Election impact on investment strategy

[Spet0789]

What Labour might do very quickly, if only because they have to, is impose restrictions on sending money overseas.

For as long as the UK remains a member of the EU, is that actually possible? Single market etc.

Yes. Cyprus 2013.

[Charlottesquare]

It’s common knowledge that the markets do better under Tory governments than they do under Labour. Unfortunately the facts don’t support the idea.

Anyone under the age of 60 has only experienced one Labour government in adulthood, and that was the Blair/Brown government. Blair was quite benign for a Labour PM and certainly more moderate and market-friendly than the Labour leaders who proceeded or succeeded him.

The idea of the markets doing well under Corbyn and McDonnell is barely worth considering. And it is probably not a coincidence that the bull market that started in the very early 1980s happened very soon after Thatcher gained power and banished the socialism that had been the norm for the post-WW2 years until then.

You see the same effect in the US. Markets did well under both Clinton and Obama. Both were Democrats but neither were socialists. The US market will take a big hit if it starts to look like Sanders or Warren will become President next year, at least if the Dems take the Senate as well.

Fortunately the US and UK markets are both showing no sign of either nation lurching to the Left, so be grateful for that.

Not so, I was 18 in 1978 so had near a year of Callaghan attempting to limp along, plus my teenage years in the 1970s watching the UK lurch from problem to problem; you are out by a year.

[widowandorphan3]

Interesting topic. My thoughts:

MARKETS

Re the pound, well it's already up 8% as no-deal fears receded over the past few weeks. This has also coincided with a slight rise in value stocks v momentum, both here and in the US.

We might like to think Mr Market knows something we all don't, but it can get things very wrong. Cable went to $1.50 at midnight of the Brexit vote, and was $1.35 by dawn. The betting markets got it all wrong too, though I know some savvy folk made millions on betting alone.

Markets and betting markets got Trump 2016 all wrong too. Both were certain that HRC would win, tanked initially and then everyone went "hey, he may be a bit rum but he's a tax-cutting businessman", and sparked a great run in US markets that continues to this day (FWIW I think he knows he needs this to continue for another 12 months, and will miraculously resolve his trade disputes in due course...).

I bet on both Brexit and Trump, though I desired neither, but the odds were so good for those outcomes in such an obvious 50/50 situation, and I wanted something to be happy about in the event.

TAX ETC.

I think ISA and JISA allowances would be slashed in the event of Corbyn. He and his merry gang might observe that a "2+2 average family" can squirrel away £49k pa tax-free for ever - that is nigh on £1k a week, and they might say, "who but the very well off can afford that?" Try arguing against that in the heat of a electoral battle.

As the vast bulk of the electorate cannot save £49k pa, and will doubtless be told all the govt tax raised will go into the NHS or whatnot, this won't be a vote loser to anyone except those who probably wouldn't vote for him anyway. I doubt however that historic ISAs could be made non-ISAs - that would be such a legal mess that I doubt even Old Labour would attempt it - but I hope I'm right here.

Pension relief would also be slashed for 40% earners - again, for the same reason; it isn't necessarily a vote loser.

POLITICS

Don't BTW expect much if any of this to be in the Labour manifesto. If 2017's is any guide, it will basically promise free stuff for everyone. IIRC, only those above £70k a year faced any sort of tax hit at all, and that is perhaps the top 15% of the earning population. But there is no law about a govt keeping to anything at all in a manifesto; it's a document that noone really reads apart from a few journos.

The Blair 2001 manifesto had virtually nothing about the 2 defining things it ended up delivering: enormous (and to many, discomforting) levels of immigration, and invading a far-off middle east country. The ripple effects of both - among other things - had a corrosive affect on the attitude to democracy and a growth in cynicism about 'our elders and betters' - which found an outlet in the Brexit vote.

