Ex­perts: No, the elec­tion won’t wreck your 401(k)

Daily Local News (West Chester, PA) - - BUSINESS - By Stan Choe AP Business Writer

Wor­ried that the elec­tion will ruin your 401(k)?

Don’t be, fund man­agers say, no matter who wins the White House. As long as you’re a longterm in­vestor will­ing to ride through what­ever mar­ket bumps oc­cur after Elec­tion Day, and there cer­tainly could be scary ones, pres­i­den­tial elec­tions his­tor­i­cally haven’t had much im­pact on stocks 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 fac­tors for the mar­ket 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 Van­guard. The U.S. pres­i­dent may be the leader of the free world, but even that much power doesn’t al­low for sin­gle­handed con­trol of the econ­omy or in­ter­est rates.

Still, elec­tions do hold great sway over in­vestors’ psy­ches. And in­vestors have a his­tory of over­re­act­ing to pol­i­tics, which can lead to sharp, short-term

moves in the mar­ket. It was only a few months ago that the United King­dom’s vote to exit the Euro­pean Union sent in­vestor anx­i­ety higher and stocks tum­bling around the world. The S&P 500 plunged 3.6 per­cent in one of its worst days since the fi­nan­cial cri­sis.

Some­thing sim­i­lar could hap­pen Wed­nes­day, if the elec­tion yields some­thing other than the con­tin­u­a­tion of the sta­tus quo. The mar­kets seem to be pric­ing in a Demo­cratic pres­i­dent con­tin­u­ing to be held in check by a Repub­li­can Congress, a dy­namic that’s been in place since 2011 and one that’s co­in­cided with an 89 per­cent re­turn for the S&P 500.

A Demo­cratic sweep of the White House and Congress could knock down stocks of phar­ma­ceu­ti­cal com­pa­nies and banks on ex­pec­ta­tions of tougher reg­u­la­tions for those in­dus­tries, for ex­am­ple.

An even sharper — and broader — drop for the mar­ket would be the likely re­sult if Don­ald Trump were to win the White House. In­vestors are wor­ried that a Trump pres­i­dency could lead to a global trade war and hurt U.S. com­pa­nies, which in­creas­ingly de­pend on for­eign cus­tomers for their sales. Mi­crosoft, Chevron and Ap­ple all get the ma­jor­ity of their rev­enue from out­side the United States, for ex­am­ple.

If Trump wins, a quick 10 per­cent loss for the mar­ket wouldn’t be sur­pris­ing, some fund man­agers say. The threat is se­ri­ous enough that lawyers are rac­ing to com­plete cor­po­rate-bor­row­ing deals be­fore Tues­day on the chance that a Trump vic­tory causes a Brexit-like shock.

Still, fund man­agers preach hold­ing steady if such tu­mult oc­curs.

“Even if you thought that would hap­pen, 10 per­cent corrections hap­pen about once a year, and what’s hap­pened after ev­ery one is that we’ve re­cov­ered from ev­ery one,” says Brian Nick, chief in­vest­ment strate­gist at TIAA Global As­set Man­age­ment. After Brexit, it took only two weeks for the S&P 500 to re­cover its losses, and the in­dex set a record high in Au­gust, though it’s re­gressed in re­cent weeks with wor­ries about the U.S. elec­tion.

Nick trav­els of­ten for his job, talk­ing with TIAA cus­tomers around the coun­try, of­ten­times col­lege pro­fes­sors. The first ques­tion he re­ceives, with­out fail, is about the elec­tion and what ef­fect it will have on their re­tire­ment sav­ings. He uni­formly tells them not to let the elec­tion push them to time the mar­ket.

“Earn­ings, val­u­a­tions and the Fed, those are three things more im­por­tant for how your port­fo­lio per­forms than who wins the pres­i­dency,” he tells them. “Earn­ings aren’t go­ing to change overnight based on the elec­tion.”

The fol­low-up ques­tion is al­ways the same, as well. Sure, that may have usu­ally been the case, but isn’t this time dif­fer­ent? Trump is not the usual can­di­date.

Even an un­usual politi­cian like Trump would still have to work with Congress to pass laws. And even if Repub­li­cans were to take con­trol of both houses, they could still mod­er­ate some of the anti-trade poli­cies that in­vestors fear.

“It’s hard to hand­i­cap how much of the rhetoric would trans­late to ac­tual pol­icy rather than just hy­per­bole,” says La­mar Villere, a port­fo­lio man­ager who helps over­see $2.2 bil­lion in in­vest­ments at Villere. He ex­pects any sell­off fol­low­ing a Trump vic­tory to be fol­lowed by a quick snap­back, as in­vestors ques­tion how much Trump could ac­tu­ally do on his own.

That said, it’s not like your 401(k) is to­tally in the clear. Those fac­tors that fund man­agers say matter more than the elec­tion — cor­po­rate earn­ings, the Fed and the global econ­omy — all look less en­tic­ing than they did sev­eral years ago. Prof­its have only just re­cently started grow­ing again, after fall­ing for more than a year, while eco­nomic growth around the world re­mains only mod­est. Stocks also look more ex­pen­sive rel­a­tive to their earn­ings, after their prices rose de­spite fall­ing earn­ings. And the Fed looks likely to raise rates in De­cem­ber for only the sec­ond time since 2006.

Add those up, and fund man­agers are fore­cast­ing sub­dued re­turns in com­ing years. No matter who wins the elec­tion.

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