With less than six months to go to the 2024 presidential election, the flood of political punditry and persuasion is pretty much inescapable both for you and your clients.
And while understanding the major presidential candidates’ proposed economic policies is important for voters, financial advisors have this word for clients: Even in volatile election years, stay the course and don’t lose sight of your personal financial goals.
With President Joe Biden and former President Donald Trump facing off again this November, the election will matter in lots of ways – they each have distinct visions for the economy, for example.
Different Economic Priorities
In a nutshell, Biden’s economic views involve expanding U.S. manufacturing, particularly in the clean energy sector; supporting infrastructure projects; and reining in healthcare and pharmaceutical costs.
Trump, based on his past term in office, would support fossil fuel and other traditional energy sources; roll back regulations in financial services; and ease regulations in real estate development and construction, including environmental reviews.
These summaries come from Gene Balas, CFA, of SEIA (Signature Estate and Investment Advisors) who authored a succinct article on the topic.
He mentioned an important caveat: Any policies would still require Congressional approval if they were to become law — unless they were the product of an executive order. Policies might also have to withstand legal challenges.
Don’t Be Swayed
Political platforms aside, financial advisors tell Rethinking65 that they urge their clients not to be swayed by the politics — or the people — of the moment.
Based on a historical look at stock market performance, election years shouldn’t prompt big changes in investment strategy, the financial advisors said.
“Many clients have expressed concerns about the election, even before the start of the year,” says Abigail Rose, CFP and CPA, of Keeler & Nadler, Dublin, Ohio.
“Many have asked if we are making investment changes in anticipation. However, we are instructing clients to stay the course and not make too many major changes during this time,” she says.
Volatility Expected
Rose adds, “volatility in general is normal during the year; an election year, of course, adds to this. However, we encourage clients to stay the course, ensure we are diversified, and ride of out the short-term volatility the election will inevitably bring.”
And statistics bear out the wisdom of this advice.
The market tends to “react very positively after the election is over, regardless of who is in office,” says Rose. She notes that the S&P 500 has averaged over 11% returns during election years.
“We do not want clients to miss out on the upswing in the market. As long as they are positioned appropriately for their own personal risk tolerance and risk capacity, the short-term volatility of the election years is something we discuss and acknowledge, but we do not want to time the market before, after or during the election,” she says.
Politics and Investing Don’t Mix
Randy Bruns, the founder and a senior financial planner of Model Wealth in Naperville, Ill., offers clients worried about election year investment this advice:
“Our approach is to get out ahead of their concerns and make sure they understand how risky it can be to let such matters influence their portfolio. History shows political parties have no discernible impact on market performance,” he says.
To help ease client concerns, Bruns offers a thorough review of market performance over the past several decades – with some famously volatile periods — in a fast-paced video chock full of stats that can be found in his quarterly update.
And he explains some of his strategies, especially as they relate to long-term investing: “If it’s your long-term money that you’re investing in the stock market — and by that, I mean 15 years or more — pay zero attention to the news. That is, assuming you’re investing in a highly diversified portfolio of global stocks.”
“Markets grow substantially over the long haul — not in spite of negative events and volatility — but rather because of negative events and volatility,” Bruns says.
Clients need to understand the amount — both in terms of percentage and in actual dollars — that their allocation could fall in a bad year, and understand that “your ability to remain disciplined during the market’s darkest days can lead to incredible wealth,” says Bruns. Conversely, selling after major declines and “missing the subsequent recovery can rob you of incredible wealth.”
Find Areas Investors Can Control
Bruns recommends focusing on areas your clients can control, asking them:
How much of your paycheck are you spending versus saving?
How much cash do you have for the unexpected?
Do you have a long-term disability insurance policy that protects your cash flow if you suddenly cannot work due to a debilitating disease?
What are the expenses you’re paying on your investments?
What interest rate is your cash earning?
Brick-and-mortar banks often pay lower rates on savings accounts than a consumer may find elsewhere. “Online savings accounts like those offered through Ally, Discover and Marcus by Goldman Sachs pay 4.20%, 4.25% and 4.40%, respectively,” Bruns says, citing early May figures.
Clients Can Miss Rebounds
Federal interest rate policies have a bigger impact than the political landscape at the moment,” says Tom Balcom, CFP, CAIA, founder of 1650 Wealth Management, Fort Lauderdale, Fla. With rates higher than they had been, “I’m increasing clients’ exposure to bonds — which also decreases volatility.”
Balcom says his clients include Democrats and Republicans.
Some Trump supporters were ready to pull out of the market when he was not re-elected, but Balcom says he urged them to stay focused on long-term goals. And then the market rallied post-Covid.
“They would have really missed out” if they weren’t invested, Balcom says.
In presidential election years in particular, each side criticizes the other’s economic policies, he adds, “but the economy is pretty resilient.”
“The fringe elements of both parties get the most headlines — but it’s productivity that supports the economy,” Balcom says.
The Big Picture
Rose also notes how general economic factors play a part in investment strategies — not only higher interest rates but national debt and even international conflicts.
These and other factors certainly play a role in investment strategies, she says, particularly “when you aggregate them all at the same time frame.”
The election “as an isolated event would not cause major investment changes, but when you look at that in conjunction with the Fed interest rates, for example, those who are newly retired or in the early stages of retirement and using their investments to live on, we may make the allocation a little more conservative.”
Rose said bonds, for instance, are looking more attractive than in the past.
Avoid Taking Sides
For financial advisors, political discussions with clients can have some unintended outcomes.
“I have clients on both sides of the political spectrum, and every election year we have to assure clients on the ‘losing side’ that things will be OK and there’s no reason to sell their holdings,” says Balcom, also referring to the historical trends.
“The key for advisors is to listen and not weigh in on either side to avoid upsetting a client. An advisor friend of mine expressed his support of Trump in 2020 and lost a client by doing so,” Balcom adds.
Keep Calm and Carry On
William J. Nedza, CFP, of Ventoux Financial Advisors in Chicago, also speaks to the emotional toll an election year takes on clients who naturally want to safeguard their investments.
But he, too, urges calm.
“If a client is young, with a long-time frame for investing, they can handle a drop in the value of their portfolio. If a client is close to or in retirement, we already have designed their investment portfolio such that we take into account risk factors such as inflation, market, interest rate and political” factors, he says.
And for a bit of historical perspective, Nedza notes that his firm has “been working with clients through elections since George H. W. Bush was president!”
Steve O. Oniya, CFP, ChFC, of OM Investments, Houston, also urges adherence to the basics of investing.
“Many people may know this but need to be reminded: Research shows politics typically don’t have a large impact on investments. It’s not truly about who wins the presidency or who’s in Congress. There are plenty of different statistics that show either political party is only marginally better — but not certainly, and it may not be the party that people typically think.
“Stick to long-term goals, risk tolerance, time horizon, diversification, and other pertinent needs,” Oniya says.
The bottom line for election year investing is summed up by Allan W. Moskowitz, CFP, AIF, of Transformative Wealth Management, El Cerrito, Calif.:
“You can’t predict elections or outcomes so you shouldn’t be making changes in relation to them. Control what you can, not what you cannot.
“Do smart financial planning — not reactionary,” he urges.
Patricia McDaniel is a New Jersey-based journalist. She can be reached at pmcd5353@gmail.com.
