Gen Z Is Switching Up Its Portfolios Ahead of the Midterms
(Bloomberg) — Plenty of investors are worried that the upcoming US midterm elections will rattle markets, but Gen Z investors are more likely than others to turn those worries into action.
Nearly three-quarters of Gen Z investors — those younger than age 30 — said they have switched up their portfolios ahead of the November elections, or were considering such a move. That suggests they are making changes at more than four times the rate of Boomers, 17% of whom said they made or considered portfolio moves, according to a recent survey from the Nationwide Retirement Institute. Across all age groups, 40% of investors said they had made changes.
About 24% of Gen Z respondents said they moved money into more conservative or lower-risk investments ahead of the election, compared with 13% of boomers. Younger investors were also far more likely to diversify into new asset classes or talk to a financial advisor about election-related risks. The survey, conducted in August and September by Harris Poll, polled more than 2,000 individual investors and 500 financial professionals.
While some investment moves may be appropriate, others raise the prospect that young investors are taking emotionally-driven decisions that could lead them to miss out on long-term market gains, according to financial advisers and market strategists.
The stock market tends to weaken in the run-up to the vote, then bounce back once results are certain. The S&P 500 has delivered positive returns in the 12 months following every midterm election going back to 1950 – regardless of which party ended up winning, according to Bloomberg data. The market’s average return during those 12-month periods is 15%, compared to the S&P 500’s long-time historical average annual return of just over 10%.
Less than three weeks before the Nov. 3 midterm elections, Americans are confronting uncertainty around both their political and financial lives. While Republicans control the White House and both houses of Congress, polls suggest Democrats are likely to win control of the House, and perhaps the Senate too.
The economy is the top issue for voters, with more than 8 in 10 calling it very important to their vote, according to the Pew Research Center. While the US economy continues to grow, stubborn inflation, driven by rising healthcare and gas costs have sapped consumer confidence, which recently hit its lowest level since 2014.
That unease cuts across generations, with more than half of investors in the Nationwide survey saying the midterms are making them more anxious and about three-quarters believing the outcome could meaningfully affect their long-term financial plans. But younger investors are far more likely to translate those concerns into portfolio moves.
Mark Hackett, chief market strategist at Nationwide’s Investment Management Group said he was surprised by the extent to which the different generations reacted to election anxiety.
He attributes some of the divide to experience. Baby boomers, who endured the dot-com bust and the global financial crisis, learned the market eventually bounces back, he said. Younger investors, who came of age after those crises and are also navigating a relentless news and social media environment, may not have learned the same lessons. “It feels lousy, but the market is much more resilient than people give it credit for,” he said.
Among more than 500 advisors and financial professionals who took part in Nationwide’s survey, nearly two thirds said the best course of action during an election year was to do nothing at all.
Jason Lilly, founder of Tenere Wealth Advisors based in Massachusetts, said he has tweaked clients’ portfolios in recent weeks. Aware that markets can grow volatile ahead of elections, he recently sold stock for clients he knew would need cash for living expenses or to meet mandatory annual withdrawal requirements for tax-deferred accounts.
Beyond these housekeeping moves, however, he advises investors to sit pat. The weeks around the election are “going to feel a little stormy,” he said. “I wouldn’t make major changes.”
While both parties claim to be better stewards of the economy and the stock market, one study of market returns between 1950 and 2023 by brokerage firm LPL Financial found that markets tended to fare the best when the two parties split control of Washington.
In years with a Republican president and a split Congress — one possibility this November — stocks returned nearly 14% on average. Still, small sample sizes make drawing definitive conclusions tricky, most market strategists said.
“There are so many other things that are going to drive market prices,” said Wes Crill, vice president at fund giant Dimensional Fund Advisors. In the long term, “no matter who was in the White House or Congress, the long-term returns have been positive.”
To contact the author of this story:
Zijia Song in New York at [email protected]
