Yes, your 401(k) can survive the election

» I’m stressed about my 401(k) retirement plan and what a protracted legal battle over the next U.S. president may do to the stock market.

I’m not supposed to admit this. I should know better. But the volatility of the stock market can take you there: a place of panic.

However, when your emotions will probably drive you to make a misguided financial decision, it helps to get an outside perspective.

“People may remember that the market tumbled in the immediate wake of President Trump’s election, but then recovered and went on to perform quite well,” said Christine Benz, director of

AQ personal finance for Morn: What is your advice if the ingstar. “Investors were election leads to a heated rewarded for sitting tight court battle that continues to afand not selling. We saw the fect the stock market? same phenomenon earlier this year, when the magnitude of the pandemic came into view. Investors who sat tight through what was a very uncomfortable period in February and March were rewarded. Those who sold themselves out in the heat of the moment locked in their losses. We see this again and again. Patience and inertia in the face of volatility are invariably rewarded.”

I asked several financial experts questions about how the election may affect your retirement savings. Here’s what they had to say. : “On the planning side, maybe you want to be able to look at a drop in markets as a buying opportunity,” Dan Egan, managing director of behavioral finance at Betterment, said in an interview. “Make it an opportunity rather than a risk or something that you’re really worried about.”

And things may not be as crazy as you think they will be after Election Day, Egan said, pointing to 2016, when betting markets gave Trump just a 20% chance of winning. The day after the election, the market opened flat.

“It’s unlikely that the election results will drive unusual levels of volatility,” Egan wrote in a post for Betterment about how to avoid an election headache.

Q

: Should I just sell and wait for the stock market to stabilize after a winner has been declared?

A: “Everyone is saying that this election will come down to Florida, Florida, Florida,” Benz said. “The key thing to remember if you have stocks and they head down, no matter what’s going on in the world, is time horizon, time horizon, time horizon. If you have a very short time frame until you’ll need to spend your money, whether to buy a house or make a tuition payment, that money shouldn’t be in stocks. The market is just too volatile in the short run. You shouldn’t risk it.”

Benz said many investors have been letting their stock holdings ride for many years, and their portfolios are the better for it. But if you’re close to retirement, you may want to consider taking some money off the table in stocks to safeguard the money you’ll need in the early years of retirement.

“On the other hand, if you have a time horizon of at least 10 years until you’ll need your money, you should be in stocks,” she said. “You need the growth potential, and stocks have been positive more than 90% of the time in various 10-year periods throughout market histor y. Because you’re not spending right away,