Theresa May shocked many pundits when she announced a snap election, giving the public 50 days to decide who should lead the UK through the Brexit negotiations and onwards for the next five years.
It’s easy to assume that the policies of the winning party will, to follow the well-worn phrase, ‘impact the market’ in different ways depending on who triumphs in June; thereby influencing the performance of our pensions, ISAs and other investments.
So how should investors react? Specifically, what influence does the resident of Number 10 have on how we should invest? Does the election mean a rethink of retirement planning and investment strategy?
Surely, the policies of a Conservative government affect the economy and the returns we achieve on our investment portfolio differently than if the Labour or Lib Dem party were in power?
The data says otherwise.
The chart below shows the total return of the FTSE All-Share index from 1955 to the present day, and the relative government in office during that time.
It’s no surprise that the overall trend is upwards, whatever the political climate. Through Conservative, Labour and Coalition periods in office, the FTSE All-Share has shown sustained growth.
Looking in more detail, the index approximately doubled during Labour’s 13-year government, which of course included a huge financial crash; and the market is on course to roughly double again in the following eight or so years of Conservative-led governments. No clear trends to follow so far.
What if we look at the average FTSE All-Share monthly returns for each of the parties?
Can we draw any conclusions from this? None that I would rely on for my investment strategy. While the Conservatives have a history of higher monthly returns, their sample size is much larger, which must be taken into consideration.
When Warren Buffet was asked his favourite holding period for shares, the legendary investor replied: “Forever.” If someone of his stature isn’t bothered about who’s in the White House, perhaps we shouldn’t worry about the occupant of Number 10 either from a financial planning perspective.
Timing is Everything
While elections themselves and the relative hue of the governments that followed have had little distinguishable impact on stock market performance, an interesting piece of research by Fidelity indicates something much more pertinent to focus on.
The study focused on the impact of market timing on returns over a 15-year time frame. It highlighted the effect of an investor missing the best 10, 20, 30 or 40 days in the market and compared this with annualised returns if they had been fully invested all along.
The message is clear: if you try and ‘time the market’ (consistently switch the shares in which you’re invested in anticipation of rising prices) and get it wrong by just 10 days, you could be looking at a reduction in your returns of over 60 per cent.
Miss the best 20 days and you’ve gone from making money to losing money.
It’s also important to remember that timing the market increases the costs and taxes associated with your portfolio, and subsequently has a drag effect on your returns. Looking at both sets of data, it appears that who’s in your financial planner’s chair will affect your investment outcomes rather than who’s in Number 10… something that’s worth remembering over the coming weeks of headlines and opinions.
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