Elections and investments: Why 4 in 10 UK investors changed their portfolio in the run-up to the general election
When Rishi Sunak called the general election in June, 4 in 10 investors made changes to their portfolios. But did they need to? Read all you need to know here.
In June 2024, former prime minister Rishi Sunak called a general election, which took place on 4 July. The election saw the Labour Party win by a landslide, ushering Keir Starmer into the position of prime minister.
But before the election took place, research published by MoneyAge revealed that 4 in 10 UK investors were planning to make changes to their portfolios in preparation for a change of government.
Now that the election has passed in the UK, the US is gearing up for a historic election set to take place on 5 November. The anticipation of this election has already prompted market shifts that could be worrying investors (perhaps unnecessarily).
Keep reading to learn why investors often change their plans in the run-up to elections, and why we disagree with this approach on the whole.
Breaking down the research into investment behaviours in the run-up to elections
After conducting a study into investors’ behaviour after the 2024 general election was announced, researchers found that:
- 38% of investors planned to make changes to their portfolio overall
- 25% said they would increase their exposure to equities
- 22% were planning to buy more bonds
- 24% said they wanted to reduce their exposure to UK holdings
- 13% wanted to boost the weighting of UK investments in their portfolio.
While each of these investors may have had unique reasons for wanting to make these changes after a general election was called, it’s likely that these were emotionally driven choices. With forecasters very strongly predicting the shift from a Conservative to a Labour government, many investors might have either worried about the negative impact this might have on markets, or become overexcited about the potential positives of this change.
It’s understandable that investors might have the knee-jerk reaction to change their strategy in light of a sudden election, which wasn’t expected to take place until January 2025.
However, as financial planners, we understand that no matter what is going on in the world, a consistent approach to investing could produce far more reliable returns – as you’ll discover below.
2 unmissable reasons to remain a consistent investor even during political shifts
- Historically, patient investors have been rewarded
Take a look at the FTSE All-Share Index and how its value fluctuated between September 1994 and September 2024. As you can see, the road has been far from smooth for listed UK companies, but the index has produced strong growth overall.
Source: London Stock Exchange. Past performance is not a reliable indicator of future performance.
During this time frame there have been eight general elections, along with countless economic shocks that have had an impact on the FTSE All-Share.
Yet as you can see above, any investor that had instinctively sold of assets after the calling of a general election (or any other event) would have missed out on the opportunity to gain greater value from their portfolio.
As such, historically, patient investors have been rewarded. Remaining invested throughout any turbulence could prove more effective for long-term returns than chopping and changing your portfolio every five minutes.
The original study, published by MoneyAge, reflects this. The study revealed that novice investors (those who had been investing for under a year) were three times more likely to react to the general election than someone who had been investing for more than 10 years.
That said, 19% of investors with a decade’s experience still insisted they would make changes to their portfolios.
Remember, it’s time in the market rather than timing the market that counts.
- The political landscape is always changing, but your investment philosophy doesn’t need to
You might be more likely to sit tight and stay invested for the long haul if you have a secure, informed, and goal-oriented investment philosophy.
Your “investment philosophy” is, quite simply, your attitude to investing. Forming yours involves taking a position on aspects such as:
- Your unique goals. Investing without purpose could cause you to be unfocused and undisciplined. Setting clear goals for how you want to make use of the wealth you create is paramount.
- Higher-risk investments typically yield greater long-term returns, but can be more volatile. Alternatively, low-risk holdings are often more reliable but returns tend to be less competitive. Figuring out your appetite for risk as an investor means you can tailor your portfolio more specifically.
- Time frame. Investing is a long-term endeavour that should ideally be performed over at least five years. Work out when you’d prefer to start decumulating your portfolio, then arrange your investments according to this time frame.
- Some investors like to do good with their money, such as investing in Environmental, Social and Governance (ESG) funds.
Making sense of these key elements may make you a more stoic investor. Then, no matter what happens in the political landscape – be it a general election, a US presidential election, or even the death of a country leader – you’re more likely to remain steadfast.
Talk to us about your investment journey
We understand that even if you are a seasoned investor, managing your portfolio (and knowing when to decumulate) can be challenging without professional guidance.
That’s where our experts come in. Kellands financial planners will assess your investments carefully and help you curate a personal strategy that boosts your confidence and works towards your goals.
Email us at hale@kelland.co.uk, or call 0161 929 8838.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.