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ZAG: DATA POINT TO STRONG S&P 500 UNDER FIRST YEAR WITH DEMOCRATIC PRESIDENT IN WHITE HOUSE, BUT PROMISED TAX BITE COULD OFFSET GAINS

Folly of Chasing “White House Effect” Underscores Case for Long-Term, Passive Investing Strategy.

WASHINGTON.D.C.//October 29, 2008///Many investors incorrectly assume that stock market returns go up when a Republican is elected president, but history actually shows that the first-year total annual returns for the S&P 500 have tended to be higher when a Democrat is sent to the White House, according to a nearly 60-year analysis of S&P 500 returns outlined today by members of the Zero Alpha Group (ZAG), a international network of fee-only financial advisory firms. However, ZAG cautioned that what an investor gains in the stock market under a new President might end being surrendered through tax increases.

Using data generated by Savant Capital Management of Rockford, IL., three ZAG members firms – Resource Consulting Group of Orlando, FL., Carlson Capital Management of Northfield, MN., and Foster Group of West Des Moines, Iowa., noted that, since 1948, the S&P 500 Index has gained 15.8 percent under a Democratic president as compared to 11.2 percent with a Republican in the White House. In fact, six of the seven first full years after the election of a president since 1952 to have had negative returns featured Republicans in the White House starting a first or second term in office, including -11.88 percent for Year 1 of George W. Bush’s first term, -14.66 percent for the start of Richard Nixon’ second term and -10.78 percent for the initial year of Dwight Eisenhower’s second term. Only George Herbert Walker Bush escaped this first year “jinx” among Republican presidents, while Jimmy Carter at -7.18 percent was the lone Democrat to see negative stock market returns in the first year.

However, any value for investors associated with this “White House effect” is less clear when additional information is added to the equation. For example, four of the seven “down” first years for Presidential terms took place when Democrats controlled Congress. (Go to http://www.zeroalphagroup.com/pdfs/ZAG_White_House_effect.pdf to see the full Savant Capital data chart presented by the Zero Alpha Group.)

Additionally, the major differences between the tax plans for John McCain and Barack Obama could, if implemented, more than offset any difference in stock market returns, particularly for higher income investors. Where McCain would extend the Bush tax cuts, freeze capital gains and Social Security taxes at current levels and make estate tax provisions more generous, Obama has proposed to raise income taxes on higher-income individuals, increase capital gains taxes for the same group, raise the Social Security tax income ceiling and provide for estate tax provisions less liberal than those proposed by McCain. Taken together, the tax-related proposals, if enacted could offset some or all of the return difference noted in the historical “White House effect.”

Kimberly Sterling, president and shareholder, Resource Consulting Group of Orlando, FL., said: “The bottom line is that investors who have a long-term investment plan should stick to it and not speculate based on the outcome of the election. Any ‘White House effect’ that may happen based on who wins is just one way of looking at the data about what the market does. The best course of action is to get on the passive investing bandwagon, keeping your costs and taxes as low as possible. Now is the most important time to remain disciplined and avoid being emotional about investing for your future.”

Greg Carlson, founder and CEO, Carlson Capital Management of Northfield, MN., said: “Betting on how an election turns out makes no more sense than other passing investment fads that involve active management, including the ‘dogs of the Dow’ theory, which conference wins the Super Bowl and even whether hemlines are rising or falling. These are not serious-minded investment strategies. They are ill-informed casino-style bets that have no place in the portfolio of a serious investor.”

Kent Kramer, partner, financial planner and portfolio manager, Foster Group, West Des Moines, IA., said: “If the 2008 presidential election illustrates anything, it is the danger of focusing on simplistic ways of looking at your portfolio. If you went strictly on return and ignored taxes, you might be tempted to gamble based one way or another based on how the election turns out. But that’s only part of the picture. Politicians can affect your pocketbook through their tax policies, so it makes sense to learn the differences between the two current candidates regarding your taxes and investments. With tax policy approaches that are this different, it looks like more affluent Americans may very well end up experiencing a ‘presidential election effect’ this year after all … but not the one they are expecting.”