The cohort of people who remember the last real socialist govt in the UK is growing smaller - I think the median age of the UK is currently 47 or so. I am at that age, and my only memory of the late 70s is the electricity going off because of all the strikes as the unions held the govt to ransom. Most young people know nothing of the unintended consequences of economically illiterate policies, and few go on holiday to Venezuela.

STERLING

All the flighty rich folk who've flocked to London in the past 20 years or so can and will upsticks if they feel the need.

Which leads me onto something I've worried about since Brexit: a sterling crisis. Crises can and do happen, and come without much warning. The credit crunch started in August 2007, rumbled on for a while without a major impact on main street, and a year later it was clear that we were in for a recession. But then we got a spark, Lehman, and the roof fell in.

Capital is so flighty now, and billions can be moved these days in a flick of an eye. And I can see a Labour government framing an installation of capital controls as a defence of working people against the evils of capitalism and capitalists. And most people won't be affected by it; you can bet it would be set at £5k or so, so enough for people to go on holiday with etc.

TAXES

I think we forget the appeal of policies that apply on "other people" at our peril. There was a marvellous Simpsons sketch I recall where a crowd chanted "What do we want? MORE TAXES For who? EVERYONE ELSE."

And there is envy in this country, as there is everywhere, and an understandable, though problematic, urge to blame all our problems on others when the cause is closer to home. And frankly Corbyn is pretty good at working on that. Indeed some might suggest that much left wing politics is about framing the capitalist world as a conspiracy against "the people", as opposed to the right which sees the world as indiviudals and families trying to do best for themselves, whatever the weather, with taxes paid as a dividend for everyone else.

EVENTS, DEAR BOY

I also worry about this election's timing. I have been reading about the NHS being "close to collapse" for approximately 35 years. It's still here. My thankfully rare interactions with it - and those of my nearest and dearest - is that it far from perfect, but is very good in emergencies and very good at getting resources to very serious cases very quickly.

My suspicion is that somewhat more should be spent as we are nearer the bottom of the range on 'rich EU country' health spending, but even if it were to double, we would still have some out outlier examples that would lead to headlines like the above.

If we do get a spell of dire weather and/or a flu epidemic and/or Lord knows what, it will lead to dire headlines and social media chatter when the NHS will become topic no.1 and lead to votes to the guy who promises tons more money to it. "How dare you vote against that?" could become the refrain, which will influence the election - and remember, 2 credulous people have twice the votes of 1 wise person.

Corbyn went into 2017 GE with 24% and came out with 40%. Johnson has 36% or so going in, now, and Corbyn 26% or so. A lot can happen in 5 weeks, and Farage and his party does Johnson no favours. Also, as Remain found to its cost in 2016, when people who rarely vote and do not get opinion polled, anything can happen.

WHAT I'M DOING

Mostly non-sterling assets. OEICs like Smith, Lindsell, and ex-UK trackers. It's a no-brainer for me, as my UK property is in Sterling whether I like it or not, and thus I am hedged, and I'm sure it's a similar story for most of you.

WaO

[gryffron]

As it stands, US stock market is very high, and ftse is very low. I've been taking profits in US and moving back to UK.

Yes, there are good reasons for the ftse being undervalued, but 75% of ftse earnings come from abroad. Brexit, any outcome, will frankly have very little impact on the global ftse100 giants. The value will come back one day.

I can't see the worst excesses of Corbynism being implemented, even if he wins. The Corbynistas are a relatively small proportion of the PLP. Labour will tear themselves apart. The 10% share distribution is especially unlikely. The reaction from the market and overseas would be brutal. No other coalition party will support it. Even Most labour MPs would not. The majority of Labour MPs are not radical socialists. Not yet. It may eventually happen if Momentum can maintain their hold on the Labour Party. But they're at least a decade away from overwhelming control of the PLP.
Tax rises, sure. But not the wholesale misappropriation of property.

Gryff

[GoSeigen]

It’s common knowledge that the markets do better under Tory governments than they do under Labour.

