So the results of the General Election are in and this time the polls seem to have been more accurate, but how does the election result affect the stock market?
Well we now go through a period of uncertainty as, although the Conservative party won the most seats, no one party were able to win enough seats to have an overall majority in the House of Commons. This means if they try and govern and put a policy to vote, all of the remaining political parties could outvote them.
The uncertainty is made worse by the fact:
- The Conservatives will have to do a ‘deal’ with another party to support them (most likely Northern Ireland’s Democratic Unionist Party). How long will this relationship last?
- Theresa May has lost authority over her party and therefore a leadership challenge for the Conservatives is likely.
- A new leader of the Conservative party could mean another General Election!
- A different government could mean a different strategy towards Brexit.
How the election and the stock market interact
It’s true that one thing the stock market hates is uncertainty. The companies that make up the stock market like to plan ahead for the future so they can choose where they should invest and what sort of employees they will need. If things are constantly changing it makes life very hard to plan. So therefore we would expect a period of ups and downs for the stock market.
The problem is, we don’t know when the ups and downs will be!
This reminds me of a time not too long ago when the EU Referendum was about to take place. It was a very uncertain time and I had a number of clients contact me worrying about their investments. The news had convinced them that if we voted to leave it would be a disaster and all their money would disappear. We decided to sit tight and not make any changes as it was impossible to predict which way things would go. Luckily, since the EU Referendum, stock markets around the world have hit record highs.
The picture below puts everything into perspective. It shows that no matter which government is in place the stock market continues to grow over the long term and it’s better to spend ‘time in the market’ rather than trying to ‘time the market’.
5 tips for handling your stock market investment after the election
- It’s impossible to time the market e.g. try and sell when markets are high and buy when they are low. Stick to your original plan.
- Be diversified, don’t have all your eggs in one basket. Invest in different areas of the world and different asset types (e.g. shares, property, bonds) that way if one part of your portfolio does bad it will only be a small proportion and the other elements will make up for it.
- Determine your attitude to risk. If you are really uncomfortable with seeing your money go up and down then perhaps you are taking too much risk. Speak to a Financial Planner who will be able to go through a proper risk assessment with you.
- Don’t watch the news! The news will sensationalise everything and mainly focus on the negative. This will affect your emotions and may cause you to make decisions you later regret.
- Have a plan. If you are investing you should always know what you are investing for. With a proper financial plan you may find you have all the money you need to live the life you want and can actually take much less risk than you thought!
So to summarise, don’t panic, stick to your plan and over the long term you will find that by remaining invested you are far more likely to grow your money than by trying to buy and sell.