Survey finds investors worried about 2024 election impacts

As the nation heads into national elections next year, many American investors are nervously considering implications for their investment portfolios. Regardless of political affiliation, nearly half (45%) of investors believe the results of the 2024 U.S. federal (presidential and congressional) elections will have a bigger impact on their retirement plans and portfolios than market performance, according to Nationwide's ninth annual Advisor Authority survey.

In addition to general pessimism about the election's impact on retirement prospects, investors fear the impact of new policy and opposing party rule on the U.S. economy. Nearly one in three (32%) investors believe the economy will plunge into a recession within 12 months if the political party with which they least align gains more power in the 2024 federal elections. Roughly, the same percentage (31%) believe the party they least align with gaining more power in office will negatively impact their future finances, and 31% believe their taxes will increase within 12 months.

"As we get closer to the 2024 election, we're going to see more messaging and campaign ads that portray worst case scenarios, creating anxiety in investors that can lead to short-sighted, emotional decisions," said Eric Henderson, president of Nationwide Annuity. "It's important for investors to not get caught up in the 'what ifs,' and instead focus on what they can control. A proactive step would be having a conversation with their advisor or financial professional and establishing a long-term plan – or revisiting the plan they already have in place – to ensure it remains aligned with their goals regardless of which party takes control in Washington."

Recession fears across party lines

Some issues are viewed differently across party lines, the survey pointed out. More than half (57%) of investors who identify as Democrats say market performance will have a bigger impact on their retirement plans and portfolios than the results of the 2024 election, compared to 47% of investors who identify as Republicans.

However, Republicans tend to brace for election results more than their Democrat counterparts. More than two-thirds (68%) of Republican investors believe the outcome of a presidential election will have a direct, immediate and lasting impact on the performance of the stock market, compared to 57% of Democratic investors.

Independent investors are the least concerned with election results; fewer than half (40%) feel the results of next year's election will have a bigger impact on their retirement plans and portfolios than market volatility. This is the lowest of the three primary political demographic groups.

"While it's natural to feel the party you support will deliver the best economic outcome, history tells us that these instincts can be blown out of proportion," said Mark Hackett, chief of investment research for Nationwide.

"Remember that election results in either party's favor have historically had little impact on future investment returns. That's why it's important to apply a strong filter to election news coverage to maintain an objective understanding of the events shaping our world. It's best to stay focused on the fundamental drivers of investment performance (e.g., company earnings, revenue growth, profit margins, etc.) and leading indicators of economic conditions."

Older investors are more fearful

Perhaps what should not come as a surprise, the general fear of a recession is magnified for those who are closest to retirement ahead of next year's election, as any wrong decision could have a lasting impact on how they live through retirement. Pre-retiree investors (defined as non-retired investors aged 55-65) are more concerned about an impending economic recession (50%) than investors overall (41%). Pre-retirees and those already in retirement are more concerned about inflation than investors overall (66%, 66% vs. 61%, respectively), the survey said.

As a result, pre-retirees are planning to be more conservative with their assets than other investors perhaps because they don't have the time to recoup losses. According to the survey, one third (33%) of pre-retiree investors are managing their investments more conservatively in anticipation of next year's election, compared to just 31% of all non-retired investors. In addition, just 12% of pre-retirees and 4% of retired investors plan to invest more aggressively in anticipation of next year's election.

Financial advisors understand the fears that can stem from changes in Washington and can help investors navigate through these fears, the survey said. Like investors, financial advisors view inflation (46%) as the most immediate challenge to their clients' retirement portfolios. However, they are not immune to a partisan bias; 38% believe the stock market will be volatile for the 12 months following the election if the party they least align with gains more power after next year's federal elections.

What advisors are recommending

In the face of volatility spurred on by partisan noise and a potential exchange of power in Washington, advisors still maintain a more balanced, nuanced view of the election than their clients, in part because many have designed long-term strategies to protect them against volatility, the survey said. Despite election jitters, most advisors (56%) believe that staying the course – i.e., not changing their clients' investment strategies – is the best course of action in an election year.

With this approach in mind, advisors are recommending and implementing their strategies accordingly. Almost all (96%) currently have a strategy in place to help their clients protect their assets against market risk, an increase from 92% in the last 12 months. Annuities (80% vs. 78%), diversification and noncorrelated assets (72% vs. 57%), and liquid alternatives such as mutual funds or ETFs (54% vs. 31%) all saw at least a slight increase as solutions used by advisors to help their clients protect their assets against market risk in the last year.

"While elections are important, and it's good to be engaged in our democratic process, making emotional decisions based on what you think will happen runs the risk of derailing your retirement goals," said Henderson. "Advisors and financial professionals should seize the opportunity to engage with their clients to reinforce the importance of sticking to their long-term plan. Another way to address client anxiety is to help them understand the value of protection solutions, like annuities, that guarantee income in retirement and guard against market volatility – regardless of who ends up winning the election."

MDRT member David Appel said that advisors should segment the clients’ investments to match when they expect to need the money. Short-term money should be more on the guaranteed side, while money that is needed 10+ years out should be more growth-oriented and can handle big swings in the market, since the client has time to handle the volatility, he added.

“You do not want to be in a situation in which the client is trying to time the market because that’s when you can get hurt and the plan turns into a disaster,” said Appel, managing partner of Appel Insurance Advisors, LLC.  “I also feel that prior to the investment elections being discussed, advisors have to set the expectation and ensure that the client or clients understand that the market is going to go up and down.  The process outlined above is to ensure stability and success, regardless of market performance, and the first priority is that the goals of the client are being met.”

This is also the case, regardless of who is in office or what is happening geopolitically.  “By agreeing up-front that the market doesn’t always move in one direction, then the conversation moves to a solutions-based model of “OK, if our plan doesn’t go the way we want, here is how we are going to prepare you for it,” he said.

Nationwide's ninth annual Advisor Authority study, powered by the Nationwide Retirement Institute, explores critical issues confronting advisors, financial professionals and individual investors—and the innovative techniques that they need to succeed in today's complex market. The research was conducted online in the U.S. by The Harris Poll on behalf of Nationwide from August 14-30, 2023, among 507 advisors and financial professionals, and 2,404 investors ages 18+ with investable assets (IA) of $10K+. Among the investors, there were 636 Mass Affluent (IA of $100K-$499K), 529 Emerging High Net Worth (IA of $500K-$999K), 402 High Net Worth (IA of $1M-$4.99M) and 219 Ultra High Net Worth (IA of $5M+), as well as 618 investors with $10K to less than $100K investable assets ("Less affluent"). Investors included a subset of 464 "pre-retirees" age 55-65, who are not retired.

 

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.