Don’t let election volatility sway your 401(k) investments

Emotions are running high after Donald Trump’s upset election victory, but advisors are warning consumers not to let those feelings extend to their portfolios.

Markets went on a wild ride overnight as it became clear that Trump would win the White House. Stock futures had recovered the bulk of losses before the market opened Wednesday, and early trading has been mixed.

“We’re going to have clients elated with [a Trump victory], and clients who feel like the world is falling apart,” said certified financial planner Reed Fraasa, managing director of Highland Financial Advisors in Riverdale, N.J.

Traders work on the floor of the New York Stock Exchange.

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Traders work on the floor of the New York Stock Exchange.

Investors planning to top off their 401(k) plan or individual retirement account could also find any market dips allow them to stretch their contribution and buy more shares, Fraasa said.

“Unless they’re retiring next year, this is a time to buy in at cheaper prices,” he said.

It’s not unusual to see volatility in the days and weeks after an election — to put things in perspective, after President Obama won in 2012, the major indexes fell roughly 2 percent — but seeing big changes looming with a new president is no reason to suddenly shift your investment strategy.

“Never make decisions when you’re panicked,” said certified financial planner Lazetta Rainey Braxton, founder of Financial Fountains in Baltimore. “That’s just not a good state.”

Ideally, you already have a financial plan that factors in volatility — say, a more conservative asset allocation if you’re approaching retirement, and some assets that aren’t in the market for any short-term goals. This should be an opportunity to gut-check your plan and, if anything, make small tweaks, she said.

Investors have a horrible track record of knee-jerk reactions to market volatility, which means they miss out on subsequent big gains. A 2015 analysis from online portfolio manager SigFig found that the more people sold during the August 2015 market correction, the worse their investments performed. The report also found that wealthier investors are less likely to panic sell, are more focused on low fees and trade less often.

Volatility could even provide investors with some opportunities for end-of-year tax-planning. Even without an election, the fourth quarter is typically when advisors recommend investors look to offset realized gains with strategic selling, said certified financial planner Carina Diamond, the managing director of SS&G Wealth in Akron, Ohio.

“It’s always a good time to prune your portfolio,” she said.

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