What would you tell an employee who asks about making major changes in a 401(k) plan. So now that the political landscape in the US has changed in ways we have rarely, if ever seen before, what will be the effects on the markets? The truth is, nobody really knows. But with stock markets traversing wide ranges since the US Presidential elections, many 401(k) plan participants are on edge.
With the last major market shock not even a decade old, the 2016 election has sent shock and uncertainty into global markets because of the fact that the new US President, Donald Trump, is a political outsider. That’s not to say good or bad with regard to the new President’s policies, but that the markets do not like uncertainty.
So how do you, as a plan sponsor, help your employees understand and deal with the market volatility and possible uncertainty in the markets. Will the stock markets fall because of a new President and his policies? What are the short-term and long term implications of a new administration?
The best advice based on years of market cycles is to do nothing. Traditionally, a new President does not have a significant long-term effect on the stock markets. Stock markets react mainly to interest rates and price levels relative to earnings. That is not to say a President cannot affect a change in stock market prices by his policies, it’s just not a major, long-time driver of market performance.
Based on the high level of volatility in the markets on the night of the US Presidential elections, and the issues surrounding the election results, there is good reason for employees to be concerned however, those concerns may be misplaced. The market volatility is likely to continue until the new President is sworn-in based on the economic policy changes that President-elect Trump has outlined in his campaign.
That leaves about 10 weeks until the inauguration and a lot of anxiety to build-up between now and then. A good plan that anticipates and prepares to handle major issues may save your participants from unnecessary and impulsive moves in the face of the market uncertainty. It may be prudent to coordinate communication with your advisor and participants now.
