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The wealth effect

To be an equity investor (active or passive) you must be an optimist. You believe that the future will be better and with this income and growth will accrue.  The route may be bumpy but you know that if you are invested for two decades it’s almost impossible to lose money. This applies even before major sell offs like 1987. Why?

Because economies grow and those in them get richer. If you have any doubts just compare today with the past.  We have more of just about everything. Earlier generations would be aghast at the way we now spend. On top of this the things we buy are better. (Think cars, T.V.s, computers etc, how we factor this into GDP is another story). But the trend is not continuous.

Sometimes our financial wellbeing treads water, occasionally it goes backwards. But to be sure progress is inexorably Northwards. Would you rather be living today or fifty years ago?

During this election campaign, several things have struck me which may go on to influence this trend.

Much of the rhetoric wants us to believe that we are worse off today than were in the past. It also offers little hope of improvement in the future (a point I will come back to).

The discussion of the country’s financial situation has been largely ignored. This at a time when, as an open economy, sound economics is essential to our future prosperity.

There is disregard for business and “supply side” issues. Wealth creation seems a “dirty” concept.

What’s to be missing?

I call it Leadership.

Surely any party that hopes to win must offer a vision of the future. A place where we are all doing better. It must convince voters that they can participate through hard work, effort and entrepreneurism. Robbing Peter to pay Paul is not the answer. What of the future?

As an equity investor, I am optimistic. But I recognise that poor policy selection (of the type I am currently hearing) has the potential to harm.

In other words, we will be better off but not by as much as we should be.  

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