The SPDR Gold Shares (NYSE: GLD) could be placed here as well, but for long-term investors the iShares Gold Trust is the better option because it features a lower expense ratio. Gold ETFs were in a significant downtrend after spiking higher the first two months of 2012 but have rallied since QE3 became inevitable in late summer. The primary reason for that slack performance has been the surprising view of gold as a risk asset.
The thesis here is simple: On a historical basis, gold has not been viewed as a risk asset. Rather, it is a "shelter from the storm" play and despite recent strength in the U.S. dollar, the outlook remains stormy for the world’s reserve currency.
Regardless of who wins the upcoming election, it is likely that that candidate will pay great lip service to bolstering the strength of the dollar. It also is likely he will not be able to do anything about the dollar’s demise without an ominous combination of tax increases and substantial cuts to entitlement spending.
The smart money says neither of those scenarios will come to pass and that means gold’s luster will remain intact immediately after the election and long thereafter.
Historical footnotes aside, President George W. Bush did do one good thing for income investors by lowering the tax on dividends to 15%. Simply put, an income investor that collects $10,000 a year in dividend is obligated to pay $1,500 of that sum to Uncle Sam. However, that rate is not all that bad when looking at the tax rates on personal income. A lower tax rate on dividends has a tendency to encourage more investors to seek out equities rather than bonds as an avenue for generating income, which, in turn, is good for stocks.
Believe it or not, during the 2008 presidential campaign, then-Senator Obama raised a lot more cash from Wall Street than Sen. John McCain did. This surprised many political observers because Wall Street typically directs the bulk of its political contributions to Republicans. From the Chicago commodities pits to Goldman Sachs to Warren Buffet to hedge funds of all shapes and sizes, Obama was the toast of Wall Street, even while the market seemed to fall every day a new poll was released highlighting his commanding lead heading into election day.
Wall Street loved the now-president, but that was before it looked like he would attack the Bush-era tax cuts, which would lead to higher dividend taxes. For now, it looks like a dividend tax increase has been averted, (at least for those earning less than $250,000 a year).
However, dividends still remain a vital part of a portfolio’s overall returns, and all investors need at least some exposure to dividend stocks and ETFs. The Federal Reserve has pledged to keep interest rates low through mid-2015, meaning that investors are better served being involved with dividend stocks and ETFs than Treasuries and money market accounts.