What Happens To My Investments As The UK Heads To The Polls?

While we at Wealth8 urge all eligible voters to fulfil their civic duty, we would be remiss not to highlight the impact such a critical event as the elections on July 4th, could have on all aspects of life across the country, including financial markets and investment portfolios. As an investor, it's important to understand the ripple effects of the UK General Election on your investments. 

Kneejerk Reactions

It's common for markets to react to events and changes in the political landscape, and the upcoming UK election will be no different. Historical data (pictured above) shows that markets often experience volatility around election times. Opinion polls (results pictured below) indicate a strong likelihood of a change in government, with the Labour party potentially forming a government with a full majority for the first time in 14 years. This likely means that market reactions will be stronger in the short term. However, it's crucial to note that these initial reactions typically stabilize over time. The market impact of the election results tends to diminish in the medium term, which makes long-term investment horizons a preferred strategy. 

(Source: BBC, 25/06/24)

For example, multiple past elections in the UK saw immediate downturns in the FTSE 100 post-results, however, closer scrutiny shows that this immediate loss of value was oftentimes limited to the gains made in the run-up to the election. This trend suggests that savvy long-term investors are not overly concerned with short-term market fluctuations, as it is the gradual upward trend that they benefit from. Of course, past performance of any given index is not a guarantee of future results. 

Focus on Economic Policies

There will be a focus on the economic policies that will be adopted by a new government, and we will need to assess how the market will react to those. Economic policies can significantly influence market sentiment and investor confidence, so staying informed about potential changes is crucial. 

Appeal of ETFs

At Wealth8, we believe in the benefits of Exchange Traded Funds as an investment strategy. These are funds that trade on exchanges, like stocks, but generally track a specific index, rather than just one company. Due to their diversified nature, where risk is spread across a broad array of assets, ETFs are more resilient to the market's ups and downs compared to other asset classes. Notwithstanding this diversified approach, it's crucial to remember that all investments have a degree of risk, and you may end up with less than you invested. 

Conclusion

The upcoming UK elections are a significant event for many facets of daily life, but their impact on your investment portfolio can be managed. By focusing on diversified assets such as ETFs and maintaining long-term outlooks, potential short-term volatility can be navigated. Remember, staying informed and maintaining a long-term view are key elements to increasing the odds of successful investing. Wealth8 continues to provide support in aiding its clients to achieve their financial goals.