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Whether you are an Obama fan or an Obama opponent, since he has become our newest President of the United States his policies will have an affect on the financial markets, both domestically and internationally. He wants to bring change to the United States which by extension means world markets because we have such a huge economic foot print.

How do you need to think regarding your investment portfolio - both taxable and retirement accounts - now that we will have new policies under President Obama?

1. Taxes Matter: We don't yet know the details of how he will handle taxes on dividend income and capital gains. It is clear that at least some of the investing population will see an increase in taxes on those forms of investment returns. If you pay a 20% rate on capital gains that means you will have 20% less money being reinvested to grow and get the affect of compounding. Dividend rates could go up as high as 35% and that will really kill the benefit of dividend paying stocks. So, one can use tax free bonds for at least a portion of the fixed income portion of a portfolio. Second, you should make sure you are having your investment advisor use tax management in the investment and management of your portfolio. Tax managed passive mutual funds have an extremely low tax impact.

2. Capital Markets Work: There will be those gurus who will tell you they know which sectors or industries will boom under Obama and which will tank. Academic studies have shown over and over again that such attempts to combine stock picking with a market timing element almost never outperform the broad market (in fact they generally under perform) and when they do it is usually nothing more than luck and is thus not repeatable. Markets are essentially efficient and any attempt to regulate trade or change tax policy will end up being priced into the securities as soon as the information hits the wires.

3. Diversification increases your success rate: The way to consistently win the investing game, whether under an Obama Presidency or not, is to hold long term very broad globally diversified, low cost, asset class mutual funds. Risk is really the uncertainty about the future returns of your portfolio. Diversification reduces uncertainty. If you have a mutual fund that has about 3500 names in it, and it happens to contain a Bear Stearns and Lehman Brothers, it will hardly create a ripple to your portfolio as they go out of existence. Don't be caught with concentrated portfolio mutual funds or separately managed accounts. They contain a great deal of "non-systematic" risk that you can diversify away. Reduce your uncertainty with diversification.

4. Risk level and Return level are inseparable: Over longer time periods, stocks outperform bonds, but not in all time periods. Over longer time periods, bonds outperform cash, but not in all time periods. It is also true that small stocks, over time, outperform large stocks, but not in all time periods - and over time Value stocks outperform Growth stocks, but not in all time periods. To obtain the higher long term returns one must accept the higher risk of higher performing asset classes.

5. Portfolio Performance is determined by Portfolio Structure: Asset allocation (choosing how much of a portfolio to commit to what asset class) along equity market exposure, value and size dimensions primarily determine the performance over time of a broadly diversified portfolio. Stated another way, under an Obama Presidency - or any Presidency for that matter - own low cost, globally diversified asset class mutual funds that are more heavily weighted to smaller and more value oriented stocks. You are exposing yourself to higher performing asset classes but are protecting yourself from uncertainty through broad diversification. If an all stock portfolio is too volatile for you, add some short term high quality bonds to reduce the volatility. Of course, it will also reduce your expected return.

In order to win the loser's game, follow academically sound investment principles will allow you to win during an Obama Presidency. Don't give in to the Wall Street marketing gurus who have proven just how effective they are at separating you from your money, quickly and permanently. Can anybody say, Bernie Madoff?