We all know politics is an uncomfortable topic for many people. In fact, a recent research paper from the University of Nebraska found that politics was making Americans physically sick. According to the study, nearly 40% of Americans reported that they were stressed out by politics, while 20% said they were losing sleep over politics. In recent conversations with clients, politics is certainly on many people’s mind and is hard to avoid.

With upcoming elections this month in Canada, both the Liberals and Conservatives have proposed budgets that would in varying degrees add to annual deficits in the near term. With a decent chance neither party will win a clear majority, more compromises will probably be needed, and the outcome will not be that dramatically different from the status quo.

While the Canadian election cycle is a concise 40 days, the U.S. election cycle never seems to end. When we see pitches and policies floated in the media on a daily basis with more than a year to election time, it’s natural to wonder what impact, if any, they will have on our investments. It’s also nearly impossible to avoid articles or pundits who are absolutely certain that if candidate X wins, the market will drop by Y%. While politics may be making us physically sick, does it also impact our investing habits?

A recent academic study from Professor Kemph of The Booth School of Business at the University of Chicago and Professor Tsoutsoura of the SC Johnson Colle of Business at Cornell University (“Partisan Professionals: Evidence from Credit Rating Analysts”) showed that bond credit analysts of both parties typically let their political biases impact their corporate bond ratings. The researchers found that analysts who voted for the opposite party of the president, tended to lower their bond ratings during that presidency.

This isn’t surprising when we view investing through the many lenses used in behavioral finance, such as confirmation bias – one’s tendency to search for, interpret, favor, or recall evidence that confirms one’s already existing belief. In other words, if you disagree with one political party, you probably look for reasons for why that party gaining or staying in power would be bad for your investments.

These are highly educated professional analysts who still had trouble disentangling their political persuasions from their day-to-day job of assessing the credit ratings of entirely unrelated companies. What hope does the average investor have?

Let’s take a step back from the political squabbling of 2019 and soon-to-be 2020 and realize that the medium- to long-term returns we see on most investments are likely to be impacted far more by the direction and strength of economies and company earnings than by an election result. Even if – hypothetically – the U.S. economy were headed for a 2020 recession, it likely doesn’t matter who wins the election since they will be jumping into the captain’s seat of a massive ship to which the president can only make minor changes of speed or direction.

Think back to 2008 and 2012, when it was common to hear investors worrying that an Obama presidency would wreck the stock markets and be the end of capitalism. In 2009, The Wall Street Journal ran an op-ed warning that “Obama’s Radicalism is Killing the Dow”, virtually at the bottom of the bear market – the time you would have benefited the most from being invested. Similarly, many investors had agonized that the Trump presidency would quickly send the economy into recession or worse. On election night, as S&P 500 futures were plunging, everyone was forecasting financial disaster as soon as he stepped into office. Investors who stayed invested over the last 10 years, regardless of who was in office, have been generously rewarded.

We tend to exaggerate the impact that any politician can have on the long-term value of companies. How much impact will the next Prime Minister’s or President’s policy decisions have on the future value of all the hamburgers McDonald’s will serve worldwide over the next 50 years, or parkas sold by Canada Goose?

Election results will soon be known in Canada, and whichever Democratic nominee emerges in the U.S. will shed a bit more light on what the range of U.S. policy differences may be after the 2020 election. In any case, we’d expect there to be some moderate shifts on both sides of the border regarding issues like tax rates and estate planning. The only constant in financial planning is change. No investment plan is meant to be stagnant over decades but should always be viewed as a living document – a document that incorporates changes in the investment and tax environments as well as your own unique circumstances. An investment plan ensures that your overall asset allocation is still the appropriate mix to meet your long-term goals.

The few investment changes that Cardinal Point has made over the last year have all been with the aim of making our portfolios more robust to potential stock market declines, regardless of whether those were to occur due to election results, geopolitical surprises or a further slowdown in economic growth. While we closely monitor global financial markets, speculating on the latest tweet is not a sound way to reach your long-term investment goals.

Terry Ritchie, Director of Cross-Border Wealth Services, and Matt Carvalho, CIO, recently sat down with Lara Crigger at ETF.com and discussed some of the tricky aspects of moving abroad.

When your expenses are in a different currency from your income, currency hedges and dollar-cost-averaging are normal ways to deal with uncertainties in global markets.

But there are also many other financial issues to consider, such as immigration and social security:

“You can’t just cross the border and say, ‘I live here now; I’m going to work here and get free health care’. There’s a process,”, says Ritchie and points out that the job of financial planners is to take a big-picture view. For tax and financial regulatory reasons, you may have to change some of the ETFs or mutual funds held via 401(k)s – or else face some onerous tax implications and heavy paperwork.

It all has to be part of a comprehensive financial plan, catered to the specific individuals moving and their conditions.

