Should we get election jitters over pensions?

Q

DO I need to worry about the election affecting my pension returns?

A

IT’S an interesting question. Surely, the economic policy of a Conservative government will alter the economy and the returns we achieve from our pensions differently than a Labour, Liberal Democrat or coalition government.

When you look at a chart of the total return of the FTSE All Share from inception in 1962 to the present day and the relative government in office during the period, the trend is positive, through all these periods the FTSE All Share index, a bellwether of the British economy, has risen.

The average FTSE All Share monthly return since inception has been 1.03% (691 months), during a Conservative government it has been 1.19% (345 months), during the coalition government it was 0.80% (60 months) and during a Labour government is has been 0.89% (286 months).

The data shows that over this sample period of 691 months, a Conservative government has produced a 34% higher monthly return in the FTSE All share than under a Labour government. This is the difference between you doubling your money every 11 years using the Conservative figures, to doubling your money every 15 years, using Labour’s.

Fidelity did some research, which shows the impact of market timing with your investments. If you were fully invested in the FTSE All-Share from 30 September 2004 to 20 September 2019 you would have returned an average annual return of 7.7%, however miss the ‘best’ 10 days ie. the days which gave the best return during the 15 year period, and your return is 3.5%pa, miss the best 40 days it’s -3.1%.

The message is clear. If you try and time the market, whether this involves an election, or recession, and get it wrong by just 10 days over a 15-year period, you could be looking at a reduction in your investment annualised return from 7.7% to 3.5%pa.

Miss the best 30 days in the 15-year period and you’ve gone from making money to losing money. So maybe it’s who’s in the financial planner’s chair that will affect your outcome, not who’s in Number 10.