That is merely the assumption of some Tory voters and their supporting media. The Tories have made the most almighty hash-up of the economy since 2010 and are on track for highest levels of government spending since the 1970s. Thanks to all those geriatric Tory voters who just assume the Tories know what they are doing without ever thinking about it or checking the facts.

GS

[JohnB]

Its worth seeing who comes out of the reselection process. It seems that the calmer Labour MPs will survive, but moderate Tories are leaving in droves. I'd not assume that a Tory government is fiscally sound, the party has abandoned austerity for both massive spending promises and tax cuts, their numbers are less convincing than Labour's as they whip up a 'Brexit or bust' frenzy.

with both parties radicalising, a lot depends on the quiet middleground voter. Will they just vote Conservative based on its old brand and fiscal reputation, or view them as a different party. New Conservatives? New Labour's move to the centre made them very electable, now both parties are unappealing for calm heads.

Manifestos promise lots of goodies, but are weak on nasty tax rises. It takes the opponents to keep them honest on spending, and that may not happen with this time with Brexit dominating the campaigns

[TheMotorcycleBoy]

I'm just continuing to do what Mel and I started doing back in March 2018, that is, trying invest in what I see to be quality firms, mainly FTSE+AIM, but also one or two US based multinationals (Microsoft and Disney), the odd World index tracker and a couple of ITs.

Certainly not got the kind of money to be thinking of gold, property or relocating assets.

Whilst I think it's silly to try to plan a course based on perceived events, outcomes that may not happen, I'm very willing and ready to snap up any stocks which I think are temporarily mispriced by Mr. Market's momentary spells of madness. In fact my main question is when is this going to happen....hurry up the money is ready! Indeed if for a day or so people suddenly fear a Corbyn Govt, then I can see myself buying NG. shares if they plummet, since they'll likely recover when such fears abate.

FWIW, I'm less fearful of restrictions made to ISAs/JISAs. A great many folk have these now. I was chatting to my tree surgeon mate a couple months ago, who runs a very small outfit (just him + 1 part time helper) and he disclosed "if there's any spare cash after that at the end of the month then I'll put in my ISA". My perception is, that across all party political persuasions these entities are seen as vehicles for anyone to help themselves out (plan for the future) due to inadequacies of the existing state pension system. So I'd be very surprised to see them hit particularly hard.

Personally, I don't see a JC majority happening at all. Tories, IMHO, will win in terms of the FPTP system. If there is to be any big swing away from the Tories, I'm guessing it will be in the direction of one or both of the Brexit or the LibDem party.

Matt

[flyer61]

My investment strategy is to turn the BBC off every morning. I have a friend who has deleted all his BBC apps. We already live in a socialist country.

Personally I fear a Corbyn/McDonnell government for a whole host of reasons so will contend myself with buying offshore denominated earnings either through UK or Overseas ITs, individual shares etc. Sterling's recent rise seems to be on the basis that we will not be leaving the European Union, at all. The result of a Labour majority or dominated coalition will be a whole new ball game for STG. Half my future income is USD denominated with a smattering of Swiss Francs, Euros, Scandy countries and AUD thrown in. Like others I had been hoping for a couple of 100 point down days to pick up Unilever, Diageo, NG, IT's that widen to large discounts......going to have to be patient.

[tjh290633]

It’s common knowledge that the markets do better under Tory governments than they do under Labour.

That is merely the assumption of some Tory voters and their supporting media. The Tories have made the most almighty hash-up of the economy since 2010 and are on track for highest levels of government spending since the 1970s. Thanks to all those geriatric Tory voters who just assume the Tories know what they are doing without ever thinking about it or checking the facts.

GS

As a geriatric Tory voter, I feel that I should point out that the Conservative-led coalition and subsequent governments have spent the last 9 years clearing up the financial mess left by the last Labour government. You will no doubt recall the message left by the departing Financial Secretary to the Treasury.

