Politics, Risk, and Uncertainty: The Importance of a Fiduciary | Investment StrategiesPeople often discuss investments in terms of risk and reward. However, stopping at terms like risk adverse only shows part of the financial equation, with the missing piece being uncertainty. The distinction has become more important than ever because the new area of politics has made it harder to predict market outcomes.

Politics, Risk, and Uncertainty

Politics will always remain an area that brings uncertainty and risk – this logic carries over into daily life and investing. However, investing should not always subject us to the same risk and uncertainty that politic does. The changes we see in the United States and across Europe illustrate how people need to diversify investment patterns and move beyond traditional investments in the stock market.

While there are no infallible ways to tell investors how to adapt to changing political ideologies, in part because that may change every election, a good start is to better understand risk versus uncertainty. In developed markets, investors primarily focused on risk and how they could hedge that against assets. Investors used events to predict a probability.

Uncertainty relates more to the unknown. When a chance exists to turn a profit, investors always face a level of uncertainty too, which ties heavily into political issues like war. When uncertainty increases, investors lose the ability to predict future earnings. Stocks become a riskier investment, so future money trends gain more ground. People may look to invest in a money market account, precious metals, government bonds or other future money trends.

The move toward future money trends highlights the other key – the ability to remain flexible. This provides the best chance of remaining prepared regardless of world changes. Flexibility means staying diversified by investing in multiple assets classes.

Volatility Will Always Exist

The market will always have some degree of volatility, and how we view politics in its relation to the market will evolve and change. Despite that, politics will always provide a topic that lends itself into examining how a fiduciary may help mitigate risk and help investors of all levels see beyond uncertainty. Since a fiduciary has to act on a client’s behalf no matter what, taking this approach at least eliminates the political biases we all hold. No matter what factors attempt to influence the market or future money trends, fiduciaries will always uphold the principle of working on a client’s behalf. For investors, that eliminates some risk and uncertainty.