Globally, the most significant upcoming election is in the US, but of course, the UK election is also expected towards the end of this year.

There are similarities to US and UK politics in that it is generally a race between two parties, as the charts below show:

There appears to be greater party loyalty in the US despite how voters may feel about the leader. In all elections, the person who wins is often decided by a minority of people, the swing voters. Between 1952 and 1980, this was 12% of the electorate, and now it is thought to be around 3%.

In the UK, “swing voters” tend to revolve around age groups, and therefore, where US elections tend to be very tight, UK elections can see large majorities. Thatcher (1983 – 144 majority), Blair (1997 – 178 majority) and Johnson (2019 – 81 majority).

The question is, from a stock market perspective, does it matter who wins an election?

US Data

Two separate pieces of data indicate that annual US growth is better under a Democratic President.

The Economic Policy Institute (EPI) is a respected non-profit, non-partisan think tank. Due to its work, which is aimed at low—and middle-income families, some view it as more left-leaning.

The second piece of research is from the Joint Economic Committee, which is responsible for reporting the current economic condition of the United States and for making suggestions for improvement to the economy. This also indicates that growth is stronger under a Democratic President:

According to CNN data, the US stock market has performed better under the Democrats since 1945.

However, there isn't much difference if you consider data over a more extended period. Deutsche Bank provided this chart.

The key takeaway is that the data seems to suggest that the Democratic Party are better for the economy and markets. However, as we can see in the chart above, the actual returns have been broadly similar in recent years.

UK Data

Similar research is complicated to ascertain in the UK. However, this data from the Office for National Statistics from 1955 (Q1) to 2019 (Q2) shows annualised Gross Domestic Product (GDP).  The theory is that the higher the rate, the more the economy will grow. This slightly favours a Conservative Government.

The chart below is more relevant as it shows stock market returns.

However, this is hard to Judge as Labour from 1997 saw five financial shocks (Asian Financial Crisis, Russian Financial Crisis, Dot-com bubble bursts, September 11, and Global Financial Crisis) compared to the Conservatives from 2010 (Brexit referendum, Covid Pandemic, and Inflation).

To conclude

We cannot predict the outcome of the elections or what any new Government may or may not do. Evidence indicates that whichever party comes to power in the US and the UK makes little difference to long term stock market performance.

Stock markets and currency markets can be volatile before and after an election, but over the long term, they will adapt to the regime in power and the state of the economy. Events outside the government's control are often more likely to impact markets.

There are perhaps three things to consider irrespective of the elections:

1. Equity valuations globally (excluding the US) remain at or below their long-term averages, meaning there are long-term opportunities for returns within diversified portfolios.

2. The Inheritance Tax Band was set at £325,000 in 2009/10; this hasn’t changed at a time when house prices and other assets have.

3. Allowances for capital gains and dividends have come down, meaning more investors are paying taxes.

In conclusion, we will not position (or reposition) our investment strategy based on any upcoming elections. We maintain our long-term strategies and adapt to any new legislation and tax allowances.

General disclaimer: The data has been sourced from external sources. Although we have looked to ensure this is as accurate as possible, we are not responsible. The blog is written personally and reflects the author's view; it does not necessarily reflect the opinions of Ifamax Wealth Management. Individuals wishing to buy any product or service because of this blog must seek advice or conduct their research before making any decision. The author will not be liable for decisions made because of this blog (particularly where no advice has been sought). Investors should note that past performance does not guide future performance, and investments can fall and rise.

As our world becomes more interconnected, financial fraud has become a means of exploiting our vulnerabilities. The statistics paint a stark picture: in 2022, £1.2 billion was stolen, with a further £1.2 billion stopped by the banks (source: UK Finance).

However, these figures only scratch the surface of the threat faced by millions. An article from the National Trading Standards indicated that some form of financial fraud had targeted 40 million people in the UK in 2022.

The impact of financial fraud can be devasting, but the chart below from gov.uk shows that 36% of fraud incidents lead to no monetary loss.

The most significant number of losses come from the higher values. The challenge in getting back money is whether the individual has authorised the payment. As the table below shows, there is a switch towards authorised payments, which makes it hard to get any money back.

