Uncertain times typically provoke investor concern and an urge to tinker with portfolios—and the 2016 presidential election season is no different. Indeed, according to new research from BlackRock, in the run-up to the presidential election nearly two-thirds (63 percent) of Americans have made portfolio decisions in direct response to election uncertainty. Some of those decisions, however, might be ill-suited to long-term realities.
Keeping clients on the right strategic track is challenging under the best of circumstances, much less one of the more remarkable election seasons in anyone’s memory. Yet, extraordinary times are tailor-made for objective, calming guidance. Our research makes clear that many investors pondering the election’s potential impact could benefit—over the long term as well as now—from reviewing some portfolio essentials.
BlackRock recently surveyed more than 1,600 Americans, ages 25-74, on topics ranging from their financial future and investment concerns to portfolio changes, with special emphasis on the 2016 election.
There’s no question that the election is much on the minds of American investors. About one-third feel it poses a threat to their financial future; three-quarters believe it will have a greater impact on their personal finances than the 2008 election (the last time there was no incumbent president running).
Nearly six in 10 also say the potential impact on their savings and investments will be an important factor in their vote. Many aren’t waiting until the election to see how that impact plays out. Among Americans saying they’ve already made an election-driven portfolio change, the most likely move has been classic “risk off” behavior: A net 12 percent of Americans said they’ve added to cash or savings accounts. Among Americans who say they have advisors, the move is even more pronounced—a net 26 percent have boosted it.
An appropriate cash allocation is part of many good investment strategies. But the fact remains that such positions earn investors very little to nothing in the current market environment. Compounding the potential problem is that, for many, cash allocations are already quite high—about 67 percent of portfolios overall. Even millennials—seemingly best positioned to shoulder long-term investment risk—are over-allocated to low-yielding cash: It represents 69 percent of their portfolios. Advised investors also are carrying quite a bit of cash—nearly half (47 percent) of their portfolio, on average.
For many Americans, then, an affinity for cash seems not only a short-term reaction to election uncertainty, but also a longer-term portfolio commitment—with potentially troublesome implications for achieving long-term goals.
Regarding the election, the good news is that Americans, as concerned as they seem to be, are keeping their concern in context. For one thing, they clearly have not lost focus on long-term issues that arguably have even greater impact on their finances: Higher than the election on the list of perceived threats to their financial future are the high cost of living (52 percent), health-care costs (46 percent), Social Security changes (40 percent) and the state of the American economy (36 percent).