Helping Clients Deal With Election Year Blues

Time flies. It’s already November, meaning that in the metaphorical blink of an eye, 2024 will be here. That means another election year is coming. In fact, the 2024 presidential election cycle is already ramping up on the Republican side.

Smart advisors know there are no benefits to engaging in partisan discourse with clients, but they also know that in era in which news is increasingly accessible and the intersection between Capitol Hill and Wall Street is elevated a well, clients are likely to concerns and questions related to electoral politics. Those queries could be elevated with some new faces on the political scene and amid concerns that some familiar ones aren’t going anywhere anytime soon.

There’s more for advisors to consider. Clients are inundated with political news and updates. Some of them may be actively seeking out such information. That’s their prerogative. Problem is electoral politics have a way of adding to investors’ anxiety, of which they’ve already got plenty due to rising interest rates and stubbornly high inflation, among other factors.

In more simple terms, as the partisan divide has widened in this country, clients are getting more emotional about election outcomes and some are letting those emotions cloud investment thoughts and decisions, indicating advisors can be play crucial roles in helping clients navigate political volatility.

Acknowledge Emotions, Keep them in Check

One area where advisors can really help clients as it pertains to elections is helping them realize that financial markets can overreact to election results over the short-term, but that has a way of sorting itself as the election is put in the rear view mirror.

“Election seasons can stir intense emotions in people. When these emotions begin to influence decisions clients make about financial planning, you have a recipe for long-term financial mistakes,” according to Nationwide.

This is critical because the Nationwide Retirement Institute confirms that, for better or worse, investors believes there’s intimate connection between congressional and presidential election outcomes and their portfolios’ performances.

Those emotional ties are likely the result of increasing partisanship, which is to say that scenario could get worse before it improves because historical data confirm market participants have long believed political results weigh heavily on market performance.

“Not only are these sentiments not new—they come up in every election cycle—but they’re also unfounded when you look at the historical record. In fact, no matter which political party controls the presidency or Congress, stock market performance has been about the same according to historical data,” adds Nationwide.

Help with Hyperbole

An obvious result of emotions is that it leads to hyperbole in our minds. As it pertains to the conversation at hand, some folks bragged about going to cash and bonds in November 2016, urging others to follow suit. The following three years proved that was foolhardy. Indeed, clients, regardless of political persuasion, can and do overreact to electoral outcomes.

“One-third of investors (32%) believe the U.S. will plunge into a recession within the next 12 months if their preferred political party fails to win power in the next election,” notes Nationwide. “Nearly the same percentage of investors (31%) expect their taxes to increase and their future finances to suffer if the outcome of the election doesn’t favor their preferred political party.”

For advisors, there are easy avenues through which to help clients. For starters, keep the advice objective and focused on fundamental drivers of market performance.

Related: Millennials Surprisingly Interested in Bond ETFs