How to react to the General Election result

I love investing and count myself lucky to be paid to opine about it.

But like most writers I also like to spread my wings.
 
So you can imagine how excited I was when I got the General Election slot for the Collective.
 
At last – a platform for my political analysis!
 
Stand aside Laura Kuenssberg! Take five Andrew Marr! Thousands would read my snap verdict on why Johnson had triumphed, or how Corbyn had pipped him to the post.
 
Maybe I could even do fancy graphs and a swing-o-meter…

Casting vote

…zzzzrrrrrp!
 
Not so fast, said my editor in a hurry.
 
Firstly, The Motley Fool is about investing not party politics. Take your punditry to Twitter – that was the message.
 
Secondly there’d be no chance for post-vote analysis anyway, because our schedule meant my article would be written in advance, and long before the result was known.
 
“Maybe you could do something about P/E ratios or dividends? Or where Sainsbury’s goes next in the battle of the grocers?”
 
Well maybe, but I’m not so easily deterred.
 
You see we need to talk about politics, even if we don’t talk about politics.
 
That’s because you’ll be reading lots about the election result and what it means for your portfolio in the days ahead.
 
Analysts will encourage you to buy or sell. Some will urge you to get defensive, even as others say it’s time to back up the truck and buy.
 
And that will be true whoever wins!
 
At best, most of it will be unfounded speculation. At worst misleading.
 
Investing is never so predictable, and nobody ever knows for sure.
 
Doubtful? Consider the huge US equity rally in the wake of the election of President Trump – a victory that was universally expected to end the bull market.
 
The truth is starting valuations and long-term earnings growth is most important to stock market investors, not who gets a few years to run the country.

Beware party poopers

Hence, I’m undaunted by both my lack of a crystal ball and my editor’s instructions.
 
I may not be able to wax lyrical on who won the election or why – but I can confidently tell you the result should not derail your investing plans.
 
I’m not that old and yet I’ve seen parties of many persuasions hold the keys to Downing Street. Stocks have risen and fallen regardless.
 
The economy matters, but not quite as much as you’d think. Most listed companies trade globally. Also, strong companies tend to get stronger, even through recessions.
 
Regulation matters, but even this is complicated. It can help incumbents – who tend to be bigger, and are often investable – and hinder new competition – the would-be startups that might otherwise disrupt and compete with your holdings.
 
There are similar countervailing factors with everything from corporate tax rates to interventions by government.
 
Some win, some lose. Life goes on.
 
At the least you’ll need to look at the likely impact on specific firms, rather than generalising wildly.

Revolutionary agenda

Am I too sanguine? What if a new Labour government started nationalising industries? Wouldn’t this be a disaster for investors?
 
I grant you it’s not exactly red meat for the old animal spirits, and it’s not something I’d personally be recommending to Number Ten.
 
But I’m not even sure nationalisation would spell certain disaster for investors.
 
The kinds of companies likely to be nationalised have often been mediocre performers for years. Investors might decide we’re well rid of them.
 
I also think it’s unlikely a government would steal them at a below-market rate. There are laws, but even more there are the pension funds that hold such firms. Shafting pensioners has never been a good look for a party that wants to remain in power.
 
Granted you can forget a fat premium when the government comes calling for your utility, transport, or infrastructure-related shares. But I doubt you’ll be truly robbed.
 
To be clear: I do agree there is a limit to what a government can do before it starts to derail capitalism.
 
But I also strongly suspect there’s some low-hanging fruit to be plucked without troubling the markets too much.
 
By the same token, a Conservative win wouldn’t necessarily be great for investors – even though its agenda looks the more business-friendly.
 
The Tories would be elected with a mandate to get Brexit done – even if that means a no-deal Brexit.
 
And whatever the pros and cons of Brexit long-term, the markets have already shown us that crashing out of the EU without a deal won’t be welcomed.

Investors of the world, unite!

Finally, remember UK shares have spent years languishing under the shadow of both the EU Referendum result and unrelenting political uncertainty.
 
It’s quite possible that most if not all the bad news could be priced in…
 
…and then again it’s possible it’s not.
 
As I said, nobody really knows!
 
I’d sound cleverer making a bold prediction that you’d forget by next week if I was wrong, but I’d rather sound dumb and be right.
 
What history tells us is that good companies deliver strong returns over the long-term that should dwarf any returns from hiding your wealth in cash. Even average shares – easily owned via a UK stock market tracker – have smashed cash long-term.
 
Over the past 50 years UK shares have delivered an after-inflation return of around 5.5%. That compares to less than 2% for cash.
 
Think of all the political drama that has happened over those five decades – yet investors who kept the faith have prospered.
 
Nowadays all investors should also have a decent chunk of their portfolio invested in overseas markets – whether through index funds, active funds, or their own stock picks.
 
And overseas markets don’t care which party wins the UK General Election. Even Brexit at this point probably isn’t hugely consequential to most countries around the world.
 
The bottom line is to keep on keeping on. Save and invest a healthy slug of your wealth, and get as much as you can into ISAs and pensions where political parties of all colours are less likely to meddle with it.
 
We’re lucky to live in a democracy, and we should vote for different parties as we see fit.
 
But good investing advice is the same for everyone.