The UK headed to the polls on 4 July, with Labour winning the nation's first general election in five years. 

Elections can generate lots of headlines and evoke strong emotions, but they shouldn’t dictate your investment decisions. Our research shows that the impact of UK general elections on balanced portfolios and stock markets has historically been minimal.

It’s another reason to stay focused on your long-term goals and not let any short-term market jitters sway you from your financial plan.

There’s no statistical difference between election and non-election periods

We analysed the performance of a balanced portfolio of 60% UK shares and 40% UK bonds¹ between January 1987 and May 2024. During that time, there have been 10 general election periods in the UK (including the election on 4 July). We looked at portfolio performance in the period from the five months before each election to the five months after (or just the five months before for the 4 July election) and then compared this with performance during other times.

We found no statistical difference in portfolio performance. The annualised compound return² for election periods was 7.8%. During other times, it was 7.3%.

Performance of a 60% share/40% bond portfolio in election and non-election periods

Past performance is not a reliable indicator of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Notes: The 60% UK equity/40% UK bonds portfolio is based on data for the MSCI UK Total Return Index and the Bloomberg Sterling Aggregate Bond Index, from 31 January 1987 until 31 May 2024, and covers 10 general election periods in the UK over that time. The portfolio is rebalanced at monthly frequency. Returns do not include the impact of fees. Returns do not take into account inflation.

Source: Vanguard calculations, based on data from Refinitiv, as at 13 June 2024.

Markets tend to disregard UK general elections

We also analysed the performance of UK and global stock markets between January 1995 and December 2023, during which period there were seven general elections.

The chart below shows that the elections had a minimal impact on stock market performance. The events that impacted the stock market the most were of a much bigger, global scale. These included the bursting of the dot-com bubble (when technology stocks fell after a rapid rise in valuations in the late 1990s), the global financial crisis in 2007-09 and the Covid-19 pandemic in 2020.

Stock market performance from 1995 to 2024

Past performance is not a reliable indicator of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Notes: Index returns are from 1 January 1995 to 19 June 2024 and include the reinvestment of all net dividends. Returns do not include the impact of fees. The shaded vertical lines show the periods from the two months before to the two months after each election. Both indices were rebased so that 1 January 1995 equals 100.

Source: Vanguard, Bloomberg as at 19 June 2024.

Timing the market can do more harm than good

The charts illustrate an important point – when it comes to investing, it’s important to keep perspective, stay disciplined and focus on your long-term goals.

Trying to time the market rarely pays off. Even very experienced investors struggle to get it right. As the chart below shows, the best and worst days in the market tend to occur close together. In many cases, the green bars, which represent the 20 worst trading days, look like mirror images of the gold bars, which signify the best trading days.

By trying to time the market, you run the risk of missing out on strong performance, which can seriously hamper long-term investment success.

Timing the market is futile

Past performance is not a reliable indicator of future results.

Notes: The chart shows daily returns of the MSCI World Price Index from 1 January 1980 to 31 December 1987 and the MSCI AC World thereafter. The gold bars highlight the 20 best trading days since 1 January 1980 and the green bars highlight the 20 worst trading days since 1 January 1980.

Source: Vanguard calculations in GBP, based on data from Refinitiv, as at 5 April 2024.

This is why discipline is one of Vanguard’s four investing principles. Discipline means sticking to your investment plan and reviewing it regularly to make sure it stays aligned to your goals, situation or stage in life.

It’s natural to have concerns about elections, but as far as your portfolio and the markets are concerned, history suggests they are a non-issue. By tuning out the noise and maintaining a long-term outlook, you can keep progressing towards your financial goals.

With contribution from Ranieri Arcella, Economist, Vanguard, Europe.

¹ Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.

² Annualised returns show what an investor would earn over a period of time if the annual return was compounded. Compounding is when you earn returns on the money you invest as well as on the returns themselves. You can read more about compounding in this article.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Past performance is not a reliable indicator of future results.

Important information

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This is designed for use by, and is directed only at persons resident in the UK.

The information contained herein is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information does not constitute legal, tax, or investment advice. You must not, therefore, rely on it when making any investment decisions.

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