The Christmas election outcome could batter or boost your wealth. Here’s what I’d do now

Paul Summers thinks now is the perfect time to review your asset allocation.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With less than a month to go until we head back to the polling booths, it looks like markets don’t know which way to turn. Nevertheless, it’s fairly easy to speculate what the reaction will be if Boris Johnson or Jeremy Corbyn get the keys to Number 10.

A majority win for the Conservatives will likely result in shares rallying since this provides investors with a bit more certainty that Brexit will happen, perhaps as soon as the end of January (although further negotiations will be required after we’ve left).

A win for Johnson wouldn’t necessarily be good news for all stocks though. Those who generate the majority of their earnings overseas  — a big chunk of the FTSE 100 — might not be in demand as much of those with a domestic focus as a result of a rebound in sterling.

A Labour win, however unlikely some believe this to be, could mean chaos in the markets for several reasons.

Firstly, Corbyn has said he’ll attempt to agree a new deal with the EU, which will then be put to the people in the form of a second referendum. Whether you agree with this or not, it does mean more delay which, in turn, could put investors off investing in the UK. 

Secondly, a Labour government could oversee the re-nationalisation of several industries, including energy, water and rail. Even a part-nationalisation of BT has now been proposed. As such, anyone invested in companies operating in these areas could see the value of their shares hammered. 

Even those not holding these stocks could be hit with a new financial transaction tax and a rule stating that employees of firms above a certain size should be given a proportion of their company’s shares.

Of course, it may be that there’s is no clear winner. Such a scenario would be equally concerning for the markets since, again, it simply prolongs uncertainty. Sterling would likely fall, as would the share prices of UK-focused companies.

How to prepare

Clearly, no one knows for sure what will happen. We can, however, prepare. I would use the time between now and 12 December to review how your money is allocated.

Those nearing retirement and fully invested in equities, for example, may want to ask whether they could stomach a (temporary) hit to their wealth or whether they might need exposure to other assets such as bonds, property and gold. If it’s the latter, then a bit of rebalancing will be required. It won’t allow you to escape a market shock entirely, but it should allow you to sleep at night. 

With regard to specific companies, I’d continue to avoid (or ensure I wasn’t too exposed to) anything that looks vulnerable to re-nationalisation. Although these stocks will likely soar if Corbyn were beaten, that’s not reason enough to buy them now. Foolish investors should be primarily focused on holding a diversified bunch of great companies for the long term, not making a quick buck. Returns should certainly not be reliant on the outcome of political events. 

Lastly, I’d also make sure I’ve got some cash on hand if markets fall. Times of panic are, after all, the best time to go shopping for stock, particularly related to quality businesses that have been trading on hitherto excessive valuations.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Is the Centrica share price a compelling value play?

I'm always on the lookout for investments that might be undervalued, but is the Centrica share price as cheap as…

Read more »

Investing Articles

Down 88% since its peak! Is this one of the best UK shares to buy now?

I see lots of potential shares to buy on the UK stock market right now, but I don't see explosive…

Read more »

Investing Articles

Should investors be looking at the Barclays share price?

The Barclays share price has been in rally mode lately, but is the best still to come for new investors?…

Read more »

Investing Articles

Here’s what Stocks & Shares ISA investors are buying today!

ISA investors are piling into these UK and US stocks. But which could be the best buy right now? Royston…

Read more »

Investing Articles

2 powerful passive income stocks investors should consider snapping up

Building a passive income stream via dividend-paying stocks is possible, according to our writer, who details two picks to take…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing For Beginners

This UK stock has gained 42% since I bought it, but I think it’s still a bargain

Jon Smith outlines his reasons for thinking that a UK stock he owns has the potential to keep rallying for…

Read more »

Investing Articles

1 under-the-radar value stock I’m eyeing up for returns and growth

This Fool is looking for quality stocks at bargain prices and reckons this potentially overlooked value stock could be a…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

National Grid shares have plunged — but if I’d bought 2 years ago, would I be in profit?

National Grid shares are about 22% lower than in May, but that may just be a small blip for long-term…

Read more »