Financial Advisors Warn: Keep Emotions And Politics Out Of Your Portfolio

Financial adviser Erica Rahr didn't think she was getting into the "emotional coach" business, but she did.

"I consider that to be one of the largest parts of my job," said the Edward Jones adviser from her office in Murrells Inlet.

"Being that emotional coach. Many would make the argument, including myself, that that's one of the largest values that we bring."

The emotional roller coaster that the upcoming presidential and congressional elections can bring can fuel emotions when it comes to managing money and investments. But there's an old adage that financial advisers still stand by: Don't play politics with your portfolio.

For a second, let's look at politics and the market.

To start, historically, the stock market has returned 13.9 percent during election years, no matter what the outcome was, Rahr said. For elections that resulted in a change in the party occupying the White House, the average stock return in the following year after the election was 5.8 percent if the party changed, she said. If the incumbent party retained the White House, the average return was 15.5 percent.

"The encouraging overall point to me is that they're both positive returns," Rahr said. "No matter what happens, the economy will outlast whatever the politics are. That's the bottom line. Markets have performed well following a wide variety of outcomes. We don't think politics is a long-term driver of the market and there's a lot of math and history to back that up."

Jeff Wildes, president of Wildes Financial Strategies in Georgetown, said it's imperative to keep in mind a person's long-term goals.

Wildes Financial is a comprehensive wealth management firm that helps business owners, professionals and individuals be good stewards of their financial resources so they can help achieve their goals.

"It's never wise to make long-term decisions based on short-term events," Wildes said. "It doesn't mean that short-term events don't affect the outcome or decisions. I don't mean you should ignore them, but they shouldn't be the overriding factor in terms of how you make your decisions."

Wildes said there's no way of knowing how the election will turn out, so there's no sense in jeopardizing the money you have invested.

"You don't want to gamble your long-term goals on the polls being right or wrong," he said. "The election outcome obviously has consequences. President Trump and former vice president Biden have very different views on everything from tax policies, spending priorities, overall economic strategies, international trade, energy, financial regulations, health care, you can go right down the list.

"Obviously, they can't implement many of these things without the consent of Congress. So even the Congressional elections have an impact on this, not just the Presidential elections."

Wildes said it comes down to sticking to "good, sound financial principles."

"If you stick to good, sound financial principles, that's going to be the best strategy when you deal with unknowable events because good, sound financial principles should take into consideration the fact that much of what we deal with, from a financial standpoint, is unknowable."

So what do you do? Wildes sometimes the short-term answer is cash.

"Coming into an election like this, sometimes cash can be an appropriate investment choice, at least for the short term. It's not a good investment for the long term, obviously, but for the short term it can be a good investment choice."

Wildes said a good way to go about raising cash is cashing out your gains already earned and cleaning your portfolio of investments that aren't performing like the investor thought they would.

"If you wind up with 20 percent of cash going into this investment, that's not a bad thing," Wilde said. "Then after the election, you've got more information, things are a lot clearer and how the economy should look going forward, and which investment categories might do better based upon the outcome of the elections, and you have some cash to be able to do something with. If something happens in the election and the market happens to go way down, then you've got some cash when it's appropriate to catch it on the way back up."

Wildes finds himself as the emotional coach, as well.

"One of the things a good financial adviser does is be the voice of reason and logic during times like this to balance people's emotional thoughts," he said. "Emotions are rarely a good way to make financial decisions."

Rahr said it is important to have an adviser both before and after big events like presidential elections to set long-term goals based on individual needs and wants.

"We bank our futures on money, we work hard for it, so we understand that," Rahr said. "We take that very seriously, and that's why it is such a big part of the job. Because at the end of the day, it doesn't matter what the best investments are out there, what matters is that you're invested in what's appropriate for you so that you can stay invested for the long term and that's how you will win as an investor no matter what. That risk tolerance is different for every person."