Thriving Through Election Turmoil: Embracing Long-Term Wealth Strategies

As election season approaches, the buzz and uncertainty in the market are hard to ignore and may cause a great deal of anxiety among investors. In fact, many investors are feeling anxious about how the outcome could impact their portfolios, financial goals and long-term well-being. Given the rising turmoil, sensational headlines and market ups and downs, it’s perfectly understandable. But here’s the good news: while elections often cause short-term jitters, they rarely have a lasting effect on long-term investments. In times like these, it is important to comfort your clients, reinforce trust and explain why they should stay focused on their long-term financial goals rather than getting swept up in political drama.

As the upcoming elections approach fast, there is a buildup of uncertainty in the market. It goes without saying that many investors are anxious about the potential effect on their portfolios. This has always been the case and is likely to continue. In turbulent times, it’s crucial for Certified Wealth Strategists® (CWS®) to guide their clients with a steady hand, avoid short-term reactions and fully focus on long-term thinking.

It’s a well-known fact that elections, no matter how heated or controversial, may bring nothing more than short-term market volatility. However, the long-term impact on investment returns is insignificant. The smart thing to do is encourage clients to focus on their wealth rather than politics and remain unperturbed in the face of uncertainty.

Evidence suggests that short-term volatility is not really caused by presidential candidates – it’s largely caused by human emotions. Turns out, when more people change their strategies and make impulsive decisions, volatility is inevitable. In addition, news outlets are partially responsible for causing “emotional chaos” by blowing everything out of proportion, delivering dramatic headlines, and thriving on sensationalism.

Let’s take a quick look at the statistical data presented by JP Morgan. Since 1932, S & P 500 returns on average were 6.2% during election years vs. 9.6% during non-election years. Realized volatility was 16.5% during election years and 15.3% during non-election years. Do these numbers tell the full story? The 2000 sell-off occurred as a result of the bursting of the tech bubble. 2008 was the onset of the financial crisis and 2020 marked the onset of the global pandemic. In 2020, the market saw a quick drop followed by a strong recovery, and neither was connected to the election (JP Morgan).

These details and insights should be clearly communicated to each client in easy, simple-to- understand terms. Keep in mind that the educational aspect of the relationship is arguably one of the most significant.

Turmoil or not, here’s how you can engage in meaningful conversations with your clients and alleviate their worries. In good times or bad.

Respectfully acknowledge client concerns

The best thing to do is to put yourself in their shoes. Start by understanding the emotions or knee-jerk reactions to election news that usually accompany every election season. Clients may express discontent about specific candidates, their actions, rhetoric or track record. As a trusted advisor, it is vital to validate these concerns rather than be argumentative, brush them under the rug or shrug them off.

It may be a good idea to open the conversation with questions like, “What aspects of the upcoming election worry you the most? Why?”, “What changes are you considering in response to the election?”, “Are there any specific sectors or industries you are particularly concerned about?” or “How do you typically react to market volatility and how do you feel about your current strategy?”

These are just some of the questions that may help clients feel heard, potentially leading to more productive and candid discussions. Each response may reveal crucial details that can help you adjust your strategy and effectively address their biggest misgivings. As a matter of fact, with each smart and insightful question you build trust and encourage clients to open up more.

Redirecting the conversation

Once you’ve established a rapport, gently steer the conversation back to long-term financial goals. Revisit their initial investment objectives and figure out how they align with their financial aspirations. For example, you can say something along the lines of: “I certainly understand why you are influenced by a daily barrage of election news. A lot of people are! But let’s refocus on what matters the most - your future. We are here to help you overcome temporary ups and downs and achieve long-term success - regardless of the election outcome.”

It would be wise to focus on a few key areas below:

1. Time Frame: Explain that investing is a marathon, not a sprint. In other words, short-term market movements should not dictate their long-term strategy.
2. Diversification: Stress the importance of diversifying their portfolios. A well-structured investment approach can “survive” political changes and market volatility.
3. Past events: Provide insights on how markets have historically reacted to elections. Many downturns are temporary. It’s the long-term trends to that typically prevail.

Staying the course is a recipe for success

In addition to stressing the importance of the long-term strategy, you may want to discuss the potential pitfalls of making impulsive decisions based on fear, anxiety or speculation. Explain to clients that changing their investment strategy in response to short-term variations can lead to all kinds of mistakes, missed opportunities and increased risk. Remind them that growing their portfolios is much like cultivating a garden – it requires time, consistency and patience to see healthy growth.

Final thoughts

We can all agree that turbulent election season can rattle even the most seasoned investors. Savvy financial advisors should be aware of rising concerns and have extensive discussions with every client. It’s time well spent. After all, the importance of addressing client fears during unpredictable circumstances is undeniable. In fact, it can be pivotal in building rapport and reinforcing relationships. We believe it is during these volatile times that solid and long-lasting connections can be formed, which is the upside of facing challenges together. With the right approach and attitude, it's possible to turn client anxiety into confidence and transform adversity into opportunities.

Always keep in mind that clients are more than just numbers on a balance sheet or entries in your CRM database. They are real people with real concerns, doing their best to weather the storm of this election drama and come out unscathed. Whatever you say or do, be sincere, be prepared to go the extra mile and show genuine interest in their prosperity. In turn, they will reward you with trust, referrals and long-term loyalty.

Frequently Asked Questions

What causes short-term volatility in the market?

Contrary to popular belief, short-term volatility is mostly caused by human emotions rather than presidential elections. During elections, concerned investors tend to make impulsive decisions which leads to market volatility. In addition, extensive media coverage creates emotional chaos by blowing everything out of proportion and delivering highly dramatic headlines.

What steps should financial advisors take to pacify client concerns at a time of uncertainty?

Savvy wealth management professionals should explain that short-term market fluctuations should not dictate long-term strategies. In addition, it is important to stress the importance of diversification and provide specific insights on how markets have historically reacted to elections.

What are some of the best ways to build rapport with clients when markets fluctuate and the future seems to be uncertain?

It would be wise to show genuine interest in your clients, their goals and long-term well-being. It goes beyond greeting them with a smile and engaging in friendly discussions. Successful financial advisors understand the emotions and strong reactions to election news. In fact, they come to expect them. It is vital that wealth management professionals ask a lot of probing questions, glean as much information as possible about each client and embrace their concerns rather than shrug them off or downplay their worries. With each smart question, you encourage clients to open up more and trust you more.