Suppose you’re reading this article in a state of election fatigue. That’s understandable.
Elections in the UK, over the pond and elsewhere have made this quite a slog.
Some of our clients have asked how this may affect their investments. The simple answer (based on history) is probably not very much in the long run.
As investors, it should be about viewing things through a long-term lens.
The chart below shows how the UK stock market has performed over the last 75 years, based on who has been in power – whether the blue or the red team.
The upward trajectory over long periods (i.e. decades) is clear, regardless of who has been in power. Of course, some periods have been more substantial and suffered bigger market falls than others.
The US market paints a very similar picture, whether it’s the Democrats or Republicans at the helm.
What’s interesting is how many significant events and worldwide elections this upward trajectory has ploughed its way through.
Labour and the Conservatives have been in power for almost the same amount of time over the last 27 years. During this time, the market has delivered positive returns despite dealing with events such as the early 2000s tech “boom and bust,” 9/11, the 2008 Financial Crisis, Brexit, COVID-19, the Russia/Ukraine war, and double-digit inflation.
Be well diversified and control the controllables
It’s also worth remembering that a sensibly structured investment portfolio should be globally diversified.
Whatever your political views, it’s easy to get hung up on what may happen close to home with the UK market because of a UK election. However, the UK makes up less than 4% of the global stock market.
Approximately 70% of the UK stock market’s profits are derived from overseas.
Considering that none of us can control the outcome of an election, it may be worth stepping back from the media noise, going easy on News at Ten, and “doom scrolling” on our mobile phones!
The financial media is not your friend. Diversification, controlling your emotions and having patience/discipline are your three amigos.
Stock markets riding high
Some people have also asked whether profits should be taken from stocks now after recent market highs. That is a good question, and the answer depends on your circumstances.
If you need money for a major item of expenditure in the coming months or year, it may be sensible to take some profits now and “bank this” to give you short-term certainty. This should be subject to a conversation with your financial adviser, who knows your situation well.
If you don’t need the money in the short term, the likelihood is that you should crack on, ideally ignoring the “noise” around you as a long-term investor.
Trying to time the top of the market is notoriously difficult, if not impossible.
Selling out of the US market, for example, risks missing out on further strong returns. The world’s biggest market spends around a third of its time trading at a new all-time high.
Therefore, exiting at one all-time high risks missing out on future ones and the returns – from both dividends and capital appreciation – along the way.
Interest rates set to fall
We also need to keep in mind that interest rates are forecast to start being gradually cut this year in the UK and US, although this isn’t expected to see a return to the ultra-low rates we had after the 2008 Financial Crisis.
You need to have cash and investments; it’s not a case of one or the other.
Cash is for liquidity and to help you sleep at night during the inevitable choppy times in the markets. Money invested for the long term helps preserve its real value from the impact of inflation—cash won’t do this.
Ultimately, history suggests the markets do not care too much for politics!
If you would like help balancing your finances and easing any financial anxiety you may be feeling, please feel free to contact us for a free initial chat.
