As the results of the U.S. presidential election remain uncertain, financial advisors caution against emotional and uncalculated moves in your 401k that can diminish your goals in the long run.
“Historical market performance does not necessarily favor one side over another, and particularly in this case, each side brings with it equal pros and cons,” said Karen McIntyre, fiduciary investment advisor at the Unified Trust Company. “In fact, markets actually prefer gridlock, which is what we seem to have going forward with a potentially divided Congress and presidency.”
Here’s what you should and shouldn’t do with your 401k, according to the experts.
‘Do not get cute with investment strategy’
Regardless who wins the presidential election, investors should remain focused on their long-term goals.
“Stay invested, continue to make regular contributions to retirement accounts, and take advantage of company matching programs,” McIntyre said. “Do not try to time the market or get cute with an investment strategy.”
McIntyre said you should continue to keep a diversified portfolio between conservative investments and stocks.
“The best path to financial success in any political climate is to stay focused on the long-term strategy by maintaining a balanced and diversified asset portfolio,” McIntyre said.
‘I wouldn’t change my 401k strategy unless I was nearing retirement’
You may want to take a second glance at your strategy only if you’re nearing retirement, according to experts.
“I wouldn’t change my 401k strategy unless I was nearing retirement. In which case, I would be reducing risk regardless of who the president was,” said Amit Chopra, founder of Forefront Wealth Planning and Asset Management, a financial firm. “401k)s are long-term savings vehicles that you should work to contribute the maximum allowable amount to each year.”
Another expert pointed to how a Biden presidency might prompt current retirees to adjust their 401k strategy.
“For those who are already retired and are currently withdrawing money to live on each year, it might be prudent to make additional withdrawals in 2020 while the federal income tax rates are lower than they might be under a Biden presidency,” said John Deglow, a certified financial planner at Unified Trust Company. “This, of course, assumes that Biden is declared the winner.”
On the other hand, if you have a Roth 401k, your strategy plan may shift depending on if President Trump wins re-election.
“Taxes are expected to decrease with a Trump presidency,” said F. Michael Zovistoski, managing director at UHY Advisors, a financial firm. “Therefore, consideration should be given to increasing Roth (post-tax) 401k contributions to reduce future taxable income, should tax rates increase in the future.”
Elections should already be built into a ‘sleep/return’ ratio
If anything, use this time period to tinker your 401(k) plan so that it accounts for all future elections, according to one expert.
“There are some risks that may be surprises, like a pandemic, but may come with potentially predictable outcomes — market declines,” said Eben Burr, managing director at Towes Asset Management, a financial firm. “There are others, like events that happen on a federally mandated calendar — elections — that should not be a surprise and we believe should already be built into the sleep/return ratio.”
To do this, design a plan that can absorb “shocks to the system both predictable and unforeseen,” he said.
A recent study by robo-advisor Betterment found that 79% of investors say they don’t anticipate making changes to their investments after the elections.
“We’ve seen time and again that people make rash, emotionally-driven financial decisions in regards to major world events, including the presidency, that do not pay off in the long run,” said Bobby Glotfelty, senior licensed financial professional at Betterment for Business, a financial firm.
Read more information and tips in our 401k section