Advisors step-up portfolio protection strategies amid client election jitters

The election is just three week’s away and investors are nervous about the impact of the result on key economic and financial matters, but advisors need to keep them calm.

A new report from Nationwide reveals that more advisors are recommending strategies to protect clients’ portfolios from potential market risks, such as Fixed Income Annuities (55% said these are part of range of strategies in play vs. 50% last year) and Registered Index-Linked Annuities (47% vs. 39% in 2023).

Advisors are also recommending taking early capital gains in case there are tax law changes (31%) and take Social Security benefits later (29%), along with diversifying the retirement solutions being deployed (32%).

"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," said Kevin Jestice, senior vice president of the Nationwide Investment Management Group. "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."

Investors are concerned about how the election will affect their investments and their long-term financial security, as shown by several recent surveys including Empower’s research revealing that half of Americans believe the outcome of the 2024 Presidential election will have a direct impact on their personal finances and  a new study by Wealth Enhancement Group, which found that eight in 10 Americans are worried about how the election could affect their retirement savings.  

The Nationwide survey backs this up with 55% of investors saying that the results of the presidential and congressional elections will have a bigger impact on their retirement plans and portfolio than market performance.

But advisors tend to agree with two-fifths of these respondents believing that inflation (42%) and market volatility (38%) pose the two most immediate challenges to their clients' retirement portfolios over the next 12 months.

RECESSION RISK

The survey also asks investors about their concern that the US economy may be in recession some time in the next 12 months.

One third of respondents cite recession as a top financial concern but this is down from 41% in 2023, well below inflation (54%) but above taxes (30%). 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.

"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 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.