As we get closer to election day, the most common question people ask me is, “What is the election going to do to my investments?” This is usually followed by, “If ___________ is going to be elected president, don’t you think I should get out now while I have a chance?” It really doesn’t matter whether the blank is filled in with Clinton or Trump; many people think one or the other will mark the death knell of the economy.
I’ve witnessed these same concerns in other presidential elections over my 35 years as an advisor. People are always worried that if the candidate they dislike becomes president it will be devastating for the markets and their portfolio.
Are there some precautionary measures you should take to protect your retirement portfolio from an election day disaster? Let me share what I am doing in my personal portfolio to prepare for the worst: nothing. I don’t believe that whether Clinton or Trump wins will make any long-term difference to a diversified investment portfolio or the US stock market. There is no past evidence to suggest otherwise.
I would expect most investment advisors to agree with me. But according to an article by Michelle Zhou in Financial Planning on September 13, 2016, “Election jitters have advisers seeking liquidity for retirement plans,” I was surprised to find this is not the case.
The magazine asked 320 advisors, “How will the outcome of the U.S. election impact retirement planning, and what actions are you taking now?” I want to emphasize that the question focused on the impact to retirement portfolios, which inherently are long-term in nature. This wasn’t a question about how to play the market immediately before or after the election.
Apparently, most advisors believe this election will have a lasting impact on their clients’ portfolios. The article quotes one advisor as saying that, “Preparing our clients mentally and taking income-stabilizing precautions for our clients in retirement is a priority now.” Another said they are building larger cash positions “as the equity markets test all-time highs and we have such uncertainty regarding our future leader.” Still others said they are selling equities, putting more into liquid assets, and halting new investments altogether.
This is fascinating to me. Basically, the average advisor is acting out what the average client is thinking: “When things look rocky, let’s bail out.” Based on what we know of how the brain works, there is a high probability this isn’t good news for their clients. As an investor who does not have a financial advisor recently told me, “The biggest value proposition of having a financial advisor is keeping you in the markets during downturns.”
I was further amazed to read that when advisors were asked how much the election would affect their financial planning practices over the next 12 months, around 6 out of 10 feel it will have a moderate to high impact on their business. Seriously? Just 1 out of 10 advisors say this election will have no impact on their firms.
From what I read, the question didn’t specify whether the impact would be negative or positive, so maybe advisors are expecting positive changes. However, it looks as if most advisors are expecting rough seas for both their businesses and their client’s long-term portfolios regardless of who wins the election.
Given the unprecedented nature of this particular presidential election, it’s not surprising that investors’ sentiments are more intense than normal. That doesn’t mean their fears are any more valid than in other elections. As usual, the best way to election-proof your portfolio is to leave it alone.