Using people, we know can create confusion:

The image below from NatWest shows how Scammers use Celebrities to encourage people to part with their money.

But it is not just celebrities. Our own Jamie has become the “face” of a WhatsApp contact for a company called gainvalley.com, which is a trading platform. Of course, he has no connection with the firm, and there is very little that he can do to stop this.

We have heard numerous stories of other adviser firms being contacted by “the client” using the client's “email”, requesting a significant sum of money. The scammers had cloned their email, and fortunately, a red flag was that the client said they had changed their bank account.

What to do

The scammers are becoming more sophisticated. Below are some helpful tips from the FCA website as to what might be a scam

The FCA has a fantastic website called Scam Smart, which offers handy insights: https://www.fca.org.uk/scamsmart.

If you are unsure of something you have received, please do contact us, and we will look at it.

Over the longer term, investors expect a positive, after inflation return from investing in company shares and lending money to governments and companies by owning bonds. Unfortunately – and inescapably – in the shorter-term market returns are anything but predictable. They contain a lot of noise, as the market absorbs new information into prices. High inflation in 2022 led to a rapid rise in interest rates around the world, contributing, in part, to the fall in global bond and equity prices.

It was a painful backward step and a reminder that the road to long-term returns can be bumpy and painful at times. With these now higher yields, some investors may have been tempted to hold more cash but roll forward a year and that would have been a poor decision in the short term. It is nearly always a bad decision in the long term for those with long investment horizons. Fortunately, 2023 has delivered a much more positive story.

Looking backwards

Last year all core assets delivered positive returns. The US market – and in particular the ‘Magnificent Seven’ as the press have dubbed the big tech firms – regained the losses they suffered in 2022. In fact, they contributed around three quarters of the return of the US market over the year. As a consequence, global developed market returns were very strong, given that the US weight in global markets is around 63%.

Value companies underperformed in the US (largely because of the overwhelming impact of the ‘Magnificent Seven’) but made a strong contribution outside the US. Both value and smaller companies outperformed strongly in emerging markets. Global commercial property (REITs) also managed a positive return.

On the defensive side of portfolios, high quality, short-dated bonds have recouped over half of the falls suffered in 2022 - largely on account of the higher bond yields, which caused the pain in 2022 - delivering returns similar to cash.

Figure 1: Global investment returns – 2022 and 2023 compared

Data: Funds used to represent asset classes, in GBP. Details available on request.

Sensible, systematic portfolios comprising a diversified ‘growth’ basket of equities – with tilts to value and smaller companies - paired with ‘defensive’ short dated high-quality bonds will have delivered robust returns in 2023, somewhere in the region of 9% for a 60/40 split respectively in GBP terms. 

Investors with portfolios denominated in GBP suffered a small currency drag over the year as Sterling appreciated against the US Dollar by around 4%, as well as most other major currencies.  Year-on-year inflation in the UK fell to 3.9% in November, down from 10.5% at the start of the year. 

Looking at three-year cumulative returns helps to illustrate the benefit of remaining invested through tough years such as 2022. Bond returns have been poor due to starting yields around 0% at the start of the period followed by subsequent yield rises (and thus bond price falls), but these were more than compensated for by strong growth asset returns.

Figure 2: Cumulative global investment returns – three years to the end of 2023

Data: Funds used to represent asset classes, in GBP. Details available on request.

Looking forwards

The outlook for the global economy looks a little bleak as major economies teeter on the brink of recession, including the UK. China has deep and wide economic problems that are restraining its growth prospects. Inflation has come down in the EU (2.4%), US (3.1%) and UK (3.9%) from recent double digit highs.

Risks remain – including conflict in the Middle East impacting energy and supply chains –and the final yards to reach central bank target levels of inflation (2% in the UK) will be harder to achieve and vulnerable to geopolitical risks. Interest rates may well remain elevated relative to the low rates that investors experienced up until early 2022, which is good for bond holders.

It is useful to remember that forward-looking views are already reflected in today’s prices. What comes next, no-one truly knows. The key is to remain highly diversified, resolute in the face of any market set-backs and focused on long-term goals.

