Iraq situation is getting too many Americans killed.” And a secretary with the Navy in Camp Pendleton, CA said she was voting for President Bush for this reason: “He’s done a fine job with terrorism. Keep up the good work.”

Several readers mentioned the economy or related issues as a reason for their voting preference. But out of the hundreds of opinions sent to us (yes, we did read every single one), not a single opinion mentioned the impact of the election on the Thrift Savings Plan or the stock market.

The Thrift Savings Plan is obviously of major economic significance to federal employees. For many employees, their ability to retire (or not to retire) will depend on the performance of their TSP. And the TSP is growing at a rapid rate with millions of dollars routinely being added to the TSP funds.

We suspect that the reason the TSP was not directly mentioned is that most federal workers do not consider themselves to be investors. Politics is part of the federal government in a variety of ways so it isn’t too surprising that most readers mentioned politics or a political issue as the basis for their support.

Here is a different perspective written by a newsletter editor writer. Tobin Smith is a market analyst for the “Bulls and Bears” financial program and the author of a number of books and articles on financial issues. He is currently Chairman and Chief Investment Officer of ChangeWave Capital Management. ChangeWave Investing is a newsletter he edits and is distributed monthly.

As one might expect, Smith writes primarily from the perspective of a financial analyst and not as a politician. In the most recent issue of ChangeWave Investing, Smith wrote an article entitled “Considering the Kerry Trade.” In the article, Smith writes: “If you don’t like Bush, fine. But if the security of your retirement kitty is as important to you as it is to me, I beg you to think twice about the consequences of what a Kerry presidency will mean for the markets.”

ChangeWave Investing says that in the view of Wall Street, John Kerry’s views are “anti-free trade, anti-business and anti-capital formation.”

In plain English, Smith predicts that the election of John Kerry will result in a drop of 10-20% in the value of stocks and bonds. “A Kerry victory in November would radically change our outlook for equity investment in the U.S.–it would be a negative capital market Change-Quake of historic nature.” In effect, says Tobin Smith, the election of John Kerry could quickly reduce the value of your TSP account by as much as 20%.

Specifically, he cites Kerry’s views on the North American Free Trade Agreement (NAFTA), raising taxes on capital formation and raising taxes on the people who already pay most of the income taxes and adding a new layer of regulation into healthcare.

With events changing fast in the Middle East and in our economy, it is impossible to predict how the election results will come out in November. There is no doubt that the self-interest of voters will be in the forefront–we just don’t know how that self-interest will be defined on election day.

Feel free to add your own opinion in the space at the bottom of this article.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47