Keep Your Politics Out of Your Portfolio

Rick KahlerAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Financial Planning magazine posed the following question to 320 financial advisors: “How will the U.S. election outcome influence retirement planning, and what steps are you currently taking?” The responses revealed that a stunning nine out of 10 advisors anticipated a lasting negative impact on their clients' portfolios. Some were advising clients to divest from equities and increase cash positions in anticipation of the election. One expressed concern that, with equity markets near all-time highs, the uncertainty surrounding our future president is a significant factor.

The survey perfectly frames the dramatic 2024 election climate – yet it ran on September 13, 2016. At that time, it seemed inevitable that Hillary Clinton would be the next president, to the dismay of Trump supporters, especially those who bailed out of the market assuming she would win. Instead, Trump won. In 2020, polls prior to the election indicated Biden would win, which he did. Again, some Trump supporters bailed out of the markets, to the detriment of their financial wellbeing.

Basically, most advisors responding to the 2016 survey were acting out what the average client was thinking: “When things look rocky, let’s bail out.” This was not good news for their clients. I contend that one of the biggest values in having a financial planner is keeping you in the markets during downturns. Those advisors whose own political anxiety and fear led them to convince their clients to bail out failed those clients.

The more strongly people buy into the rhetoric of their political parties, the more difficult it is to be pragmatic about their investments. I’ve witnessed this play out every four years when we elect a president. Without fail, a handful of clients become fearful of an economic Armageddon if who they view as the “wrong” presidential candidate will win or the “wrong” party will take control of Congress. They typically want to liquidate their portfolios ahead of the political and economic disaster that will undoubtedly unfold and wait safely on the sidelines until “things are better” before jumping back in.