The more things change …
17 May 2017 | Peter Westaway
It is sometimes tempting in a general election to vote tactically, especially if you happen to live in a marginal constituency. But for the most part in the United Kingdom we tend to vote for what we believe in, or the next best approximation of what we believe in, since political parties rarely represent our views entirely or accurately.
On 8 June, whatever else you might think about the choices on offer, we are at least faced with meaningful differences. Some might go so far as to argue that this is the first election in which the main parties have stood substantially apart since 1983, when Margaret Thatcher led the Conservatives and Michael Foot was the leader of the Labour party.
Many of us feel strongly about the election, and this is as it should be. Politics determines much of our own future and the futures of our families and communities. That's why we value our democratic rights.
But we need to be extremely careful when factoring political change into short-term investment decisions.
Most people, whatever their views on the issues, were surprised by the outcome of the UK's referendum on European Union membership. Professional investors, it seems, were as flummoxed as anyone else. The equity market fell heavily in the immediate aftermath of the vote but then rallied some days later and has been fairly positive ever since.
Whether this response seems to you wholly reasonable or most peculiar, we should bear in mind that key factors in the rally were less the vote for Brexit and more the fall in sterling and the subsequent cut in interest rates.
Looking forward, we expect interest rates to rise gradually, while exchange rates will continue to be very sensitive and especially difficult to predict. Trade relations, tax reform and population growth are likely to have an impact, but again, the short-term effects of particular events are likely to be very different to the long-term outcomes as seen in financial markets.
In our view – and we feel this is well supported by the evidence – rather than trying to second-guess events, and then double second-guess how markets will react, the best insurance against unpredictable outcomes is a properly diversified portfolio of investments.
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Issued by Vanguard Asset Management, Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.