After last week’s election announcement various commentators and investment managers have tried to predict the impact different results may have on investment markets causing anxiety for investors.
However, historical data and market trends suggest that elections, surprisingly, have very little direct impact on investment markets.
Elections and investment markets: an unfounded correlation?
The graph below, titled “Investing & Politics”, illustrates the performance of UK equities under various Prime Ministers over the last 100 years. It shows that while there are fluctuations during their terms, overall market performance does not show a consistent pattern based solely on political leadership. Similar results are seen in the US and other areas of the world, so we will not be changing any of our clients’ strategies due to this announcement.
Taxation
While elections might not directly influence investment markets, they can introduce changes to taxation policies that significantly impact investors. For instance, a new Government might propose changes to capital gains tax, corporate tax, or dividend tax, which could affect the returns on investments or implement changes to inheritance tax or pension legislation which may change where it is optimal to hold investments.
However, predicting what will actually be enacted and when is virtually impossible. Proposed policies during election campaigns do not always come to fruition due to various factors such as legislative hurdles, changes in economic conditions, or shifts in public opinion so it is sensible to wait until legislation is actually in place before taking any drastic action.
Ignore the noise – focus on your plan
With elections as with other world events that may or may not impact markets the sensible approach is to ignore them, they are unlikely to have any long term material impact on your financial future. Our advice to clients is always to remain focused on your long-term goals and the plan to get to there. We will of course incorporate any changes into plans if and when necessary, so in the meantime there is no need to worry.
How can we help?
Sam Cawley is an Investment Director and Chartered Financial Planner in our expert Investment Management team. His areas of expertise include Inheritance Tax planning, investment advice for individuals, cash flow planning, and pension and retirement planning.
If you would like some advice on the above or any related subjects, please do not hesitate to get in touch with Sam or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online form.
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