How to help clients separate political emotions from investment decisions

investmentnews.com:

With several months to go before the election, there is ample time for the markets to swing one way or the other.

However, this also leaves space for investors to make rash short-term portfolio allocations that can have harmful long-term implications, says Spuds Powell, managing director at Kayne Anderson Rudnick, a Los Angeles-based RIA.

The consistent theme he encounters among his clientele are the political emotions and strong visceral political opinions that run rampant, leading up to November’s uncertain election. He would go far to even argue that there’s more political divisiveness in America than he can ever recall.

“With all that emotion, a lot of investors are inclined to make the mistake of applying some of those strong political sentiments and emotions on their investment judgment,” Powell says. “I’ve always felt that the most common mistake, and arguably the worst mistake investors can make, is letting their emotions influence their investment judgment.”

This is why he’s committed to helping clients realize and understand why politicians tend to have less influence on the behavior of the stock market and the capital markets than most people give them credit for.

After all, clients aren’t adjusting their investment strategy or their asset allocation, just because we’re in an election year, Powell says.

However, there’s no question that the uncertainty around who will win the election and what will happen with Congress may or may not impact the economy, certain industries, taxes or regulation.

“It creates a lot of angst and nervousness,” he said. “I’ve always felt that when something important is uncertain, investors tend to focus much more on what can go wrong than then then the focus on what can go right.”

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