And finally…

More broadly, Putin continues to wage his illegal and brutal war in Ukraine and the terrible humanitarian tragedy unfolding in Gaza seems to have no resolution in sight. Our thoughts are with all the innocent people caught up in these conflicts.

This year we face the prospect of elections in democracies such as the UK, US, Taiwan, India, Pakistan, Indonesia, and within the European Union. US politics is as deeply partisan as it has ever been, raising the level of uncertainty about the future. The democratic process is always combative, often messy and sometimes ugly.

On a brighter note, it is worth remembering that despite the conflicts in the world, seeming discourse in democratic nations and the rise of autocratic and despotic leaders, the world we live in is better in many respects than ever before. While 659 million of the world's population live in poverty, this is down from 1.9 billion in 1990 and 902 million in 2012 (1).

Global under-5 mortality has dropped by 60%, 2.1 billion people have gained access to safe drinking water since 2000 and today 40% of board seats in FTSE 350 companies are held by women (10 years ago 150 or so of these companies had no women on their boards) (2). These lesser known facts are a strongly positive counterbalance to the immediate troubles that the world faces.

From an investing perspective, we remain hopeful for the best in 2024 but remain prepared for the worst, as is always prudent.

Happy New Year!

(1)https://borgenproject.org/victories-fighting-poverty/ 
(2) Sunday Times magazine, December 31, 2023. ‘Really, actually, properly excellent things that happened in 2023’

In my time as a financial professional, I have seen many downturns, some more significant than others. I started work in this world of finance in May 1988 and since then these are the ones that have stuck in my head:

1990 Recession (Personally very painful - anyone with a mortgage at that time will never forget it!)

1997 Asian Banking Crisis (Debt, too much of it)

1998 Collapse of Long-Term Capital Management (Overconfidence)

2000 Dot-com Crash (Some stuff way too expensive)

2008 Banking Crisis (These happen periodically and will again)

2012 Grexit (Should have happened, but didn’t)

2016 Brexit (Should not have happened. Mostly felt in currency so far)

2020 Covid-19 (We could add oil to this and a recession - possibly)

Problems, obstacles, disasters, however we want to call them, they always happen and always will do. They are so difficult to predict in advance. As an investor, you should always expect a significant event every three or four years. Is this Covid-19 significant yet? Will it become more significant? I don’t know.

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So, from an investment perspective, what should we do now?

Nothing. For now, we say you should do nothing. Why? We cannot predict the future. We can only tell you what we know today and what happened yesterday. We cannot tell you much about tomorrow, other than it will come. We don’t know tomorrow’s price for anything!

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Are you retired, or about to retire?

What we will have done already, is to make sure that if you need an income in retirement, either now or soon, don’t worry. Our portfolios hold short-dated bonds (this is typically money lent to high quality governments). These are the defensive assets and they will now be appreciating in value. While ‘investors look for a safe haven’ as the media likes to describe it, you’ve already got it built in.

During the banking crisis of 08-09 (the biggest event of those listed above, so far), these short-dated bonds enabled our clients to:

1. Draw money in retirement without touching any real assets (shares and property).

2. And when stock markets got very cheap (March 2009), we were able to sell some of these bonds and buy more shares at bargain prices.

Put simply, if you are due to retire in the next few years, or you are already retired; by holding an investment portfolio that contains these short-dated bonds within it as defensive asset; you should be fine. But if you are not sure please give us a call, we welcome it. 

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Are you saving for the long term?

I think the answer is in the question. Long term, equity markets have delivered great returns. If your investment time horizon is 10, 20, 30 years or more. Don’t worry. All the events I mentioned before end up looking like mere blips when you look backwards. I am 54 now (ouch) and the 1990 recession was horrible at the time, but looking at it now:

If I invested £1,000 in the FTSE All Share in 1988 (when I started work in finance), by the end of 2018 it would be worth £11,882 (30 years on).

