WHAT THE COALITION GOVERNMENT MIGHT MEAN FOR YOUR PORTFOLIO AND STOCK MARKET INVESTMENTS

 

‘I've talked to you on a number of occasions about the economic problems our nation faces, and I am prepared to tell you it's in a hell of a mess—we're not connected to the press room yet, are we?’

Ronald Reagan –

Former US President

 

Much has been written about the state of the UK finances. The UK has a lot of debt, and the Coalition Government is on a mission to tackle it.

 

The emergency budget is the start of a painful process. The question for investors is how this might impact on your portfolio.

 

1.      It’s Time To Get Out Of Debt.

 

‘Debt is like any other trap, easy enough to get into, but hard enough to get out of.’
                                                              Henry Wheeler Shaw

 

The Coalition Government is looking to cut public spending and this will impact on businesses in a number of ways.

 

The country is no different to a business in that too much debt is bad. If a business is overly reliant on winning public sector contracts, and has debt, then it may be in line for its own personal kind of austerity. That can impact on the value of the business, its share price, and therefore your investment.

 

That is not to suggest that businesses dealing with the public sector are now a higher risk, more a suggestion to pay close attention to the changing economic situation and to adjust your portfolio accordingly.

 

2.      This Is Not Business As Usual

 

The scale of the budget deficit is massive.

 

‘If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.’
                                                John Maynard Keynes

 

The trick is to see the opportunity. The intelligent investor will look for well diversified companies exposed to a range of markets.

 

Take time to review your portfolio and sense check it against the changing environment. A company that generates most of its business from public sector consultancy may be more vulnerable to the Chancellor and his budget cuts than, say, Coca Cola.

 

3.      Invest In Quality Businesses When Others Are Not

 

‘The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.’
                                                          John Templeton

 

Despite the emergency budget setting the UK on a road to austerity, it’s not all bad. Don’t let market fluctuations and pessimism blind you to opportunities.

 

‘The key to making money in stocks is not to get scared out of them.’
                                                          Peter Lynch

 

Do your homework, educate yourself and don’t follow the crowd. Irrespective of Government policy, investing in well diversified and capably managed great businesses that are under-valued remains a great way of improving your financial health.

‘Formal education will make you a living. Self education will make you a fortune.’
                                                          Jim Rohn

 

 

Jamie E. Smith is the author of ‘Making Money From Stocks and Shares’.

 

 

This content was provided by one of our users, Jamie