As the 2024 presidential election approaches its finale, investors and retirement savers are grappling with a pressing question: Will the outcome impact my 401(k) account?
It’s a question that comes up every four years, regardless of the policy proposals and economic issues at play. But in this year’s hyperpolarized backdrop fueled by record advertising spending and media onslaughts from the Kamala Harris and Donald Trump campaigns alike, U.S. retirement savers are left in a cloud of unease and uncertainty.
In this climate, it’s important to explore the psychological factors that influence retirement planning during politically charged times, examine historical market behavior throughout election cycles, and identify the critical elements that shape the performance of retirement accounts.
Psychology Of Elections And Retirement Planning
A recent survey by Empower found that half of Americans believe the election outcome will significantly impact their wallets, and more than one-third believe the presidential election will be a major predictor of their retirement timeline and overall financial security.
Furthermore, the study found a substantial number of respondents plan to make concrete money moves based on whether Harris or Trump ultimately wins the presidency. Nearly a quarter said they could change their asset allocation, and almost a fifth said they could liquidate investments.
A survey by Wealth Enhancement found that 80% of Americans expect the election results to impact their retirement plan, including seven in 10 already retired respondents. And Voya Financial found that 35% of working Americans are even delaying decisions about saving for retirement until after the election outcome is determined.
Market Behavior During Election Cycles
According to U.S. News & World Report, the S&P 500 has averaged 7% gains during presidential election years since 1952, below the roughly 10% gains in a typical year. As of October 30, 2024, the S&P 500 is up approximately 22.5% year-to-date, representing a bullish break from election year norms and rewarding 401(k) savers who stayed the course amid the avalanche of sensational election headlines.
Now, when it comes to market performance following an election, the S&P 500 has averaged a 12.9% annual return when Republicans controlled the White House and Congress, 4.9% when Republicans controlled the White House and Democrats controlled Congress, 9% return when Democrats controlled both, and 13% return when Democrats controlled the White House and Republicans controlled Congress. During Trump’s presidency, the S&P 500 went up roughly 65%, while under Biden, it has gone up approximately 51.5% as of October 30, 2024.
Critical Factors Shaping Your 401(k) Performance More Than The Election
Historical evidence shows that presidential election outcomes have less of an impact on market performance than the campaign ads and political rhetoric would have you believe. It also shows that investors with a grounded, long-term strategy can weather short-term headline volatility during election seasons and enjoy the fruits of compounding interest over time.
Outside of market returns, policy proposals and potential legislation could directly impact the rules and administration of your 401(k) account. The long-anticipated and widely-debated Department of Labor fiduciary rule, for example, could directly impact the quality of advice and standard of care retirement savers receive from professionals acting as financial advisors.
There are also efforts in motion to reign in excessive fees related to 401(k) plan administration and rules around contribution limits and other plan aspects that can have significant long-term implications. Therefore, plan sponsors and participants alike should stay informed on such policies as the White House prepares to welcome either a Harris or Trump administration.
So, as the election map lights up on Tuesday, find peace in knowing that staying focused on consistent saving strategies and avoiding rash decisions based on political events is key to maintaining a healthy 401(k). In the end, a well-rounded approach to retirement planning involves understanding market patterns, keeping emotions in check, and staying informed about potential policy changes.
By considering these factors, investors can better navigate the ups and downs of election cycles and work towards their long-term financial goals. Remember, while elections may cause short-term fluctuations, a steady and informed approach to 401(k) management will likely yield the best results over time.
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