November 22, 2019
If it wasn’t so important, politics would be a joke. We are experiencing unprecedented uncertainty and tension in the political system with Trump’s impeachment hearing, US/China trade tariffs, Brexit and the British elections on the 12 November, which for some will be a scary announcement on Friday 13th.
Does all of this, and who sits in Number 10, affect your investment strategy? If it does, do you need to rethink your plans ahead of the election?
Surely, the economic policy of a Conservative Government will affect the economy and the returns we achieve on our investment portfolio differently than a Labour, Liberal Democrat or coalition government.
Their fiscal policies are often completely different; the left-wing governments are known for taxing the higher earners and greater Government spending, whereas right-wing parties are better known for reducing taxes and simulating businesses, or that’s what traditionally we have seen.
So, how has the stock market performed under the different parties?
The above chart shows the total return of the FTSE All Share from inception in 1962 to the present day and the relative government in office during the period.
Although the chart makes the earlier years difficult to distinguish, the resulting trend is positive, through Conservative (grey), Labour (blue) and Coalition (green) periods in office the FTSE All share index, a bellwether of the British economy, has risen.
So what is in the data; can we see any trends of party led returns?
The average FTSE All Share monthly returns for each party is shown in the table below;
The data shows that over this sample period of 691 months, or 57 ½ years, a Conservative Government has produced a 34% higher monthly return in the FTSE All share than under a Labour Government. This is the difference in you doubling your money every 15 years to doubling your money every 11 years.
When Warren Buffet was asked his favourite holding period for an investment, the legendary investor replied, “forever”, however, forever is a long time.
Fidelity did some interesting research, which shows the impact of market timing with your investments. They showed the effect when you missed best 10, 20, 30 or 40 days in the market and compared this to the overall return if you had remained fully invested all along.
Over a period of fifteen years, the message is clear. If you try and time the market and get it wrong by just ten days over a fifteen-year period, you could be looking at a reduction in your annualised return from 7.7% to 3.5%pa. Miss the best 30 days in the fifteen-year period and you’ve gone from making money to losing money.
Timing the market, switching your investments around, increases the costs and taxes associated to your portfolio which has a further drag on your returns not included in this research.
A Conservative Government has shown to improve the investment returns, when they sit in Number 10, and holding your nerve during the investment ride and not trying to time the market, weather an election or recession, significantly improves your chances of a successful investment experience.
Develop a plan which reflects your personal needs and goals, work with a Certified Financial Planner to support you, because when the markets are climbing, any fool can make money in the market, it’s during times of uncertainty, like this, when we need a coach, a sounding board to ensure you stay on track and don’t waiver.
Warren Buffet would say, ‘it’s only when the tide goes out do you discover who has been swimming naked’.
So maybe it is who’s sat in the Financial Planners chair that will have a greater affect your outcome, not who’s in Number 10.
