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Don’t shake up your 401(k) due to the election, experts say

If you're concerned about the effects of politics

If you're concerned about the effects of politics on your 401(k), perhaps you should reapportion the amount of stock in your portfolio, experts say. Credit: Getty Images/iStockphoto / zimmytws

Voters chose to shake up Washington and bring big change to the White House.

Resist doing the same with your 401(k), analysts and fund managers say.

Analysts are forecasting big swings as investors digest the surprising election result, but their advice for investors remains: Stay the course. Elections can mean big short-term swings for stocks and other investments, but they historically have had minimal impact over the long term.

Here’s a look at what experts say to expect:

  • What’s going to happen to the market?

The answer is that no one knows.

History has shown that a presidential election doesn’t single-handedly alter the stock market over the long term. Other factors, such as how expensive stocks are relative to their earnings and what the Federal Reserve is doing with interest rates, are more important than who sits in the White House.

Annual stock returns going back to 1853 have been virtually identical, regardless of which party sits in the Oval Office, at roughly 11 percent, according to the investment strategy group at investment firm Vanguard. The U.S. president doesn’t have single-handed control of the economy or interest rates.

  • Why so much concern about a Trump presidency?

Because no one knows what kinds of policies a President Trump would enact. One worry is that his election could lead to a global trade war, which would drag down profits for big U.S. companies that increasingly depend on customers in China, Europe and elsewhere.

He also represents uncertainty, one of the biggest bugaboos for markets.

  • What should I do with my 401(k)?

Try to do nothing, even if the market starts to swing sharply, experts say.

Stocks are long-term investments, meant to be held for many years. Big swings in the interim are normal and should be expected. That higher volatility is the price that investors pay in exchange for the higher returns that stocks have historically provided over bonds and other investments.

If you’re feeling nervous, maybe the underlying problem is that your portfolio has too much in stocks, says John Sweeney, executive vice president of retirement and investing strategies for investment firm Fidelity. Unless you’ve been rebalancing your portfolio regularly, you may have a much bigger percentage apportioned to stocks than before.

“If this news event has caused you some anxiety,” Sweeney says, “use this as an opportunity to rebalance.”

More customers than usual at Fidelity called in to ask what they should do on the day after the presidential election, but only a few more. The call volume was about the same as a typical Tuesday after a three-day weekend, Fidelity says. One measure of investor fear — an index that tracks how much traders are paying to buy insurance against future reductions in the S&P 500 — actually dropped 15.5 percent Wednesday.

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