What to say to fearful clients as the presidential election nears

The markets may feel relatively calm at present, but the wave of investor anxiety in the run-up to the 2024 presidential election is just starting to swell.

Every four years at around this time advisors begin to hear a familiar refrain: If so-and-so wins, they will wreck the economy; I'll sell and move to cash. (Or move to Costa Rica, or other options.)

The media chatter leading up to Election Day intentionally, in my view, riles people up in order to keep advertising dollars up and consumer eyes on screens. The growing prevalence of social media as a misinformation source has exacerbated this trend, with 43% of TikTok users saying they regularly get their "news" from the platform, as opposed to 33% who said the same in 2022, according to Pew Research Center. 

Of course, major challenges ranging from global debt and government spending to inflation to geopolitical wild cards will create risk and friction points, even if most people barely understand the top layer of these issues.

But while all of these things evoke powerful emotions, investors should never lose sight of their aim: to build and preserve wealth over the long term. The market's variables stretch far beyond which politician is in the White House at any given time and wise investors will adjust to whichever party is in power.

READ MORE: Almost half of advisors worry about contested presidential election

Historically, the S&P 500 Index has seen positive gains in presidential election years (see "S&P 500 Price Change by Presidential Term" at bottom), and over time the market has risen regardless of who was in office. 

Given this, it's critical that advisors don't allow clients' political biases to create negative chain reactions in their portfolios. It is easy to say "I'm outta here," but it is very hard to get back in when it feels like markets could not get any worse, which of course is the right time to buy.

Here is what to say — and often, more importantly, what not to say — to fretful clients as Nov. 5 approaches.

Invest in the (unforeseeable) future

Your clients likely know which presidential candidate you support, but remaining neutral about the impact of your choice is key. This will help them remain calm and focused beyond the totally predictable election quandary that occurs every four years. 

Do tell them that an investment portfolio isn't intended to shift based on who is in office. It is built to be resilient over time, knowing that the market will fluctuate wildly and present unimaginable opportunities and devastating challenges. This is just what it does. 

READ MORE: Helping clients cut through the noise of recurrent crises

Adopting a marathon mindset involves making tons of short-term decisions that keep clients moving in the right direction to achieve their goals, not shifting and pivoting based on news outlets that are usually biased.

Here's what to do: Nothing

Here in the U.S. we are wired for action. When faced with a challenge, doing nothing feels terrible — but it is often the right thing to do. 

The difficult task of knowing when to act and when to stay the course should be part of an advisor-client discussion around the principles and philosophy of success in an investor's particular portfolio. Does the portfolio design allow for positivity in all kinds of markets? If not, the investor runs the risk of falling into behavioral traps that may set them up to make emotional decisions, no matter how well they have convinced themselves that they are based on logic.

Ultimately, there's no way to detach from our own humanity. We will always be driven by loyalties, dreams of success and fears of failure and the unknown. 

The good news is that acknowledgement and awareness of these emotions and how they can influence money decisions can help investors think more clearly.

READ MORE: Retirement confidence falters as election 'ugliness' approaches

Don't play the cash card

There are an unlimited number of scenarios that could play out leading up to and following the next election. With catastrophizing as the preferred media option, clients may be tempted to exit the market and move to cash — we are, after all, built to run. 

But making a move that deviates from an investor's long-term plan will only succeed based on luck, not on skill or foresight. 

I find it is not worth it — the timing is difficult to get right, and such moves are better left to investment managers who specialize in mitigating risk. A diversified portfolio with a built-in contingency plan for all types of markets will help clients quell the urge to liquidate.

Dial down risk

It is a common belief that a political party's policies will affect various sectors or companies — and pundits can slice the data in many ways to "prove" that their party is the market winner.

Rather than chase political themes, I believe one of the best ways to manage portfolio risk is to to include varied management styles and employ drawdown hedging strategies in portfolios. A truly diversified portfolio employs risk-managed strategies designed to navigate all markets. Since markets can change quickly, why only prepare for optimistic scenarios?

Stay positive and cover your bets

Investors will inevitably feel anxious about their anticipated future returns when faced with an event as significant as a potential change in the leader of the free world. 

At its root, what we are talking about is a fear of loss — but life-changing portfolio losses are failures of preparation. When facing an unknowable future, it is essential not to chip away at returns by fear-motivated actions. Losses that accompany such a mindset can create additional despair about the future, initiating a repeating cycle of worry and anxiety. 

Advisors' most important role is to remain positive and craft a portfolio that accommodates investors for all types of markets — and the emotional roller coasters that accompany them.