Read more at ETF.com

Many Canadians and Americans face the reality of a career that spans both sides of the 49^th parallel. Amidst an era of globalization, it is common for promotions to create cross border opportunities and for company restructurings to force a long-term cross border move. The result of having a career on both sides of the border can lead to some confusion over how an individual’s history of employment can be quantified, relative to the necessary requirements to qualify for each country’s pension plan. Specifically, how are my Canada Pension Plan (CPP), Canadian Old Age Security (OAS) and U.S. Social Security (SS) benefits affected by my work experience in both Canada and the U.S.? What if I don’t meet the minimum eligibility criteria to qualify for these pensions?

Let’s re-examine the eligibility requirements for these three pension plans: CPP and SS are based upon one’s earnings record. The difference is that the SS minimum criteria for eligibility requires ten years of service, while a CPP benefit mandates only a single payment into the pension in order to become eligible. OAS criteria follows a different qualification path based upon residency rules vs. work history, specifically, the amount of time one has resided in Canada since the age of 18. A full OAS benefit is paid once the individual has amassed 40 years of Canadian residency since the age of 18. A partial benefit can be paid when the applicant has a minimum of 10 years of Canadian residency (assuming Canadian residence when payments commence) or 20 years of Canadian residency (assuming U.S. residence when payments commence). For more specific details on CPP, OAS and SS, please visit: “Cross Border Retirement Income: Canada Pension Plan, Canadian Old Age Security, U.S. Social Security and the Windfall Elimination Provision.” The question thus remains; what if I do not meet these eligibility requirements?

This concern marked a call to action and on Aug. 1^st, 1984, the birth of the Canada-U.S. Totalization Agreement came to be. There was a subsequent amendment on Oct. 1^st, 1997. The manifestation of this Agreement allows an individual to “totalize” their history spent north and south of the border to qualify for U.S. Social Security and/or Canadian Old Age Security. The tallying of cross border residence/work history in tandem allows an individual to potentially meet eligibility requirements that would not have otherwise been met if U.S and Canadian histories stood in isolation from one another. It’s imperative to recognize that although the Agreement tackles the pension (OAS or SS) qualification hurdle, it does not enhance the resulting benefit in question. In other words, your U.S. Social Security benefit will be based upon U.S. work history and your Canadian Old Age Security will be centered on the duration of Canadian residence beyond age 18. Let’s review a few examples.

Mr. Smith, a Canadian citizen and U.S. green card holder, decides to retire in 2019. His career culminates under the following circumstances: thirty years working in Ontario for GM Canada and six years earning gainful employment income under GM U.S. in Detroit. Mr. Smith decides to return to his roots back in Canada. For simplicity’s sake, let’s assume he has spent forty years in Canada beyond the age of 18 by the time he reaches 65. In this case, he qualifies for a full OAS benefit and a CPP benefit based upon his Canadian earnings record, but he does not meet the minimum years of service when he was employed in the United States to qualify for U.S Social Security. In steps the application of the Canada-U.S. Totalization Agreement, allowing Mr. Smith to leverage his CPP credits to make up the 4-year deficit in order to meet SS qualifications. Even though Mr. Smith now qualifies, his SS benefit will be based upon his six-year earnings record vs. the ten-year minimum requirement. Had the Agreement not existed, Mr. Smith would not have been able to receive any SS benefit.

Let’s turn our attention to how the Agreement can play out in a slightly different scenario. In this scenario the circumstances are as follows: Ms. Jones is a U.S. citizen and Canadian permanent resident. She has spent all but five years living and working in the U.S. with  plans to continue Canadian residency  going forward. With only 5 years as a Canadian resident, Ms. Jones has not met the ten-year minimum residency requirement to receive a partial OAS benefit.  The Agreement, though, triggers the ability to pull U.S. residence history to bring total residency time to the minimum OAS requirement for partial OAS benefits. However, it does not boost the OAS benefit to a higher amount, rather, it simply allows Ms. Jones to qualify to receive an OAS benefit based upon the five years she has resided in Canada since the age of 18. Like the previous example, had the Agreement not been made, Ms. Jones would not have been able to meet the qualifications for OAS eligibility.

With this scenario in mind, how does one apply the Agreement to claim their own pension benefits?

The pension plans of Canada and the U.S. communicate with each other quite well. As such, if you live in the U.S. can visit or write any U.S. Social Security office to apply for either U.S. or Canadian benefits.

If you live in Canada and hope to apply for U.S. benefits simply visit or write to any U.S. Social Security office located near the border.

So where do you find yourself? Are you caught in the middle of this unique issue? You are not alone in your quest to find a path forward. With regulations and agreements constantly in flux, it’s important to examine your options through the lens of current cross border agreements. To find out more, contact Cardinal Point.