Fatter 401(k)'s Might Not Be Enough to Save the GOP
How will investors affect the midterm congressional elections November 7?
Political pundits want to know-and for good reason. Slightly more than half of all U.S. households own stock, either directly or through retirement accounts like 401(k)'s and IRAs, according to the Investment Company Institute. In the early 1990s, only about a third did.
During the 2004 presidential election, about 46 percent of voters, according to polling by Zogby International, identified themselves as members of the "investor class." And this group voted for President Bush in a landslide over Sen. John Kerry, 61 percent to 39 percent.
Of course, the term investor class may just mean middle-to-upper-income white men, a group that typically votes GOP. But investors are now far more diverse than that. Some 91 million Americans owned mutual funds in 2005. In about a quarter of fund-owning households, women make the investment decisions.
"The investor class has been the great hope of Republicans," says Charles Gabriel, political analyst at the Washington research arm of Prudential Securities. "The theory was that if you turned voters into stakeholders, they would pay closer attention ... to legislation that would hurt companies." Yet Gabriel wonders how energetic investors will be, since the Dow Jones industrial average has only recently returned to levels last seen in 2000.
Surprise! A Zogby poll taken in mid-June, as the market rally was beginning, showed Bush with a 41 percent approval rating among investors. That's not so hot, but it was better than his 36 percent approval rating overall. Investors checking their financial statements this month will find a nice "October surprise." The S&P 500 gained 5 percent in the third quarter and is up about 13 percent since early June. "The economy is in very good shape right now," says David Gitlitz, chief economist at TrendMacrolytics. "Investors have every reason to be happy with what is going on."
All this seemed to be helping Bush and the congressional GOP-ratings for both were rising-until the Mark Foley page scandal broke.
Democrats will correctly point out that stocks have historically done better when their party has controlled the White House than when the GOP has. So why do investors keep favoring Republicans? A recent study offers this possible explanation: While past Democratic presidents may have pursued market-friendly policies, investors stubbornly expect future ones not to. One reason may be that the GOP tends to aggressively support more favorable treatment of capital gains and dividend income. Rates for both were cut in 2003.
By contrast, Kerry vice presidential candidate John Edwards, a possible 2008 White House contender, has advocated raising capital-gains rates for wealthier investors.
College Costs Climb
The cost of a college degree continued to climb in 2006, but it remains an investment with a strong payoff.
Public and private universities raised the sticker price of the 2006-07 academic year by about 6 percent, on average, the College Board reported last week. The amount of scholarship money rose by 3 percent, which wasn't enough to keep pace with both tuition inflation and the growth in the number of students, the association of more than 5,000 schools found. After subtracting inflation and financial aid, the net price the average student is paying has increased more than 2 percent this year.
The survey found that the overall cost (including tuition, fees, room, board, books, transportation, and entertainment) of a typical public college is about $16,400 a year. About half of students at public schools receive grants and tax breaks that reduce their expenses, however. With average financial aid awards between $3,000 and $4,000, the net cost is roughly $13,000. The average sticker price at private universities for this academic year is just over $33,000. But some three quarters of private school students typically receive financial aid of about $9,000.
Homebodies. Two-year community colleges are still an educational bargain. On average, tuition at such schools rose 4.1 percent this year, to about $2,300. That means students who live at home could finish their first two years of college for about $8,000, including textbooks and transportation, the College Board estimated.
The report highlighted one new trend: It's taking longer for students to graduate, raising the overall cost of a college degree. The average public university student now takes 6.2 years to finish. The average student at a private college takes 5.3 years. If prices keep rising at the current rate, even public college students who get aid would have to budget $87,000 to cover the typical cost of a degree. Those who don't receive aid could easily pay an average of $115,000. A degree from private school for those receiving financial aid would cost about $124,000. Those paying the full sticker price should be prepared to shell out about $200,000.
Thirty years ago, when the total price of a year at a public university was less than $3,000 and the average time to graduation was shorter, the total cost of a degree was closer to $12,000.
But, the College Board noted, 30 years ago, college graduates earned just 19 to 35 percent more, for men and women, respectively, than adults with only a high school diploma. Today, college graduates earn 63 percent (men) to 70 percent (women) more. In addition, college graduates have an easier time finding jobs. The unemployment rate for college graduates is just 2.3 percent, almost half the general rate. "Investing in college is worth it," says Skidmore College economist Sandy Baum, the report's author. "Your earnings are higher, and you have more occupational opportunities."
This story appears in the November 6, 2006 print edition of U.S. News & World Report.