As the presidential election approaches, we help clients avoid politically motivated investment decisions

Markets may feel relatively calm right now, but a wave of investor anxiety is brewing in the lead-up to the 2024 presidential election. just starting to swell.

Around this time every four years, advisors start hearing the familiar phrase: If so-and-so wins, the economy will be thrown into chaos. Sell ​​it for cash. (Or move to Costa Rica, which are other options.)

In my opinion, the media chatter leading up to Election Day is purposefully trying to get people excited in order to increase ad spend and keep consumers' eyes on screens.becoming more and more prevalent Social media as a source of misinformation According to , 43% of TikTok users said they regularly get “news” from the platform, while 33% said the same in 2022. Pew Research Center.

Of course, there are major challenges, including: global debt and government spending to inflation to geopolitical wildcard Risks and friction points arise even though most people barely understand the top layers of these issues.

But while all of this evokes strong emotions, investors should never lose sight of the objective of building and preserving wealth over the long term. Market variables go far beyond which politician is in the White House at the time, and smart investors will adjust to which party is in power.

read more: Almost half of advisors are concerned about the disputed presidential election

Historically, the S&P 500 Index has shown positive gains in presidential election years (see “S&P 500 Price Trends by Presidential Term” below), regardless of who becomes president. The market has risen over time.

With this in mind, it is important for advisors to ensure that their clients' political biases do not create a negative impact on their portfolios. It's easy to say “I'm out of here,” but it's very hard to come back when you feel like the market can't get any worse. Of course it's the best time to buy.

As November 5 approaches, here's what to say, and often more importantly, what not to say to a frustrated client.

Invest in the (unforeseeable) future

Your client probably knows which presidential candidate you support, but it's important to remain neutral about the impact of your choices. This will help you stay calm and focused through the completely predictable election chaos that happens every four years.

Be sure to communicate that your investment portfolio will not change based on who takes office. We know that markets can be volatile, presenting unimaginable opportunities and devastating challenges, and we are built to be resilient over the long term. This is exactly how it works.

read more: Helping clients cut through the noise of recurring crises

Adopting a marathon mindset requires short-term intentions to keep the client moving in the right direction to achieve their goals, rather than pivoting and redirecting based on typically biased news outlets. You have to make a ton of decisions.

Here's what you should do: Do ​​nothing.

Here in the United States, we are wired to take action. When faced with hardship, it feels terrible to do nothing. that is often correct.

The difficult task of knowing when to act and when to stay the course should be part of advisor-client discussions regarding the principles and philosophy of success in an investor's particular portfolio. Does the portfolio design consider all types of market positives? If not, investors risk: action trap Therefore, no matter how convinced you are that your decisions are based on logic, you may end up making emotional decisions.

After all, there is no way to separate ourselves from our own humanity. We are always driven by loyalty, dreams of success, and fear of failure and the unknown.

The good news is that being aware and aware of these emotions and how they affect money decisions can help investors think more clearly.

read more: As the “ugliness” of the election approaches, retirement confidence is shaken

Don't use cash cards

There are an infinite number of scenarios that could play out leading up to and after the next election. With catastrophic coverage being the preferred media option, clients may be tempted to exit the market. transfer to cash —After all, we are made to run.

However, actions that deviate from the investor's long-term plans will only succeed based on luck, not skill or foresight.

I think it's not worth it. Timing is difficult, so such moves are best left to investment managers who specialize in risk mitigation. A diversified portfolio with built-in contingency plans for all types of markets helps clients resist the urge to liquidate.

Risk of dialing down

It is a common belief that political party policies affect different sectors and businesses, and experts use data in a variety of ways to “prove” that their party is a market winner. Can be sliced.

Rather than following political themes, I believe that one of the best ways to manage portfolio risk is to incorporate a variety of management styles into your portfolio and employ drawdown hedging strategies. A truly diversified portfolio employs risk management strategies designed to navigate all markets. Markets can change rapidly, so why prepare only for optimistic scenarios?

Think positive and cover your stakes

When faced with an event as significant as the possibility of changing the leader of the free world, investors inevitably feel anxious about their expected future returns.

The root of what we're talking about is the fear of loss, but life-changing portfolio losses are a failure to prepare. When faced with an unknown future, it's important not to let fear-motivated actions undermine your gains. The losses associated with this way of thinking can create further despair about the future and lead to repeated bouts of worry and anxiety.

advisor's most important role It's about staying positive and building a portfolio that can handle all types of markets and the emotional roller coaster that comes with them.