In looking at the first-year stock market returns, ZAG members pointed out the Democrats may only appear to be ahead. Some have argued that the stronger first-year numbers under Democrats may only be a delayed reflection of the preceding Republican president’s pro-business policies. For instance, Bill Clinton took office in 1992, just as a recession ended and a bull market began. On the other hand, George W. Bush’s first term that began in 2001 happened to coincide with the bursting of the tech stock bubble.

SUMMARY OF 2008 PRESIDENTIALTAX POLICIES

	McCain	Obama
Income Tax Rates	Extend President Bush's income tax cuts and make them permanent, which would mean no change from today's tax rates	Raise highest ordinary income tax rates back to 36% and 39.6% for families with incomes greater than $250,000 Keep lower rates for low / middle income families
Taxes on Capital Gains	Hold capital gains tax rates steady at 15%	Raise capital gains tax rates to 20% or more for families with incomes greater than $250,000
Taxes on Dividends	Hold qualified dividend tax rates steady at 15%	Raise tax rate on qualified dividends to the same rates as ordinary income
Estate Tax	Raise estate tax exclusion to $5 million from the current $2 million and cut the tax rate to 15% from the current 45%	Raise the estate tax exclusion to $3.5 million from the current $2 million and leave the tax rate at 45%
Social Security Taxes	Opposes raising the Social Security tax rate	Raise Social Security taxes for upper income families
Changes to Tax Deductions and Credits	Eliminate the deduction for employer-provided health insurance and replace it with a $5,000 per family credit for health insurance premiums	New tax credits for students and homeowners who do not itemize

The ZAG presidential tax policy chart is available online at
http://www.zeroalphagroup.com/pdfs/ZAG_prez_tax_policy.pdf.

ABOUT THE ZAG FIRMS

Carlson Capital Management, Inc. (http://www.carlsoncap.com) is a comprehensive wealth management firm with Minnesota offices in Northfield, Hastings, Bloomington and Rochester. Managing more than $800 million in assets and serving a select group of 500 clients in Minnesota and throughout the country, Carlson Capital Management brings together in one place the key disciplines of investment, estate, tax, insurance, retirement and philanthropic planning, to provide fully integrated wealth management. The firm serves high-net-worth individuals and families, business owners and non-profit organizations.

Orlando-based Resource Consulting Group (http://www.resourceconsulting.com) was established in 1988 as a fee-only financial planning and investment advisory firm. The firm works with over 300 high net worth Americans who have already achieved financial success. But for these individuals, success has increased the stress and complexity in their lives. Resource Consulting works with them to develop a realistic plan to achieve goals and foster financial peace of mind. The firm has over twenty employees, including six Certified Financial Planners, two Chartered Financial Analysts, three current or former Certified Public Accountants and two attorneys. Resource Consulting Group is a founding member of Zero Alpha Group.

Headquartered in Des Moines, Iowa, Foster Group offers comprehensive wealth management services to financially established individuals, trust funds, retirement plans, non-profits organizations, and fiduciaries. Foster Group (http://www.fostergrp.com) is regularly recognized among the top wealth managers in the United States. Foster Group manages in excess of $900 million and serves approximately 700 clients in 38 states across the country. Foster Group is a founding member of Zero Alpha Group.

ABOUT ZERO ALPHA GROUP

Founded in 1995, the Zero Alpha Group (http://www.zeroalphagroup.com) is an international network of independent investment advisory firms that manage a total of more than $7 billion in assets. The nine current members of the Zero Alpha Group are committed to providing objective, long-term private wealth management solutions to investors, focusing on asset allocation and a structured, quantitative approach to investing. The firms in the Zero Alpha Group network share a common philosophy about investing and client service -- a focus on passive, tax-managed investment strategies while providing an independent financial planning solution for investors.

CONTACT: Info@ZeroAlphaGroup.com

EDITOR’S NOTE: A streaming audio replay of this news event will be available on the Web at http://www.zeroalphagroup.com as of 6 p.m. EDT on October 29, 2008.