Educating and setting expectations from the get-go is critical so clients are mentally prepared when (not if) markets get choppy.
While we have been in a fairly calm period since shares emerged from the post-Brexit slide, you may have already received calls from anxious clients who are worried about the election’s impact on their portfolio.
So far, markets have barely reacted to this unconventional election cycle.
In fact, the first debate only seemed to soothe investor anxieties when Hillary Clinton appeared to best her challenger Donald Trump, at least according to snap polls conducted immediately in the wake of the heated match.
And it just wasn’t the polls that gave the nod to Clinton, many professional pundits echoed similar remarks.
But that may be counterintuitive for some of our clients. Doesn’t Wall Street favor a Republican because the Republican Party encompasses a coalition that smiles on business and investors? Won’t Trump’s tax policies boost economic activity?
Well, the investment community also favors certainty over uncertainty, and professional investors expect continuity from a Clinton win.
Trump’s incendiary rhetoric has clearly unleashed passion within his supporters (and for that matter, those who oppose him), but it also sparks heightened uncertainty. And we know that heightened uncertainty can spark short-term volatility.
In no way is this an endorsement of either candidate. The Street seems to view it more through the lens of the idiom, “Better the devil you know than the devil you don’t.”
Having that conversation
That brings us back to the top of the article – educating clients and setting expectations.
Our clients realize that long-term rewards require some degree of risk. But emotions can sometimes get the best of us when anxieties creep in. I get it, and I think you do, too.
When talking to clients, acknowledge their concerns and empathize with them before jumping into the facts. Let them know you are engaged and are monitoring the situation.
More importantly, gently remind them that their financial plan incorporates unexpected traffic jams, which are an inevitable part of the journey.
Whether it be the Brexit-related selloff (2 days), global anxieties about China, or the tragic events that followed the 2011 earthquake in Japan, U.S. markets have historically taken their long-term marching orders from U.S. fundamentals.
As Warren Buffett pointed out in his 2015 letter to shareholders, “For 240 years it's been a terrible mistake to bet against America, and now is no time to start. America's golden goose of commerce and innovation will continue to lay more and larger eggs.”
A growing economy fueled by innovation and entrepreneurship has been the biggest driver of stocks over the many decades. As Buffett notes, betting against America today isn’t a winning hand. And he didn’t qualify his remarks based on the outcome of the election.