Stop Your Clients From Letting Election Fears Drive Investment Decisions

Absolutely. Today, everybody has access to the news 24/7. The media knows that fear sells and is very good at feeding investors' fears, insecurities and anxieties.

So it's important that they take what they hear with a [large] grain of salt.

The emotional reaction we have to scary news is much stronger than the one we have to positive news. But the world isn't as dire as the media would imply.

What other behavioral finance strategies can advisors use? 

When it's something as important as the outcome of an election, people tend to dwell much more on what can go wrong than what can go right.

So it's important to consider the range of things that can happen and not focus on the glass being half-empty — the bad scenario that could unfold. 

This tends to ramp up their fear, and often people make the mistake of letting that fear influence their investment decision-making. 

What else should advisors tell clients to avoid their making wrong decisions?

It's a mistake to let your fear influence your judgment. There are many factors that influence the behavior of the stock market and economy.

Certainly politicians are on that list. But it's been proven [fairly] consistently that politicians tend to have a lot less influence on the economy and stock market than other factors do.

Such as?

The health of the job market, whether interest rates are going up or down, inflation going up or down, whether consumer spending is healthy or not, the Fed is increasing or lowering the fed funds rate.

These factors tend to influence the stock market, and more broadly, the economy than the outcome of an election. 

What else should investors think about that would assuage their angst?

I've never seen a really great company become a really lousy company overnight based upon the outcome of an election. The opposite is also true: I've never seen a really lousy business turn into a really great business based upon who our next president is.

Thus, it's important for investors to consider that businesses should be able to continue to be successful regardless of the outcome of the election.

Is there much value in an advisor's showing empathy toward clients who are anxiety-ridden because of the election?

Having empathy is really significant. At times like these, effective communication is critically important, and one of the characteristics of effective communication is being empathetic. 

You need to meet people where they are by putting yourself in their shoes and trying to understand why they feel the way they do.

If you don't, it's really difficult to help them let their guard down and win them over to be receptive to facts and information that would [prevent them] from making emotionally driven decisions.

How does an advisor show empathy?

When it's clear that a client of mine has very strong feelings and maybe even fears about the election and the impact it might have on their investments or even on the economy or the country, it's important to acknowledge those fears and [discuss] aspects of their concerns that I personally agree with to earn their trust and confidence.

That puts them in "receive mode" and being receptive to digesting facts and information I share with them and being open-minded.