I believe that I am correct in saying that every Labour Government has left the economy in a far worse condition than when it first took office.

With that in mind, it makes sense for people to contemplate how they can protect their investments from the ravages of a Labour Administration with Marxist leanings. Fortunately, at the moment, interest rates are very low, so retiring debt can be replaced with debt at lower interest rates and a slight increase in borrowing can be made without extra cost.

What is really needed for the economy to grow at a faster rate than government spending. The trick is to invest in companies that will benefit from that. Meanwhile avoid those where risk of confiscation by Labour exists, which could be almost all UK companies with their workers' shares ideas.

TJH

[scrumpyjack]

I think a Labour government would certainly hit ISAs. It would not be difficult to say that the maximum you can have in ISAs is 50k and any more than that must be returned by the ISA manager to the owner, thereby losing its tax shelter. I believe HMRC systems already cope with people having multiple ISA managers, to ensure you don't go over the annual limit, so that issue should not be a problem.

In some respects ISAs may actually eventually increase the tax take because people tend to accumulate wealth in them and hold it so it ends up subject to IHT.

They could even be abolished completely on the basis that they do not benefit the 'many' but only the 'few'

[Wuffle]

An economy will grow when more people do stuff.
It can't be a coincidence that all the western developed economies with post war population growth start to chug a bit when loads of people stop doing stuff.
The triple session Labour (fairly Tory really) govt coincided with the retirement of the masses so whether it was their mess is debatable. The final straw that was the financial crisis was not unconnected to right wing deregulation from years ago.
Not black and white really.

[TheMotorcycleBoy]

I think a Labour government would certainly hit ISAs. It would not be difficult to say that the maximum you can have in ISAs is 50k and any more than that must be returned by the ISA manager to the owner, thereby losing its tax shelter. I believe HMRC systems already cope with people having multiple ISA managers, to ensure you don't go over the annual limit, so that issue should not be a problem.

In some respects ISAs may actually eventually increase the tax take because people tend to accumulate wealth in them and hold it so it ends up subject to IHT.

They could even be abolished completely on the basis that they do not benefit the 'many' but only the 'few'

Except that there are "many" ISA holders

https://www.hl.co.uk/about-us/press/pre ... -out-today

nearly as many as Brexit voters, in fact.

[Lootman]

What Labour might do very quickly, if only because they have to, is impose restrictions on sending money overseas.

For as long as the UK remains a member of the EU, is that actually possible? Single market etc.

Yes. Cyprus 2013.

I think Greece did as well, at the height of its crisis. I am less sure how effective it was given its notorious black market and porous borders.

It is hard to see how London could continue to be a major financial centre if a Corbyn government slapped capital controls on it. It might just compound the crisis that caused the controls in the first place. Good for diamond merchants and hawala offices though, so maybe invest in them

I think a Labour government would certainly hit ISAs. It would not be difficult to say that the maximum you can have in ISAs is 50k and any more than that must be returned by the ISA manager to the owner, thereby losing its tax shelter. I believe HMRC systems already cope with people having multiple ISA managers, to ensure you don't go over the annual limit, so that issue should not be a problem.

In some respects ISAs may actually eventually increase the tax take because people tend to accumulate wealth in them and hold it so it ends up subject to IHT.

They could even be abolished completely on the basis that they do not benefit the 'many' but only the 'few'

Yes, whilst curtailing ISAs might not raise a huge amount of revenue, it might be tempting on the basis of the envy principle that pervades Labour right now. The thought that someone like me might have 800K in an ISA paying no tax whatsoever on it might turn the envy mob an even deeper shade of green.

On the other hand ISAs mean that those with smaller portfolios may not need to trouble HMRC at all, and there would be an uptick in HMRC workload if millions more people have to start declaring small amounts of dividends and gains.

As you note, ISAs backfire in tax terms when you die because they get hit for 40% IHT, potentially. So there is an argument to close them down at some age anyway, so you can engage in IHT-mitigation strategies, which may become more common anyway if Labour messes with the IHT rules.

