Depending on your perspective, today’s political climate is either terrifying or exhilarating. For some, those feelings may translate into rash decisions that could have consequences decades down the line.
Mike Lynch, vice president of strategic markets for Hartford Funds, gave a series of investment seminars throughout the country last year. “I could see firsthand how concerned investors were,” he says. A survey of 200 advisors by Hartford Funds found 37 percent reported their clients were having sleepless nights over the state of domestic politics.
That worry may be heightened by a 24-hour news cycle that feeds fear. Chris Markowski, founder of Markowski Financial Investments in Tampa, Florida, and host of the radio program “The Watchdog on Wall Street,” says he is regularly called upon to weigh in on TV and radio shows about changes in the market. “It’s almost like they want you to come on and scare everyone,” he says.
Taking a doomsday approach to the economy may work well for ratings, but it can wreak havoc on retirement plans. That’s why finance professionals say smart workers will politics-proof their savings strategy.
[See: 12 Financial Terms Every Retirement Saver Should Know.]
Ignore the Politics, Stick to the Plan
The bottom line, according to financial advisors, is that investors should focus on the long term and largely ignore what’s happening in Washington. “The wisdom of buy and hold is far more compelling than reacting to politicians,” says John B. Burke, CEO of Burke Financial Strategies in Iselin, New Jersey.
Lynch points to numerous times in history — from the Bay of Pigs invasion to the recent housing collapse — when it seemed as though the sky may be falling. However, the economy weathered those storms, and he believes it will outlast the current political turmoil as well.
Instead of making investment decisions based on the news, workers should have a predetermined strategy of how they will invest and when they will sell. “Stipulate in your plan how much risk you’re willing to take and make it a hard number,” says Brian D. White, president of Century Financial in Memphis.
For instance, a plan may state that once a portfolio’s value drops 8 percent, it’s time to reallocate investments and shift money to more stable funds. This strategy gives people a definite line in the sand as to when to take action, rather than wonder if they should call their broker every time there is bad news on TV. A financial planner can help people determine the right level of risk for their age and investment goals.
[See: 10 Costs You Can Eliminate in Retirement.]
Work With What You Know
Part of avoiding emotional decisions is working within the parameters of current policy and law. Bypassing a Roth IRA because you worry the government will change the tax rules before you retire isn’t a smart or healthy approach to retirement planning. “We don’t want to be fearful investors,” White says. “It’s a miserable existence.”
While it is always possible Congress could change the rules for tax deductions or credits, Burke says leaders in Washington are often reluctant to look backward when making these types of policy changes. It wouldn’t be politically popular to take away promised benefits from voters, particularly senior voters, who had planned their retirement around current tax policy.
Besides, simply having money in a retirement account is what is most important. While tax benefits are nice, the overall health of the market is what has the most potential to make or break retirement plans. That’s something that has more to do with corporate decisions of big companies like Apple and Alphabet rather than government policy initiatives. “At the end of the day, the White House doesn’t really drive the market cycle,” Lynch says.
The Best Defense: Turn Off the News and Save More
Ignoring the politics of the day can be easier said than done, but Burke has one simple suggestion for investors. “They should turn off the broadcast news,” he says. “Read your news. It’s a lot less emotional.”
Markowski says the other way to politics-proof a retirement plan is to save more. Having extra money set aside acts as a buffer to market fluctuations or government policy changes. “You can only worry over things that you have control over,” Markowski says. While investors can’t control the dynamics and drama of Washington insiders, they can diversify retirement funds and boost their balances.
[See: 10 Painless Ways to Save More for Retirement.]
The last year has taken investors on a wild ride. However, it isn’t the first time the nation has been in turmoil, and if history is any indication, we should emerge from the current period unscathed as well. “For all the craziness that’s happened in our country in nearly 300 years, by and large, we’ve been relatively stable,” White says.
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How to Politics-Proof Your Retirement Plan originally appeared on usnews.com
