As your clients inevitably ask about portfolio positioning for Trump’s second term, new insights from the Charles Schwab Impact 2024 conference offer crucial talking points for managing expectations and avoiding common investment pitfalls, InvestmentNews reports.

“Be really careful about extrapolation around election narratives,” warns Liz Ann Sonders, Schwab’s chief investment strategist, providing advisors with a powerful historical example: While many professionals confidently steered clients toward energy stocks during Trump’s first term, expecting sector-wide gains, energy actually plummeted over 40%, significantly underperforming all other sectors.

For advisors fielding questions about small-cap allocations—particularly given recent market enthusiasm—Sonders recommends a more nuanced client discussion. Rather than broad small-cap exposure, consider explaining to clients the stark reality that approximately 40% of Russell 2000 companies are unprofitable. Instead, suggest more selective approaches, such as funds tracking the S&P SmallCap 600 Index, which applies stricter quality criteria.

When discussing Trump’s proposed policies with clients, Schwab’s chief global investment strategist Jeff Kleintop suggests framing the proposed 26% tariff rate as a negotiating position rather than a certainty. However, advisors should prepare clients for potential inflationary impacts if significant tariffs are implemented.

Fixed income discussions require particular attention, according to Kathy Jones, Schwab’s chief fixed income strategist. Consider warning clients that proposed immigration policies could reduce the labor force by 8% or more, potentially driving up labor costs and inflation. This may lead to higher-than-expected terminal rates—possibly 3.5% to 4% rather than the previously anticipated 2.75%.

Bottom line for advisors: Help clients avoid making investment decisions based on political headlines. Instead, focus client conversations on fundamental economic factors, detailed market analysis, and their long-term financial plans. Remember that during Trump’s first term, it was broader economic conditions, not policy predictions, that ultimately drove market performance.

Consider scheduling portfolio reviews with clients now to address these concerns proactively and adjust strategies as needed.