With the election cycle in full swing, many retirees and those nearing retirement are understandably concerned about the potential impact on the financial markets. Historically, elections can trigger market volatility as investors react to the uncertainty of who will influence public policy. As we approach the showdown between former President Donald Trump and Vice President Kamala Harris, the stakes seem particularly high this year.
A recent survey from Betterment reveals that 40% of investors are considering shifting their investments due to election-related uncertainties. Here’s a guide on how to protect your retirement savings from potential market turbulence without making rash decisions that could harm your long-term financial health.
Understanding Market Dynamics in Election Years
It’s essential to recognize that market fluctuations are not unusual in election years. “Stock markets have historically rewarded investors with equivalent long-term returns irrespective of which party was in the White House,” notes Greg Warner, chief investment officer at Adero Partners. Consumer spending, a critical economic driver, often helps sustain the stock market through various political climates.
Strategic Moves to Consider
1. Maintain a Long-Term Perspective:
It’s vital for investors, especially those in retirement or nearing it, to view the market as a long-term endeavor. Dan Casey, an investment advisor at Bridgeriver Advisors, advises against making drastic changes based on short-term election outcomes. Properly structured portfolios should already be aligned with one’s risk tolerance and retirement timeline.
2. Evaluate “Safe Money” Options Carefully:
While assets like certificates of deposit are currently offering around 5% returns, they have historically underperformed the market, particularly when adjusted for inflation. It’s crucial to balance the desire for safety with the need for growth, especially over the long term.
3. Continue Investing Consistently:
Steven Kibbel, a certified financial planner, warns against halting investments due to election anxieties. Regular contributions to retirement accounts and adhering to a consistent investment strategy can help compound growth over time.
4. Ignore Short-Term Noise:
Thomas J. Raymond, an investment management partner, points out that significant market declines during election years are rare and often driven by factors unrelated to the election itself. Keeping a level head and focusing on long-term investment goals can mitigate the urge to react hastily to market fluctuations.
5. Regular Portfolio Reviews and Rebalancing:
As you approach or enter retirement, it may be wise to shift towards more conservative investments to protect your accumulated savings. However, for younger investors, staying the course with a higher allocation in stocks can be beneficial for capturing long-term growth.
Personalized Financial Advice
Given the unique nature of each individual’s financial situation, consulting with a financial advisor can provide tailored advice that aligns with your retirement goals and risk tolerance. This personalized approach can help refine your strategy to better withstand election-induced market volatility and secure your financial future.
Our Thoughts
Ultimately, the key to successfully navigating an election year as an investor is to focus on what can be controlled: your investment strategy, asset allocation, and emotional response to market movements. By tuning out short-term distractions and focusing on your long-term financial plan, you can safeguard your retirement savings and remain on track towards achieving your retirement vision.
