This article appears in the November 2020 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
Ordinarily, a U.S. presidential election would be a market-moving event. But this year, thanks to U.S. President Donald Trump’s efforts to discredit voting by mail, the likelihood of voter suppression and no assurance of a peaceful transfer of power, the U.S. election also represents a large, foreseeable geopolitical risk.
Financial advisors who aren’t preparing their clients for the very real potential for civil unrest in the wake of the U.S. vote — and the ensuing market turmoil — clearly haven’t been paying attention.
While election day on Nov. 3 represents a deadline of sorts, that date may just be the beginning of the turmoil. Political analysts warn that the results of the election may not be known for days, if not weeks, given the prevalence of mail-in balloting this year. The results on election night could change as more votes are counted.
In addition, analysts are raising the spectre of efforts to exploit the vagaries of the U.S. electoral college system to override the will of voters. Theoretically, state electors can choose to ignore the results of the polls in their region and instead cast votes for president based on the state electors’ own interests.
The widespread appearance of so-called “faithless electors” could leave the results of the election to the courts, creating a new reason for partisan conflict, civil strife and potential violence in the streets. At a time when so many democratic norms are being violated, the long history of relatively calm U.S. elections is of little comfort.
There’s no way to predict how the U.S. election will play out, but attentive advisors have had plenty of notice about the potential for political chaos. And while no one knows how to prepare for an unprecedented event, many strategies used to shore up portfolios for Covid-19 volatility should apply: reminding clients of the principles behind their plans, double-checking risk tolerance and erring on the side of caution.
If chaos ensues, no one can claim they didn’t see it coming. As an advisor, your job is to hope for the best — but prepare clients for the worst.
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