FA Center: Investors struggle to keep politics out of their portfolio in the Trump era

FA Center: Investors struggle to keep politics out of their portfolio in the Trump era

As a financial adviser who works with wealthy clients, I have seen just how hard it has become in recent years for many people to separate their politics from their investments.

During the Obama years, many of the politically conservative investors I work with needed to be pulled off the sidelines as their confidence in future returns was shaken by the prospect of socialized health care, the Troubled Asset Relief Program (TARP) and the ramping up of bank regulations coupled with “Helicopter Ben” monetary policy from the Federal Reserve.

Investing behavior wasn’t always so influenced by politics. The occupant of the White House during the Reagan, Bush (41), Clinton, and Bush (43) years did not elicit the same response from clients as we’ve seen during this administration.

In some cases, those conversations spanned several quarters as many wanted to stay in cash in an economic environment that just didn’t make sense to them, while others impulsively gravitated to gold and precious metals in large part due to the barrage of advertisements on talk radio and television hitting their mark in making investors believe they were secure.

Those were tricky conversations compounded by the fact that the economy was coming off what felt like the most painful run in our lifetimes, and I certainly couldn’t make any guarantee that the economy would fully recover.

At the same time, my politically liberal clients felt emboldened with their money: Stability had seemingly been restored, health care was about to go through a renaissance and, with their party in power, they felt assured the U.S. stock market looked very investible coming off of those generational lows. Those eight years rewarded investors who stayed the course well and gradually even the people with the strongest opinions came to realize that their views were not necessarily in line with the market.

Flip the script

After the surprise outcome of the 2016 election, everything flipped. In my 20-plus year tenure as a financial adviser, I have never seen such an abrupt mental pivot in investor psychology.

The potential cultural effects of the election of President Donald Trump were hard for many to grasp, but when it came to investing, the outcome had a huge impact on the general attitudes of many of my clients. For some of my liberal-minded clients, confidence in leadership was shattered, prompting calls every few days asking if they should get completely out of the market before President-elect Trump took office.

To them, the work of the Obama years was being threatened as financial and environmental regulations were about to be pushed aside, along with Obama’s signature accomplishment, the Affordable Care Act. Compared to conversations with my politically conservative investors who struggled to rationalize investing in the Obama years, this was a new day.

With a political divide in the country continuing after the election, the halting of new regulations and stripping back of many others provided a pro-business vibe that many found irresistible. The banks, after being repeatedly vilified and made to pay billions of dollars of fines, had the proverbial boot removed from their neck. Defense spending was projected to rise, health-care reform was thought to come, followed by infrastructure, tax cuts, etc. It all translated to a world that finally fit a narrative that provided investing upside.

Politicization of investing

Investing behavior wasn’t always so influenced by politics. The occupant of the White House during the Reagan, Bush (41), Clinton, and Bush (43) years did not elicit the same response from clients as we’ve seen during this administration.

Now, nearly two years into the Trump era, I have seen investors with extreme views on both sides hold firm to their beliefs — and their portfolios. Most of my clients, however, have now mentally moved on; the Dow Jones Industrial Average DJIA, -0.72%  running from 18,000 points to 25,000 points can have that effect on people.

With the benefit of hindsight, we can see the folly of giving into our political leanings and allowing them to dictate investment strategy. Politically induced financial moves that many investors considered in hopes of limiting downside exposure in their portfolios would ultimately have worked against established plans and goals for many of those clients.

The great Benjamin Graham once said: “The investor’s chief problem and his worst enemy is likely to be himself. In the end, how your investments behave is much less important than how you behave.”

It may not always be easy, but going forward, I’ll continue to encourage my clients to adopt a mindset that screens out our political leanings and keeps the investing focus on fundamentals, not feelings.

David Rankin CFP is a financial adviser with the Mangan, Ernst & Rankin Wealth Management Group of Janney Montgomery Scott in the Philadelphia area. You can email him at drankin@janney.com.

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