Schwab Survey: Investors Who Plan Don’t Fear Election Volatility | Charles Schwab

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Schwab Survey: Investors Who Plan Don’t Fear Election Volatility

November 01, 2016

If this presidential election has been making you feel anxious, you’re probably looking forward to the curtain coming down on Nov. 8. But what if you didn’t have to wait until then to get some relief? 

When it comes to your investments, at least, it is possible to give yourself a measure of confidence in the face of an uncertain world. The secret is good planning.

We surveyed nearly 240 Schwab clients and other investors and found that the vast majority—some 85%—were confident their portfolio allocations would see them through any short-term market volatility that might arise after the election. Fifty-four percent said they weren’t considering making their allocations more conservative in anticipation of the election (and 90% weren’t planning to become more aggressive).

“I believe I’ve built a well-diversified portfolio, so I’m confident that neither candidate can significantly affect my portfolio,” one respondent wrote.

“Election-related volatility is short-term, my goals are long-term,” said another. “I don't let myself be swayed by the hype, I look for the substance.”

“I think it’s a little like trying to time the market,” a third respondent said. “It usually doesn’t work and I would only be guessing if I tried to make changes.”

This confidence cut across party lines, with 87% of self-described Democrats and 85% of Republicans saying they felt either “very” or “somewhat” confident their portfolio’s asset allocation would allow them to weather any post-election volatility. Fourteen percent said they had talked with a financial advisor about the potential impact of the election and another 31% said they were considering it. Only 3% said they had pulled out of stock investments entirely in anticipation of the election.

In our view, making sure your portfolio is appropriately diversified, seeking advice when you need it and sticking to your financial plan are the right actions to take. Successful investors understand that markets are always moving, and there’s really no way to avoid the volatility that can come from uncertainty—even when it’s caused by a contentious political campaign. The trick is to create a portfolio that includes a diverse mix of assets and is based on your investing time frame and risk tolerance.

Consider this: 

  • Diversified portfolios tend to be more resilient. We compared an all-stock portfolio with one composed of 60% stocks and 40% bonds. Over the course of 15 years, the all-stock portfolio took longer to recover from market downturns and was worth tens of thousands of dollars less than the diversified one.1
  • Pulling out when the market gets rough can be costly. Investors who dropped out of the market during the crisis in 2009 did so at their peril. An investor who missed just the top 10 trading days of 2009 would have ended up with tens of thousands of dollars less than an investor who’d stayed invested the whole time.2
  • Successful planners tend to end up with more wealth. One study of Americans over 50 found that successful planners—in other words, those who stuck with their financial plans—ended up with an average total net worth that was three times higher than those who didn’t plan.3

Unfortunately, there probably won’t be much relief from the political uncertainty caused by this election until the vote tallies start rolling in. You may have strong opinions about what might happen after the new president moves into the White House (for the record, we think Congress may have a bigger impact on the main issues for investors). But it may be reassuring to know that with your investments, at least, it’s entirely possible to take control of the story.

Source: Schwab Center for Financial Research with data from Morningstar. Stocks are represented by total annual returns of the S&P 500® Index, and bonds are represented by total annual returns of the Barclays U.S. Aggregate Bond Index. The 60/40 portfolio is a hypothetical portfolio consisting of 60% S&P 500 Index stocks and 40% Barclays U.S. Aggregate Bond Index bonds. The portfolio is rebalanced annually. Returns include reinvestment of dividends, interest, and capital gains. Fees and expenses would lower returns. Diversification does not eliminate the risk of investment losses. Past performance is no indication of future results.

Source: Schwab Center for Financial Research with data from Morningstar. Example compares two portfolios starting at $100,000. The year begins on the first trading day in January and ends on the last trading day of December, and daily total returns were used. Returns assume reinvestment of dividends. Fees and expenses would lower returns. When out of the market, cash is not invested. Market returns are represented by the S&P 500 Index, an index of widely traded stocks. Top days are defined as the best performing days of the S&P 500 during 2009. Past performance is no indication of future results.

Original data was based on 1,269 observations and came from a special retirement planning module for the 2004 Health and Retirement Study targeting Americans over the age of 50. Source: Lusardi, Annamaria, and Mitchell, Olivia S., “Financial Literacy and Planning: Implications for Retirement Wellbeing,” May 2011, page 29. ©2011 by Annamaria Lusardi and Olivia S. Mitchell. All rights reserved.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market or economic conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

Results are from a survey conducted in Schwab’s private, online communities of affluent investors ($250K+ in total investable assets) managed by C Space. These communities represent a mix of Schwab clients and prospects as well as an assortment of ages, geographic locations and investment styles.

Diversification strategies do not ensure a profit and do not protect against losses in declining markets.

The S&P 500 Index is a market-capitalization-weighted index comprising 500 widely traded stocks chosen for market size, liquidity and industry group representation.

The Barclays U.S. Aggregate Bond Index is a market-value-weighted index of taxable investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of one year or more.