Monthly Archives: May 2015

What Does The Conservative Election Victory Mean For You?

With the Conservatives surprising just about every pollster, media outlet and individual in the country with their majority election win, people may now start to wonder what might change from a financial planning point of view. Here we summarise some of the key Conservative manifesto pledges (a word of warning – these changes are yet to be implemented in law yet):

The conservatives have pledged to increase the tax free personal allowance to £12,500, while at the same time raising the higher rate tax threshold to £50,000.

Introduction of a new help-to-buy ISA, which will offer a bonus from the government for those who are saving for their first home.

The addition of a new Inheritance Tax allowance that can be used to pass on the family home. The proposal here is to give each individual a further £175,000 allowance to use for a family property, on top of the current £325,000 allowance.

Protecting various pensioner benefits such as the free bus pass and winter fuel payments.

Reduce tax relief on pensions for those earning over £150,000.

The key thing to remember here is that these are currently just manifesto pledges. These changes have not become law, nor has draft legislation been published. As with many things the devil will be in the detail so we will have to wait and see just how many of these proposals will become a reality.

The Importance Of Holding Your Nerve

During the run up to events that are likely to cause volatility in the markets, such as the recent general election, there is the temptation to try and hide. To pull all of the money out of the market and sit safely in cash. As various academic studies have shown, this is a strategy that is unlikely to work.

For a start, at what point do you pull out of the market? Just when will be the highest point before the fall?

The other issue, is when to go back in. When have the markets reached rock bottom?

The surprise Conservative election victory is a case in point. If you had pulled your money out of the markets in the days before the election, you would have missed out on the nearly 2.5% growth in the FTSE 100 that followed on the Friday.

This study, based in the US, has shown that if you had remained fully invested in the market for the past 20 years, you would have averaged an impressive 9.22% average annual return. However, if you had missed just the best 40 days during that same 20 year period, your return would actually have been negative.

Given that the FTSE 100 rarely has jumps quite as large as what happened on the 8th May, I suspect that this may well be one of those 40 days in the 20 years to come.