1/3 of investors expect recession if their favored candidates lose

COLUMBUS, Ohio – Touted as one of the most consequential elections in decades, the 2024 presidential and congressional races could pose significant distractions for voters – particularly when it comes to their financial plans and portfolios.

A majority (55%) 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 portfolio than market performance – up 10 percentage points from just a year ago, according to Nationwide’s 10th annual Advisor Authority study, powered by the Nationwide Retirement Institute®.

In anticipation of the election results, investors are bracing for adverse outcomes if their preferred candidates fail to win the White House and Congress. If the political party they least align with gains more power in the 2024 federal elections, one-third of investors (34%) believe the economy will plunge into a recession within 12 months. However, Nationwide’s Office of Economics believes a recession in the near-term is unlikely unless there is a significant unforeseen event.

With regard to specific economic concerns related to the party they least align with winning the election, half of investors (50%) believe the cost of living will rise, while 1 in 3 believe their taxes will increase within 12 months of the election (34%) or that economic policy will be enacted that will negatively impact their financial future (33%).

Investors are also preparing their portfolios and retirement plans. More than a quarter (26%) of non-retired investors plan to invest more conservatively in anticipation of this year’s election, and 18% plan to increase diversification of retirement solutions within their portfolios.

“Election seasons can be draining on all of us as we’re hit with relentless campaign ads and messaging, leading us to believe we need to prepare our investment portfolios for the worst,” said Kevin Jestice, senior vice president of the Nationwide Investment Management Group. “However, it’s important to remember that election results in either party’s favor have historically had little impact on future investment returns. That’s why it’s important for investors to stay focused on long-term strategies by working with a trusted advisor to avoid making short-sighted, emotional decisions based on near-term political shifts.”

Market concerns elevated as Election Day approaches

Just weeks away from Election Day 2024, investors report the same top financial concerns as they did when polled about the election last fall. More than half of investors (54%) say inflation is a top financial concern leading up to the 2024 elections, down from 61% in 2023. Fears of an economic recession (34%, down from 41% last year) and taxes (30%, up from 26% last year) are also top of mind for investors.

“Our current forecasts show that while the economy is likely to cool somewhat over the next six-to-12 months, a recession is unlikely unless there is a significant unforeseen event. Presidential campaigns often portray their candidates and plans as the primary factors that will impact the economy, but retirement savers should keep in mind that in most cases, the eventual winner has a limited ability to effect significant change – positive or negative – on their own,” said Nationwide Chief Economist Kathy Bostjancic. “Historically, the Federal Reserve has a much greater impact on the economy in the short- and medium-term than does a president, especially if the winner is constrained by Congress.”

The potential impacts of this year’s election continue to be a concern for investors, with six in 10 (61%) believing the outcome of a presidential election has a direct, immediate and lasting impact on the performance of the stock market, about the same as 2023 (60%). Investors are most concerned with the election’s impact on market volatility (77%), their personal finances (71%) and investment portfolio performance (69%).

Voters divided on key campaign issues

Across party lines, voters cite the same key threats to their retirement prospects. Both non-retired Democrat and Republican investors see inflation (47% and 57%, respectively) and economic recession (34% and 37%, respectively) as the most immediate threats to their retirement portfolios over the next 12 months.

Overall sentiment differs across party lines. While a majority (55%) of Democrats have an optimistic financial outlook for the year ahead, just over 1 in 3 Republicans (37%) and independents (37%) feel the same.

Democrats are slightly more concerned about unexpected or emergency expenses (21% vs. 16%) and outpace Republicans with concerns about the rising cost of living forcing retirement savings withdrawals (23% vs. 16%). Republicans (84%) are more concerned than Democrats (67%) about the prospect of a U.S. economic recession in the next 12 months.

The top investment strategy selected by Democrats (22%), Republicans (26%) and independents (23%) is a shift to a more conservative approach in anticipation of the election.

Advisors mirror investor concerns, provide support

Despite differences in key concerns ahead of this year’s election, investors across the political spectrum agree on the benefits of working with a financial advisor: Democrats (63%), Republicans (59%) and independents (58%) say that working with a financial advisor during an election year helps them feel more secure, regardless of who is elected.

Financial advisors share their clients’ concerns, especially in terms of their 12-month outlook. Roughly two-fifths of advisors believe inflation (42%) and market volatility (38%) pose the two most immediate challenges to their clients’ retirement portfolios over the next 12 months.

To proactively meet those concerns, advisors are implementing more comprehensive solutions into their clients’ retirement portfolios. Advisors are counselling their clients to take capital gains early in case tax laws change (31%) and to take Social Security benefits later (29%). Nearly a third (32%) also plan to increase diversity of retirement solutions within their clients’ portfolios in anticipation of this year’s elections.

This turbulent moment is inspiring advisors to adjust their recommended retirement solutions. Compared to a year ago, advisors are increasingly using solutions like annuities to protect clients’ assets against market risks. More than half (55%) are incorporating Fixed Index Annuities (FIAs), up slightly from 50% last year. Additionally, 47% of advisors are incorporating Registered Index-Linked Annuities (RILAs), up from 39%.

“The run up to this year’s election has been filled with plenty of noise and we expect to see that continue for weeks after the election is over, so advisors should reinforce the importance of their clients sticking to their long-term plans,” Jestice said. “Advisors can use this time to revisit solutions that perform well amidst market volatility, like annuities, as a way to help calm investor anxiety and position them for guaranteed income in retirement – regardless of election results.”