Stop Your Clients From Letting Election Fears Drive Investment Decisions

Given the charged nature of the election cycle, voters’ anxieties could be at an all-time high.

For investors, that can mean making emotionally driven decisions that they’ll live to regret. Spuds Powell, a managing director at Kayne Anderson Rudnick, says that now is the time for advisors to soothe clients’ nerves and hand them a reality check.

“Part of my goal is to serve as a financial psychologist to prevent clients from making fear-driven decisions,” Powell tells ThinkAdvisor in an interview.

Powell, a 30-year industry veteran who’s been a regular on Barron’s Top 100 independent financial advisors list, gives worried clients the facts. For example, whoever is elected president has much less influence on companies and the economy than people fear.

What has more influence, he maintains, are interest rates, inflation and consumer spending.

In the interview, Powell notes that a little empathy can go a long way to making clients receptive to absorbing information and being open-minded.

Here are excerpts from our conversation:

THINKADVISOR: Are investors’ emotions running unusually high because of the tumultuous election cycle? 

SPUDS POWELL: Yes. There are at least a couple of obvious reasons why emotions have to be quite a bit higher before elections [anyway]. And now we’re living in a time when there’s more divisiveness and animosity than ever before.

But it’s been proven pretty consistently that when it comes to elections, if you let fear, or greed, influence your investing judgment, you usually end up regretting it. 

On TV, we saw presidential candidate Donald Trump bleed after a bullet grazed him in an assassination attempt. Recently a suspect was allegedly preparing to fire at him while he was playing golf. How are such events affecting investors?

They feed into the heightened level of political emotions existing today. But the question investors need to ask themselves is: How are these [events] going to influence Nvidia, Coca-Cola, Procter & Gamble — or any company?

Will the outcome of the election have a meaningful positive or negative impact on companies that sell products and services? 

I would argue that in most instances it will have quite a bit less influence on businesses, most industries or even the broader economy than people fear. That’s based upon what has happened historically.

How likely are investors making decisions according to which candidate wins a debate or what polls are showing?

People have very strong emotional feelings about their political parties and their confidence level for different candidates winning based upon a debate or for any other reason. 

Then they start to let some of those strong political emotions influence their assumptions and predictions in bad ways.

What are you as a financial advisor focused on concerning your clients and the election?

Part of my goal is to serve as a financial psychologist to prevent clients from making fear-driven decisions they’ll end up regretting.

What are some behavioral finance tacks that advisors can take with worried clients?

The most important element is earning the client’s trust and confidence. Then an advisor needs to provide facts and [hard] information [to counter] the emotionally driven tendencies they have.

For example, the average return for the S&P 500 Index during presidential election years is higher than the long-term average return for the S&P.

So providing facts that may contradict or paint a different picture from what investors have assumed is one way to help.

Should advisors recommend that nervous clients refrain from constantly watching TV news? Many newscasters have a delivery that stirs up viewers’ emotions.