If I waited until the 1991 to make the same investment, and thus avoid the market downturn on news of a recession that will occur in the future (market fell 17% in 1990), I would now be sitting on £9,049

Source: Dimensional Fund Advisers Matrix Book 2019

So, keep investing regularly and ignore the short-term noise. Don’t turn yourself into a short-term investor if you have a long-term investment horizon.

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But there is one big difference!

All the other falls had nothing to do with your health, or the wellbeing of your family, friends and other loved ones. Follow the Government advice and we hope everyone stays safe and well.

There’s a big dose of uncertainty out there as we approach the new year — about Brexit, about the impact of climate change, about what Mr Trump will say or do next.

That’s showing up in consumer sentiment in places like the UK and Australia (though in the US it’s proving resilient). People are reluctant to spend money when they don’t know what lies ahead.

With sometimes confusing signals, how can we find the clarity to make decisions for our personal finances in 2020?

The best advice is to focus on what you can control yourself, and not to worry about things that you can’t do anything about. With that in mind, here’s a list of things to think about as we enter the new year.

1. Don't put off until tomorrow what you can do today

Your first task for the year should be to review your finances. First, understand your current situation. Second, write or review your budget. Third, set some new goals for 2020. Having goals makes budgeting much more fun.

To do: Check out a budget planner on an independent money site, like this one.

2. The sooner you start, the better

When it comes to savings and investments, time is your friend. Compounding is a powerful investment principle that means the earlier you start to save the more your savings will grow. Over time, interest is earned on not only your money but on the interest you’re earning on that money.

To do: If you need a bit of a nudge to save more for your retirement, play around with a retirement savings calculator to see the impact of even a small increase.

3. What goes up might come down

Always bear in mind the worst-case scenario — no matter how unlikely it may seem at the time. It's easy to be an optimist about taking on debt when interest rates are low.

To do: Stress test your finances – how long could you cope if your income was interrupted?

4. A pound saved is a pound earned

By not spending, you not only have that money in your hand but also the potential to turn it into more. Let’s say you have a car lease and it’s ready to be rolled over. When you’re not paying upfront it’s much easier to go for the 2020 model with all the extras. But perhaps you’d be better off, financially, buying a more “sensible” model and putting the money left over to work elsewhere. (Did we mention retirement savings?)

To do: As a first step, divert some of your pay packet – or more of your pay packet – to a high(er) ­interest online savings account.

5. Neither a borrower nor a lender be

You’d be surprised what debt collectors see: people going to the wall not for a £500,000 mortgage but over relatively small credit card debts. People tend to understand what their mortgage commitment is but can be a bit sanguine about smaller debts. Be mindful when you use your credit card – think about whether that purchase, and the associated debt, is something you really need.

To do: Obtain a copy of your credit report and check it not just for blemishes but for accuracy.

6. No pain, no gain

If you do have credit card debt, don't be lulled into a sense of complacency by the minimum repayment on your credit card statement. If you’re paying just 2% or 3% off your card when the interest on the debt is close to 20% (yes, really), it could take years to clear, at the cost of significant interest payments over time.

To do: Work out how long it would take to pay off your credit card paying only the minimum here.

7. You get what you pay for

Insurance should be part of the picture when your review your finances. But whether it's income protection, life, health or even car and travel insurance, don't select a policy just because it's the cheapest. A cheap travel policy may seem a bargain until you find that you can't claim for stolen cash or the full value of your camera, for instance.

To do: Do you need more insurance this year to cover increasing liabilities, or less because you've paid off the mortgage and the kids have left home? Try this life insurance calculator.

8. Be prepared

Why have an emergency fund when you've got a credit card? Because if you use the plastic all you're doing is putting the problem off for a month (and a bit). Financial advisers suggest having at least three months' living expenses set aside – and up to 12 months’ worth if your job is insecure.

To do: Check the terms of your income protection insurance – when does it kick in, and when does it drop out?.

9. If it ain't broke, don't fix it

Lastly, it’s great to review your personal finances at least once a year, or whenever circumstances change. But don’t feel like you have to change something, just for the sake of it.

If everything’s working, there’s nothing wrong with doing more of the same in 2020.

Happy New Year!

Picture: Jude Beck (via Unsplash)