Hannah McQueen is a financial adviser, chartered accountant fellow, personal finance author and the managing director of enable.me – now part of Advice First.
OPINION: For at least a year now, I’ve had clients telling me they want to delay making investment decisions until after the election – the assumption being that things will be different if National wins.
Perhaps they will win, and perhaps things will be different – but to my mind, there are a few problems with hitching major financial decisions to the election cycle and the promises politicians make.
In investment terms, election cycles are incredibly short. If you visited a financial adviser and told them your investment horizon was three years, they’d likely be steering you towards something reasonably conservative, not encouraging you to take a bet on what may or may not happen. Growth through investing is a long-term play – when we develop wealth plans with our clients we’re looking a minimum of five to 10 years ahead, but often decades, and an election cycle is just a short blip in that time frame.
Historically, elections have had very little long-term impact on the housing and financial markets. There might be some short-term volatility, sure – but generally, regardless of who ends up in power, the markets return to business as usual. So, provided you’ve built a robust strategy based on long-term growth, and the ability to hold your line when things slow, the impact will likely be negligible.
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There are a few problems with hitching major financial decisions to the election cycle and the promises politicians make.(File photo)
This year economists are predicting that house prices in particular will rise post-election – and while some of that may be heightened under a particular party’s policies, I’d argue it has more to the do with reaching the peak of the interest rate cycle, a shortage of properties and rising immigration numbers. Under a National Government the immediate upswing might be more acute – starting earlier and going higher – but in time the cycle evens this out. If your wealth plan hinges on a change of government, I would wager you don’t have a very good wealth plan to start with.
Then there’s the fact that politicians tend to have one overriding objective: to get elected, and then re-elected. That means they may not have the same urgency to enact the policies they’ve campaigned on as we might like them to.
A good example is National’s recent announcement of a plan to reverse the interest deductibility legislation regarding existing investment properties. That is, they’ll be rolling that policy back in much the same way it was rolled out: in a phased approach. So – if they win and come good on that promise – tax deductibility of interest costs on existing investment properties wouldn’t be back in force in full until 2026.
If that is the policy you have been holding out for the past year to see, your one-year wait has just turned into four – which is a long time to press pause on your financial progress.
And that is a key point many people overlook when opting to sit tight and wait until the country goes to the polls. The only thing that inaction is guaranteed to achieve is less time in which to achieve the same outcome. Unless you plan on, say, pushing retirement later, or can guarantee the return you’ll be able to achieve will be commensurately higher, then all you’ve done is shorten your runway.
Other factors can also intervene in the meantime, making it harder to invest. Say you’re that property investor who has been sitting tight in the hope that National will be in a position to make that interest deductibility change. While you’ve been waiting, we’ve seen bank test rates rise to over 9%, which makes it harder to borrow as much as you might need to secure the investment you’re chasing. And you’ve been aging – and the banks’ appetite to lend to you wanes as you get older, so there’s a hard deadline looming soon enough.
To me, basing financial decisions solely around the outcome of this election, or any other for that matter, doesn’t fit the definition of good financial planning.
While it’s always tempting to wait until the timing seems perfect – relying on the will of the people, or the whims of politicians often just means you’re missing out on opportunities to get ahead today.
