2024 elections – how might investors prepare?
This year almost half of the world’s population will be called to vote. Our own election on 4 July is just one of 60+ expected in 2024, notably in the US and France, plus the recent EU parliament elections.
The uncertainty around election outcomes – like any kind of uncertainty – can cause stock market jitters.
Historically, however, it hasn’t been that bad.
In the UK, there have been 16 general elections since the FTSE All-Share Index was established in 1962. Since then, the average return in the year running up to an election has been 8.9%, increasing to a double-digit percentage gain in the year after a general election that resulted in a change of governing party, the Times reports.
Looking at the US, the Dow Jones Industrials index recorded its lowest average returns in election years. However, returns have then tended to go up in the first year of a presidency, and again in the second and third year.
Where does that leave investors? What might you do right now? In our view, there are two things it could be wise to consider.
Firstly, to seek investments that can withstand different economic climates or, indeed, election results.
Secondly, to make the most of tax breaks whilst they are available – and at the current level. The outcome of the elections is unknown, but many people believe taxes will go up no matter what.
Important: The information on this website is for experienced investors. It is not a personal recommendation to invest. If you’re unsure, please seek advice. These investments are for the long term. They are high risk and can fall as well as rise in value: you could lose all the money you invest. Tax rules can change and benefits depend on circumstances. Past performance is not a guide to the future.
Make “forever” – not “of the hour” – investments
We believe nobody can predict markets with any useful consistency nor construct investment portfolios that are top performing all of the time.
The best-performing portfolio at the height of the post-Covid rally looked very different from the best-performing portfolio in the high interest rate and high inflation environment of 2023. I expect the same will be true if we look at the best-performing portfolio on 5 July 2024 and six months down the line.
So, our Managed Portfolios do not aim to be the best performing on any given day, month or even year. Our focus is on the long term.
For the Wealth Club Portfolio Service – a choice of five portfolios of funds and investment trusts – this means maintaining well-diversified portfolios, which should not have too much in any one asset class or fund manager. You decide which portfolio is right for you, from a range with different risk profiles.
For the Quality Shares Portfolio – a concentrated portfolio of listed shares – this means owning a select few companies which should have the resilience to face any crisis or challenge – and hopefully emerge stronger.
Both the Wealth Club Portfolio Service and the Quality Shares Portfolio are available within an ISA, a SIPP (Self Invested Personal Pension) and a GIA (General Investment Account). We choose the investments for you but you should note this is not personal investment advice.
Our discretionary Managed Portfolios are long-term investments: they can fall as well as rise in value; returns are not guaranteed. Pensions are for the long term: you cannot normally access your funds before age 55 (57 from 2028). Before contributing to a pension, check you are eligible. Currently, these portfolios are not available if you are in drawdown or intend to take benefits from the pension soon.
Make the most of available tax breaks whilst you can
It is all very well to be concerned about investment returns – gaining a few tenths of a percent adds up over time. But it could prove to be an exercise in futility if you do not take tax into account. Without careful planning, the impact of taxes could dwarf any performance enhancements in the long run.
That’s why it’s important to invest tax efficiently, especially at times like this. As the Institute for Fiscal Studies put it, “for a Chancellor with a goal of reducing debt as a fraction of national income, things have arguably never been so bad”.
Taxes as a share of national income are forecast to grow from 36.5% of national income in 2024/25 to 37.1% in 2028/29, not least due to an ongoing freeze to income tax thresholds. Then there’s the potential for post-election tax rises.
If you are concerned taxes may rise, you might want to consider using your tax-efficient allowances and reliefs in full whilst they are available – and as generous as they are.
ISAs – tax-free growth and income
Every year, you can shield up £20,000 from tax on UK dividends, interest, and capital gains on investments within the wrapper.
SIPPs – up to 45% tax relief and tax-free growth
If you are eligible, contributing to a pension offers some of the most generous tax reliefs – including up to 45% tax relief on the way in and tax-free growth while you’re invested (you can read more in our article: Pensions: the most generous tax relief around?)
VCTs, EIS and SEIS – up to 50% income tax and capital gains tax relief
If you’re an experienced investor comfortable with investment risk, once you’ve maximised your pension and ISA contributions you could consider investing in British startups via the government-backed Venture Capital Schemes.
In return for taking the risk of backing ambitious young businesses, Venture Capital Trusts (VCTs), the Enterprise Investment Scheme (EIS), and the Seed Enterprise Investment Scheme (SEIS) could let you claim back some of the amount you invest from your tax bill. You could even claim back tax you’ve already paid. What’s more, if your investment increases in value, the growth could be free of CGT.
VCTs, EIS and SEIS are only for experienced investors. Tax rules can change and benefits depend on circumstances. Decisions should be based on the investment merit, not the tax reliefs alone.
VCTs
- Up to 30% income tax relief
- Tax-free dividends
- You can invest up to £200k per tax year
- Tax relief available in the tax year you invest
- You must hold the investment for at least five years
EIS
- Up to 30% income tax relief – in same tax year, or 'carry back’ to reduce previous year’s tax bill
- Capital gains tax deferral on gains made elsewhere
- Loss relief
- Inheritance tax relief (when held at least two years and upon death)
- You can invest up to £2 million per tax year (if including knowledge-intensive EIS)
- You must hold the investment for at least three years to retain tax relief – you should expect to hold the investment considerably longer
SEIS
- Up to 50% income tax relief – in same tax year, or 'carry back’ to reduce previous year’s tax bill
- Up to 50% capital gains reinvestment relief on gains made elsewhere
- Loss relief
- Inheritance tax relief (when held at least two years and upon death)
- You can invest up to £200k per tax year
- You must hold the investment for at least three years to retain tax relief – you should expect to hold the investment considerably longer
Free guide: VCT, EIS and SEIS tax reliefs compared
For more information please read our simple guide – it gives an overview of the differences between VCTs, EIS and SEIS and how the tax reliefs compare.
If you have any questions on the guide or another investment matter, please get in touch.
You can email us or call us on 0117 929 0511. We're open from 9am to 5.30pm Monday to Friday.
See five-year performance of the indices mentioned above:
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.