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For investors and retirees worried about the election

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This election’s outcome has many people worried, including investors and retirees who fret about it’s possible effect on their investments and retirement savings. Is that a reasonable concern, and how can you protect yourself from unpleasant surprises?

An analysis by Fidelity Investments suggests that elections have historically had little lasting impact on stock market performance. Its analysis compares returns in the stock market under various political environments, using as a benchmark the annual rate of return on the 3,000 largest U.S. stocks, which has averaged 12 percent since 1960.

Since that year, it hasn’t really mattered much whether the president has been a Democrat or Republican -- the annual rate of return averaged 12.2 percent under Democratic presidents and 11.8 percent under Republicans.

It has mattered slightly more if one party controls the entire federal government. When the president was a Democrat and the party controlled both the House and Senate, annual returns averaged 14.1 percent. When Republicans had similar control, annual returns averaged 12.4 percent. 

When the House and Senate have been divided between parties or the president was from a different party than the party controlling Congress, annual returns have averaged 11.2 percent.

To demonstrate the apparent futility of getting too caught up with elaborate investment strategies based on possible election outcomes, Fidelity noted that you would have been much better off choosing to invest in the stock market in odd years, when returns averaged 16.2 percent per year, compared to even years, when returns averaged 7.7 percent per year.

However, investors have perspectives that are somewhat different from these historical figures, according to Fidelity. Almost three-fourths (74 percent) of respondents think the party that controls the government has an impact on the stock market. The results break down as follows:

  • 14 percent believe the president has the biggest impact on returns
  • 28 percent say control of Congress is key
  • 33 percent say it’s a combination of the two

However, just 15 percent have made or plan to make changes in their portfolios because of the election, and the vast majority plan to stay the course. 

Said John Sweeney, executive vice president of retirement and investing strategies for Fidelity: “That’s a good strategy, since the historical figures suggest elections typically have had little lasting impact on overall market performance.” He added, “The most powerful drivers of investment performance are the business cycle, interest rates, corporate earnings and your own investment plan.” 

Of course, many people think this election could be different.

Donald Trump has publicly stated that Americans should avoid stocks when investing in their 401(k) plans, which doesn’t bode well for markets if he’s elected. And investors got spooked last week when the FBI announced it was looking into possible new information about Hillary Clinton’s email server, demonstrating that they’re nervous about the rising odds of a Trump presidency.

What does all this mean for retired investors? It would be wise to develop strategies to insulate yourself from stock market crashes for any reason, including elections. If you’ll be retired for a few more decades, more stock market declines are inevitable -- we just don’t know when or why they’ll happen. 

Protect yourself by developing guaranteed sources of retirement income to cover your basic living expenses. If the stock market tanks, this portion of your retirement income won’t drop. Having a guaranteed income can give you the confidence to invest a substantial portion of your remaining retirement savings to pay for discretionary living expenses, such as travel, hobbies, gifts and spoiling your grandchildren.

The goal for retirees: Implement strategies so that your security and happiness don’t depend on who’s elected or how the stock market performs. Then you can go enjoy your life.

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