Some 40 per cent of UK investors plan to change their portfolios as a result of the general election which Joe Wiggins, director of investment research at St James’s Place says is the “wrong course of action”.
Brits will be heading to the polls tomorrow (July 4) but SJP has revealed in the run up to the vote, investors plan to change their asset allocation, withdraw funds, make additional investment and diversify across geographies.
Novice investors, who have been investing for less than a year, are three times more likely to react to the event compared to those who have been investing for over a decade.
Wiggins said: “As humans we are psychologically wired to focus on things that are salient and the current focus of our attention, and this can be incredibly dangerous for investors, leading us to make poor short-term decisions that are often at odds with our long-term goals.
“Elections are a prime example of this type of scenario because of the scale of coverage they receive. Not only this, but elections are always about the potential for change, and it is tempting for investors to believe that because something in the economy is changing then so must their investments.”
Out of those taking action, 25 per cent intend to increase exposure to equities, 22 per cent to bonds while 24 per cent plan to diversify internationally by reducing their UK investments.
However, Wiggins urged against making changes as a result of the election, suggesting it was the “wrong course of action”.
He explained: “There are two reasons for this: First, over time for investors the implications of any given event, such as an election, is minimal – it will matter far less than we think it will.
"Second, even if the election were to have a profound impact on financial markets, accurately predicting what that will be is fiendishly difficult and very few people get such forecasts consistently right.
“The most successful long-term investors tend to be those who have the discipline to focus on their long-term objectives and ignore short-term noise.”
SJP’s analysis of UK market performance data spanning the past 10 UK elections, from 1987, found no clear trends between election outcome and market performance.
The performance prior to, immediately post, and over the duration of each government’s term was on average positive with a very wide range, according to SJP.
It’s findings suggest that major external shocks, such as the 1987 stock market crash, the burst of the dot-com bubble in 2000 and the 2007 financial crisis, have more of an impact in the short term than any political party, with only one government having a negative absolute return over their term, coinciding with the dotcom crash.
Wiggins said in truth very little would change in terms of the conversations advisers are having with clients in the short term.
“Even with political parties having published their manifestos and declaring their plans, so many decisions remain unmade for now. In reality, it won't be until the King's Speech and the next Budget that we'll get any real clarity over the changes that are to come.