If iSAs cease to be viable then I'd set up an offshore account and transfer the holdings there. That won't affect the tax liability initially, but sets the scene for other strategies at a later time by keeping those assets beyond UK jurisdiction.

[richfool]

If iSAs cease to be viable then I'd set up an offshore account and transfer the holdings there. That won't affect the tax liability initially, but sets the scene for other strategies at a later time by keeping those assets beyond UK jurisdiction.

And it could be a useful prelude to moving to live in that same location.

The possibility of a Corbin government is certainly making me think through possible options, one of which is to get some "Bed & ISA'ing done. My ISA isn't fully subscribed for the current year and I have a number of holdings in an unprotected share dealing account, so it would make sense. I would also like to add some renewables and infrastructure trusts, which as they are Jersey based would be better positioned in an ISA.

Otherwise, if Corbin were to win the election, I might invest in whoever makes suitcases, as I would anticipate a rush of people running for the ports and airports with their cash!

[Lootman]

Otherwise, if Corbin were to win the election, I might invest in whoever makes suitcases, as I would anticipate a rush of people running for the ports and airports with their cash!

Apparently McDonnell had led some "war games" strategy sessions where they have discussed potentially drastic restrictions that might immediately be put in place if there is wholesale capital flight in the event of a Corbyn victory.

The idea that within hours of the election there might be restrictions on moving assets or even personal travel is a haunting indicator of how ruthlesly ambitious these Marxists are to redistribute and potentially confiscate wealth. I don't trust them at all. One of them said the other day on TV that "billionaires shouldn't exist". They plan class warfare.

[fca2019]

@flyer61 - lol! That's a smart idea. I might delete my BBC apps off my phone for the next 5 weeks!

@gryffron - I think you are right, the PLP would temper any excesses of Corbyn/Macdonell.

A hard left government could try a wealth tax like the one in France. This was on a sliding scale up to 1.8% on total worldwide assets (in 2011 over €800k), but has since been watered down to a tax on property only over €1.3m. If they tried that, that would I imagine would be unpopular on this forum, and would lead to an exodus of the wealthy! But I do think the PLP would try to block it as it would be seen as too harsh and the evidence is it leads to a loss if it drives wealthy away from the country.

I've just topped up my ISA. I was thinking about gold or defensive assets yesterday, but in the end just added to my Vanguard tracker, conservative habits are difficult to break.

[scrumpyjack]

Well maybe they will nationalise all private pensions, so your SIPP is exchanged for units in a new National Retirement Plan. This is to protect people from being robbed of their pensions by scams or company insolvencies and to increase security and equality by ensuring everyone gets the same return!

It will provide the state with a vast pool of assets to be used for 'investment' in public services.

[hiriskpaul]

A simple solution to ISAs would be to abolish them and increase the allowances for dividend and interest income. Labour could even pass that off as a tax simplification, especially if they combined them into a single "Investment income" allowance. Then in future years, they could gradually reduce the size of the allowance and increase the taxes on "Unearned" income, taking us back to the 1970s.

Living in London and having a holiday home, a new property tax is one I fear more than abolishing ISAs.

[TUK020]

Pension relief would also be slashed for 40% earners - again, for the same reason; it isn't necessarily a vote loser.

Another easy target would be to restrict the 25% tax free lump sum on pensions to a limit of say £20k.
Nice post WaO

[baldchap]

Well maybe they will nationalise all private pensions, so your SIPP is exchanged for units in a new National Retirement Plan. This is to protect people from being robbed of their pensions by scams or company insolvencies and to increase security and equality by ensuring everyone gets the same return!

It will provide the state with a vast pool of assets to be used for 'investment' in public services.

This is my one real concern about pensions. Governments.
Platform risk pales in comparison.
I may consider stopping Sipp contributions if Magic Grandpa gets in.