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Election years historically bring uncertainty to the stock market, and uncertainty often translates to economic volatility.
The changing of the guard, combined with speculative economic doomsday headlines, can have the working man worried about the future state of his retirement. Will new government leadership enhance your portfolio or tank it? Our answer is:neither.
First things first, though. The next few months could be unpredictable. If your nerves are getting the best of you, meet with your investing professional to review your retirement plan and make sure you’re still on track.
Meanwhile, rest assured that there is only one commander-in-chief of your retirement, and they don’t live on Pennsylvania Avenue. Here are insights about how the election really affects your retirement.
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Rest assured that there is only one commander-in-chief of your retirement, and they don’t live on Pennsylvania Avenue.
Ask Not What the Government Can Do for You
Left wing or right wing, there’s only one person responsible for your retirement: the person in the mirror. Sure, economists report that the S&P 500 traditionally drops 1.2% on average in the election year of a two-term outgoing president. This was certainly true in 2008, when the market fell more than 31%.
But that shouldn’t concern anyone who sees past the political rhetoric to focus on a long-term retirement plan that stands the test of any election cycle. So let’s review the basics of a winning retirement plan:
- Invest 15% of your household income into Roth IRAs and tax-advantaged retirement plans.
- Start with your 401(k) plan if your company offers one, and invest up to the match. From there, fully fund a Roth IRA for you and your spouse if you’re married.
- Keep investments simple. Work with an investing professional to choose the best growth stock mutual fund options for both your workplace plan and your Roth IRA.
While you can’t control the outcome of the election, or how the stock market reacts to a new president, you can control your plan and how you follow through on it. You are the hero of your retirement story, not Washington.
You are the hero of your retirement story, not Washington.
Think Long Term, Not Presidential Term
The next step in successful retirement investing is understanding you can’t time the market. Fidelity demonstrated the importance of consistent, long-term investing in a follow-up study of one of the worst investing periods in history—the stock market meltdown of 2008–2009.
Their study showed that employees who kept investing in their workplace retirement plans between the years of 2004–2014 ended up with a record-setting average balance of $246,000. Their average annual rate of return was 15% to boot!
Dalbar’s study of investor behavior shows the flip side of that coin. While the S&P 500 had an average rate of return of 10.35% over the last 30 years, the average mutual fund investor’s return was only 3.66%. Dalbar’s data shows that the average mutual fund investor jumps from fund to fund, either in a reaction to stock market changes or in anticipation of them—generally making the wrong decision when they do.
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The lesson here is that you don’t want to be an average mutual fund investor. Select mutual funds with a solid history of growth and stick with them for the long haul. Even if history shows that stocks wobble at election time, it’s not your job to try to outsmart the market. That’s the average investor’s game, not yours.
Bottom line: The newly elected White House occupant will affect your retirement savings only to the degree you fail to follow through with your established plan.
The newly elected White House occupant will affect your retirement savings only to the degree you fail to follow your established plan.
Compound Growth for the Win
Since we know we won’t see a quick retirement fix from Capitol Hill, the sooner you take charge of your retirement plan, the better off you’ll be.
For example, if you invest 15% of the average $50,000 income, you could end up with well over $1.3 million for retirement in 30 years. Here’s the kicker: You only contributed $225,000. The rest—more than $1.1 million—came from compound growth.
Time is the fuel behind compound growth. That’s why it’s so important to start saving for retirement as soon as possible. It’s just one more factor you can control as you work toward your retirement goals.
Contact an Investing Professional
To quote John Quincy Adams: “Try and fail, but don’t fail to try.” The best time to start your retirement saving is now. It’s never too late! Whether you’re just starting your career or your career is wrapping up, contact an investing professional in your area who can help create a retirement roadmap that bypasses the financial traffic jams of Washington. You’re in the driver’s seat, so take the wheel and steer yourself into a confident retirement.