Surviving a Marxist experiment
In a new paper we address clients' questions about the possible consequences of a Labour Government able to force through an overt or hidden Marxist agenda, together with possible mitigating actions.
Read the paper here.
From the Introduction
"Fowler Drew’s approach to goal-based investment plans does not rely on taking a view. Clients, particularly those close to or already drawing from capital, want to be sure their plans are resistant to worst-case outcomes at the level of certainty they require. They want to know if plans made on the basis of a model of probable real returns are robust to a Labour Government which is not merely pushing for more redistribution within a mixed ‘welfare/market’ economy but willing to take extreme risks with the economy for ideological reasons. Many of its current leaders and key influencers have, after all, harboured a lifetime commitment to destroying the market economy on which our return modelling depends. For the purposes of this paper, we will refer to this version of a Labour administration as a self-professed ‘Marxist experiment’."
Key conclusions for clients
Our framework of modelling outcome probabilities, allowing stress testing of goal-specific portfolios, is a good one for assessing survivability of a Marxist experiment, which is really more useful than estimating its subjective chances
We believe the worst portfolio effects (both return impacts and implementation issues such as exchange controls) are in fact within the range of probabilities already captured in our modelling of pre-tax goal outcomes
Clients may nonetheless quite rationally want to replan their contributions or their spending targets; the required confidence for outcomes; or the way they have hitherto made the trade-off between future real outcomes and current portfolio volatility
Because spending outcomes depend on tax rates, clients may want to decide with us how prudent to make their tax assumptions, at least for part of the plan duration
The scope for forestalling actions appears limited: many of the obvious actions would be negated by existing legislation let alone new anti-forestalling measures or penalties
There are several specific mitigating actions but they carry a high opportunity cost, unless they merely alter the scale or timing of things clients planned to do anyway or close off some optionality they would have preferred to keep open.