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Elections Biden Trump 2024

Retirement Planning > Saving for Retirement

How to Talk With Retirement Clients About the Presidential Election

By John Manganaro

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What You Need to Know

  • Advisors are often wary of talking politics.
  • More than three in four investors are concerned about how the election will affect their finances, a recent survey shows.
  • Over the long term, there is little difference in market performance based on which party is in power. historical data shows.

Whether they are Republican, Democrat or independent, many U.S. investors are concerned about how to prepare their portfolios for the upcoming federal election in November.

The 24-hour news cycle and social media have led to increased polarization and a heightened sense of urgency around elections at all levels, according to Ben Rizzuto, a wealth strategist with the specialist consulting group at Janus Henderson Investors. As a result, many financial advisors are feeling some pressure to “talk politics.”

Advisors are often wary of doing so, Rizzuto told ThinkAdvisor in a recent interview, whether out of fear of sparking disagreements or simply a desire to stick to more concrete financial planning topics during the limited fact-to-face time advisors and clients typically have together.

But these legitimate motivations don’t give advisors a free pass to simply ignore their clients’ concerns about the November election — especially those that go beyond the flashy topics of the moment and speak to more fundamental questions about the economy, public policy and the potential effect big changes could have on their nest eggs.

This is one reason why Rizzuto has been focusing many of his recent articles on questions about politics and eye-catching news headlines. The main takeaway of the articles is that elections may unfold over two- or four-year cycles and news events come and go by the day, but the effort to plan for and then navigate retirement unfolds over a lifetime.

Retirement itself can last 30 or 40 years today for those who are lucky to have their health intact as they enter their golden years, Rizzuto said.

“It’s inevitable that, over this period of time, every client is going to have to navigate periods where they agree and disagree with the current administration in power or the current majority in Congress,” Rizzuto said. “What this means is that they can be as political as they want outside the advisor meeting, but when it comes to building the financial plan, they need to be agnostic.”

Election Anxiety Runs High

Rizzuto pointed to a recent investor sentiment survey run by Janus Henderson Investors. In short, the results show that anxiety around the 2024 U.S. presidential election is affecting more than three in four (78%) investors.

More specifically, of the roughly 1,000 mass affluent and high-net-worth investors who took part in the survey, nearly half (49%) said they are very concerned, while 29% are somewhat concerned about how the election will play out and affect their portfolio.

“In this year’s survey results, the election eclipsed investors’ concerns about inflation, risk of recession and rising interest rates,” Rizzuto noted. “These worries can push us to focus on the short term and get sucked into the emotional eye of the political storm.”

So, how can advisors calm their clients and refocus on their long-term objectives?

“One effective strategy is to look at past results to gain a better understanding of how election years, the president, and changes in who controls Congress have historically affected financial markets,” Rizzuto proposed.

What History Shows Us

As Rizzuto detailed in one recent article, people often worry about a big drop in the market should their preferred presidential or congressional candidates lose power to the opposing party. Yet, the average return of the S&P 500 between 1937 and 2022 shows that election-year returns have, on average, been positive and accretive to portfolios.

More specifically, Rizzuto pointed out, the average return from 1937 to 2022 of the S&P 500 was 11.9%. In non-election years, it was 12.5%, and in election years, it was 9.9%.

“So, while election-year returns have historically been somewhat lower than non-election-year returns, they are still additive,” Rizzuto said. “And as we know, trying to time the market to try to make up for this difference would likely do more harm than good.”

Also key to note is that, just as with the historical market returns in election and non-election years, there are differences in how markets have performed based on party control.

“Over the long term, however, the markets have done well regardless of who is president and which party controls Congress,” Rizzuto emphasized. “One noteworthy wrinkle is that if the same party retains control of the Oval Office, the market return has historically been 11.8%, while in election years when the presidency changes parties, the market has averaged a 7.8% gain.”

In Rizzuto’s view, this phenomenon may have more to do with the markets and business cycles presidents inherit, rather than any specific policy choices on the part of incumbents or newly elected presidents. That is, most first-term presidents have been inaugurated amid varying degrees of economic stress.

The Bottom Line

The big conclusion to share with clients is that, regardless of which political parties they are affiliated with, they should vote for long-term planning.

“The financial goals we are investing for today have time horizons that may last 10, 20, 30, maybe even 40 years and could span several presidencies,” he said. “The historical data shows us that, over the long term, financial markets don’t necessarily care who the president is or who controls Congress.”

Credit: Bloomberg 

John Manganaro

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