Presidential elections can create uncertainty around the stock market, as potential changes in leadership may usher in new laws or policies that can impact investing and financial planning strategies. 

Historically, however, elections typically aren’t as impactful as some investors may believe. Election years are, on average, usually more positive than nonelection years, said Tim Mitrovich, founder, CEO and chief investment officer of Spokane-based Ten Capital Wealth Advisors LLC.

“Our advice to clients is to look to historical facts,” Mitrovich said. “In this case, politics have not driven market returns in any meaningful way, whether that’s on a partisan basis or whether that’s about being an election year.”

Election cycles generally don’t change the ways in which financial advisers manage their clients’ wealth, some say. Advisers do, however, tend to increase the client relations side of their businesses when an election is on the horizon.

“The election doesn’t change how we do anything, but it definitely is a time where we look to step up our involvement in our clients’ lives and remind them of those principles that guide markets,” Mitrovich said. “We’re really focused on helping them manage those understandable feelings, manage some of the unknowns, reminding them of a lot of the historical facts that can help counter those feelings.”

Only four election cycles have resulted in negative years in the stock market since 1928, a year before the Great Depression began, he said.

Regardless of what history shows, however, people tend to be on edge every election year.

“It’s something that people are emotional about,” Mitrovich said.

The uncertainty around election time isn’t unique to Ten Capital’s clients.

“During election years, everyone starts getting worried,” said John Adams, co-founder and managing partner at Hayden-based Alpha III Wealth Management LLC. “There’s jitters from clients and investors about how the market is going to go, but we really try to maintain the same focus, the fundamentals.”

Adams and his colleagues at Alpha III focus on portfolio diversification, he said, so if and when there is volatility in the market, his clients can weather the potential storms.

Adams said that history has always presented investors with short-term bumps in the road – be it a recession, a change in political leadership, or a pandemic. A graph hanging in his company’s conference room illustrates this.

“Don’t let short-term events dictate your decisions for long-term investing or planning,” he said. “Those who stay the course historically reap the rewards.”

Adams echoed similar advice to his clients in August, when the Dow Jones Industrial Average plummeted more than 1,000 points. The market drama wasn’t related to the upcoming election, Adams said, but was another example of short-term volatility.

“We actually sent out a notification to all of our clients and prospects of what that recent dip in the market was related to,” Adams said. “We just reiterated the need to diversify your portfolio, continue to make long-term financial decisions, and don’t make any rash or short-term decisions based on short-term events.”

Putting clients’ minds at ease is also a larger part of Sarah Carlson’s job during the months leading up to an election.

“It’s a conversation we’re having almost with every client,” said Carlson, financial life manager and founder of Spokane-based Fulcrum Financial Group LLC. “There’s a lot of apprehension in their minds, and so talking through their concerns, as well as reviewing historical information will, many times, help give them perspective.”

Carlson explained that while there’s always a lot of talk around campaigns and elections, it’s ultimately policies that move the market—and that’s not something that happens overnight.

“It takes time for policy to go through,” she said. “The opportunities are going to be there regardless of who’s in office. … You have to really look at what policy and procedures actually go through and are implemented.”

Fear is a big issue for people when it comes to their money, Carlson said.

“There’s a ton of fear in the market,” Carlson said. “The antidote to fear is coming up with a plan and having a strategy and then executing that strategy. That’s where financial planning can be so helpful.”

Although the fundamentals may remain the same for financial advisers during election cycles, it’s still something they prepare for.

“We’re aware of it,” said Mitrovich. “We’re really aware of it this year from more of an estate planning side because of some of the different pieces of legislation that could roll off. In terms of trying to predict it to change, most notably, our equity allocations, that’s not something that we would do.”

Preparing for shifts in the market is different than trying to predict what the market will do. Rather than attempt to guess how an election will turn out, Mitrovich has his clients focus on the investment and planning processes.

“Panic is not a process. Prediction is not a process, but preparation is a process,” he said.

“It’s almost impossible to predict,” he said. “Even if you could predict what’s going to occur, you can’t always predict how the market is going to react to it.”

Adams also keeps an eye on what the different political parties may be proposing, whether it’s a change in tax rates or laws, or whether a party is more or less pro-business. He said that it’s important to be proactive with investment strategies, and to be defensive in planning if there’s more uncertainty, and then adapt to shifts in the market.

“We think that long term, the market is its own living, breathing entity,” Adams said. “The market performs the way it’s going to perform. Regardless of who gets in office, the market and economy are going to adapt to it, and so will we.”

Adams, Carlson and Mitrovich all say they have seen or heard about investors overreacting and making emotional decisions during times when the market is more volatile, like during an election year.

Market volatility and uncertainty, while it can lead to investors making poor decisions, can also present opportunities, Carlson said.

“Real wealth is made when there are people really uncomfortable in making decisions that end up hurting them,” she said. “When fear is in the market, that’s when the biggest opportunities are there for investors,” she said.

Election seasons, like recessions or more recently a pandemic, reinforce the importance of having a financial adviser or a partner that people can talk things through with, Mitrovich said.

“I believe advisers always have an important role,” he said. “This year it’s an election cycle, some years it could be a recession. It could be something going on in their personal life that gets them to an emotional state. Those things are going to be ever-present as far as being challenges to us as investors.”