Motley Fool: Investors should not panic over outcome of the general election

Our ancestral action-takers, meanwhile, dodged life-threatening bites, blows and bludgeoning on a daily basis. Whereas the more easygoing who muttered, “Lion? Meh…” did not live to tell the tale – or to pass on their genes.

I can hear the impatient descendants of all those elephant evaders, cheetah cheaters and dingo dodgers growing restless. How should we ‘trade’ the UK General Election? What action is best to take? What should we do?!

Well, I’m going to disappoint you. But in my view you probably shouldn’t do anything.

It’s easy to construct frightening narratives about the fate of witless investors who do nothing in the face of the closest election in generations.

But what makes for a compelling headline is not necessarily a sound investing strategy. If a pundit told you that some coalition-combo meant you should stick your head in the oven, would you do it?

Then why trade your portfolio on similarly flimsy claims?

Here are five reasons to leave well alone instead.

1 The UK is a very small proportion of the global market

Sensible investors have international portfolios, and the UK represents just a portion of their assets. The UK’s share of Vanguard’s Total Stock Market Index fund ETF is 7.45 per cent, for instance.

Whether you invest passively, actively, in funds or shares, or in a mix of them all, I think the UK should only be part of the picture. On the global stage, this election is small fry.

2 Most UK earnings are generated elsewhere

But even sticking with UK shares, over 70 per cent of the FTSE 100’s earnings are earned overseas. And foreign economies will not be affected by the results of our General Election.

This also means there are natural hedges in place so that even a negative election result could be a wash for UK investors.

Let’s say a coalition was formed that was seen as unstable or anti-business or fiscally reckless, and therefore bad for the UK economy.

In such an instance the pound might fall. This would boost those overseas earnings, which in turn could increase the attractiveness of owning UK shares that earn money overseas. Swings and roundabouts!

3 It doesn’t matter which major party wins

According to data compiled by Hargreaves Lansdown, the Tories have delivered the strongest returns for UK investors, with an annualised return since 1970 of 16 per cent, compared to 9 per cent for Labour. However, these statistics are skewed by the near-50 per cent fall in the UK market in the nine-month reign of the last minority Labour government in 1974.

I’d keep in mind there that the bear market crash of the 1970s was hardly a UK-only phenomenon. The global economy was mired in stagflation, and UK inflation was already approaching 20 per cent. Oil prices had quadrupled in a matter of months due to OPEC action.

Those are very different circumstances from today.

A more convincing piece of pro-party data from Hargreaves Lansdown is that someone who put £1,000 into UK stocks when Margaret Thatcher came to power would have seen it grow to £20,000 by 1997 and the coming of New Labour.

Some of that growth was down to the economic policies of the day, no doubt. But again it was also a global phenomenon. US investors did at least as well.

4 Returns have been fine under the coalition

Of course, there’s about as much chance of a first-past-the-post winner of this election as of Russell Brand becoming Prime Minister.

We seem to have a visceral loathing of coalition, compared to our continental cousins, yet I’d argue the muddle-through nature of the past five years was what we needed. More importantly from an investing perspective, the returns were fine – up 9 per cent a year annualised, or over 50 per cent all-in.

5 It’s probably too late, anyway

Of course, there are some individual companies that might be impacted by particular results on May 7. I’m thinking of regulated utilities like Centrica and UK-focused sectors like housebuilders and the supermarkets.

However, the market is a discounting machine. It looks forward to take into account new information. Everyone knew an election was coming. Therefore I think prices already reflect most likely outcomes. If anything, I’d be more inclined to hunt for bargains at this stage.

We’re in it for the long term here at the Motley Fool, and we focus on investing in great businesses for years rather than months. It’s over that kind of time horizon that we can make sensible judgments on how a business is likely to perform, and whether the price is right.

Cast your vote at the ballot box, not with your broker.

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