I am old enough to have lived through a number of ‘interesting times’ – the fall of the Iron Curtain, the release of Nelson Mandela, the reunification of Germany, 9/11 (when I was actually working in New York), the Great Recession of 2008/09, and more recently the Brexit referendum in 2016… the list goes on.
This article is not about politics, but international events and the actions of the government in charge can have an effect on our daily lives.
But, I am also experienced enough to know that these external or political events should not get in the way of a long-term, sensible investing strategy.
What may be next for buy-to-let investors
The early days of September 2019 will likely go down in British history as the height of political uncertainty in recent decades. And I am now beginning to think there may be even more interesting times ahead for us in the UK.
Investors in general do not like change or uncertainty, and a new Prime Minister with new ideas would mean both.
Therefore, I want to discuss what aspiring private landlords may consider doing if we were to have a new government led by Jeremy Corbyn in the weeks to come.
Shadow Chancellor John McDonnell recently proposed a ‘Right to Buy’ scheme for the private rental sector. Although the details are thin, a long-term private tenant may be given the right to buy his or her home from the landlord at a discount.
At this point, it is almost impossible to know the potential effect of such a policy on house prices, rents, or even shares in the FTSE.
Buy-to-let investors have already been feeling the squeeze with a 3% stamp duty surcharge on property purchases as well as increased taxes on rental income.
If you are an investor who is looking to put your hard-earned cash into an instrument other than private property, the stock market offers several alternatives.
It is important to diversify
For prudent investors, it is neither a curse nor a blessing to live in interesting times. As long as we do our due diligence, we can continue to put our savings to work at reasonably high rates of return.
For example, if you’d like to have domestic exposure, but are rather worried about selecting individual companies due to increased uncertainty an industry may face, then you could buy into a FTSE 100 tracker fund.
For those investors who may feel overwhelmed by the effect of domestic politics in the short run, I think an ETF to consider could be the FTSE All-World ETF, tracking the performance of a large number of stocks worldwide. By having global exposure too, UK-based investors may be able to decrease the short-term adverse effects of the home bias in these uncertain times.
The Foolish takeaway
Diversification, either by sector or geography, may provide a relatively defensive investment opportunity for many of our readers. A share portfolio constructed of different kinds of companies, sectors, and regions, will yield higher returns, on average, and enable most investors to ride out the volatility of the stock market. And the long-run risk/return ratio is likely to be more attractive.
