Many of you will have seen the news that the UK will head to the elections on 4th July 2023.
The impact of an election, and a potential change in Government, has been a popular topic of conversation within client review meetings for a while. With the date now announced, we wanted to provide some information to hopefully put minds at ease regarding how markets may react to whatever outcome we see in early July. We have also included some information on the US elections, which are taking place on 5th November 2024.
Do changes in Government spell disaster for investments and stock markets?
In the long term, no.
Naturally with changes to political landscapes, legislation and political priority we can see short term dips in value. However, regardless of the party in power, investment markets continue to perform well over the longer term and usually rise in value.
Click here to view a graph called ‘UK Stock Markets – Elections’, produced by investment analysis firm, Timeline, shows how markets have performed depending on the political party in power. As you will see, the general trend is positive. We will always see short term volatility however the longer term performance remains positive.
The graph shows the performance of investing £1 in 1926 and remaining invested in UK equities through all political party tenures since. As you will see, there are no Government eras where an investor would have been worse off at the end of a period of power compared to the start of the same ruling period.
The same position is reflected historically in the US, as shown here in the document ‘US Stock Markets – Elections’, provided by Morningstar. The only exception being George W Bush’s stint as President.
The benefits of longer term investment and remaining invested through uncertainty
As you will have undoubtedly heard from Informed Financial Planning, we will only ever advise clients to invest over the longer term. Short term investments carry higher degrees of risk and where shorter term needs exist, we will work with clients to mitigate these risks in varying ways.
A third, and final, document, titled ‘Investing in uncertain times’, which you can view here, has numerous graphics that highlight the benefits of long term investment and diversifying investments. Both are important factors we regularly discuss with clients.
When significant events occur such as elections, we are often asked whether it would be sensible to withdraw investments, place them into cash and re-invest once the event has passed. Our advice for clients is to avoid this.
On page 10 of this document, the graph highlights to readers the benefits of remaining invested over a period of 30 years. As you can see, staying invested, as opposed to coming out of investments during ‘uncertain’ events/periods, can reap significant rewards over the longer term. Naturally, clients will see periods of uncertainty over shorter terms and may see losses. However, over the longer term we are confident that markets can return positive growth for clients.
Conclusion
Elections can be concerning events however we remain confident in the investment managers we work with and the suitability of the investments we have recommended for you.
As always, Informed Financial Planning remain on hand to answer any questions you have in the upcoming months. If you have any concerns about the impacts of elections or other events, please contact us and we will be happy to discuss any potential impacts there may, positive or negative!
