How Politics Impacts Your Wealth

The idea behind capitalism and free trade is that everyone is free to pursue their goals in terms of individual wealth, with little or no limitations from the government. While the political landscape of the developed world has much less impact on your wealth than say, North Korea’s, it can still have a considerable impact on your investment portfolio and the factors surrounding it. Here are a few ways in which it does this…

Poor Management

There are all kinds of things which will impact the general economic development of a country, and one is simply the effectiveness and management of the government that’s currently in power. There are a number of things a government has to do in order to stimulate economic growth – building and maintaining infrastructure, raising and spending capital wisely, and listening to their population’s opinions on pressing social issues. They also need to initiate business practices and legislation in a way that makes investment easy and desirable. No matter how bright the leading business minds are in the country, if the government isn’t managed effectively, it will inevitably limit investment and individual wealth.

Legislation

The actual laws that the government of a country passes will also have a massive impact on the demand and prices of commodities, property, and anything else you may want to invest in. This can affect all facets of the free market, but one of the most notable is real estate. For example, tax credits, subsidies and deductions can all boost the national demand for real estate for however long they last. America’s first-time homebuyer’s tax credit, for example, stimulated a lot of home sales when the economy was waning in the late noughties. Now, in 2017, we’re seeing initiatives in the US congress which may have an adverse impact on tax deferral for property investors. If you’ve got a fairly sizable real estate portfolio, and you’ve been leaning on the tax benefits that came with it, you may want to send a letter to your representatives in Congress right now telling them to save the 1031 exchange! By keeping on top of ongoing political shifts and the foreseeable future of economic policies, you’ll find it much easier to tailor your investment strategy to the current political landscape.

Corruption

While modern democracies are structured to limit corruption as much as possible, it’s still a very real issue, and can have a massive impact on the free trade in the country where it occurs. The most obvious culprits here are crooked policemen and other public authorities. However, these people are only the tip of the iceberg. It’s the more executive offices where all the real corruption happens. When political corruption becomes rife in a country’s local or federal government, it can slow down and over-complicate what should be straightforward processes, including buying or selling property, starting a business, or applying for legal permits for various financial processes. Corruption is not only stifling for people who are trying to grow their wealth, but also extremely frustrating in that there isn’t much you can do about it!  

 


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