Over the last couple of weeks a lot of our clients have asked about the upcoming US presidential election. So, we thought we’d dig a little deeper and speak with Tom Francis, one of our wise investment advisers, to answer the most commonly asked questions.
Tom, how does the US election impact my investments in the UK?
The quick answer is not much if you are invested in a globally diversified portfolio and are invested for the long run. As a UK investor you’ll always have a certain amount of exposure to American investments. This is because the US is the biggest stock market in the world and also the biggest economy - the majority of FTSE 100 companies make a portion of their revenue from the US.
But when you are invested in a diversified portfolio (like the one you may have at Wealthsimple) the idea is that you hold a variety of different investments with different exposure to countries and industries around the world. When one asset is down, the other is likely to be up, and ultimately that diversity makes your investment journey a little bit smoother.
How have stock markets been impacted by elections in the past?
Markets don’t like uncertainty and can do strange things while they’re waiting to see what will happen. In the short run, there can often be a bit of market movement after election results. But, countless research has shown that in the long run markets aren’t really impacted by the political changing of the guard.
Why? Despite what they say, political leaders tend to have very little to do with economic growth, productivity growth, or stock market returns. They can effect things around the margin if they lower corporate tax rates, for example, which increases equity values, but the economy is mostly governed by cycles and forces that are outside of the control of any one person.
With all that is going on in the world, what should I be doing with my money right now?
In the short and long term, we believe the best way to grow your money is to be invested in a diversified portfolio of low-cost funds (after you’ve established a cash emergency fund of course). So unless your situation has changed, our advice would remain the same.
A great way to think about the most important things to do with your money is by going through The Waterfall Method. It’s a quick six-step fitness check that will be helpful whether your income has taken a hit this year or you’ve seen a windfall from pandemic savings.
Has Wealthsimple’s approach to investing changed? Have you made any changes to portfolios?
Our approach is still the same. One of the jobs of our investment team is to regularly review the weighting of the assets in your portfolios to find the combination that we believe will best maximise long-term returns, while also minimising overall risks. From time to time we’ll make small tweaks to our portfolios but rest assured, we’ll always communicate those changes to you.
We build our portfolios to protect investors against a wide variety of events - including elections. So our advice is, despite the obvious stress caused by the political circus in the US, just relax as best as you can and focus on what you can control: encouraging all your American friends to vote on 3rd November.
As always, we're here to help if you have any questions. You can book a call with one of our superb investment advisers here, or email us at firstname.lastname@example.org.
The Wealthsimple Team