The Economic Background
19 October 2024
To all Financial Friends
I have held back from writing awaiting further indications on issues that affect investors who are thinking ahead. The chances of peace in the Middle East? Wider war and no ceasefire? Which way for inflation and interest rates? In short time, Rachel Reeves first (worse before it gets better) budget. Trump or Harris in the US election? Major stock markets hitting all time high levels.
Record Breaking Markets
Strange as it may seem, in the midst of war horrors and uncertainties abounding, the FTSE100 Index and other leading indices in major economies have been hitting all time high levels. Ask me why? I'm glad you asked! Human nature is probably at least a part of the answer. The anticipation of investors was for inflation and interest rates to fall. Anticipation pushed markets higher. Now interest rates are expected to fall more than anticipated in the US, in the UK and elsewhere so markets rise even more.
Falling interest rates are good for the economic outlook so investors eagerly grab the good news (which it surely is) and happily ignore potential world wars and any other such fears. Eyes sparkle with hope, rather like the buyer of a lottery ticket fervently believing the ticket is a winner.
A Conversation
Just yesterday, 18th October, my conversation held with one of our students might be helpful. Perhaps you would like to listen in? It will help you in deciding your options as it did him. Always remember, as a subscribing Financial Friend we can have a conversation to inform and guide your decisions also. Our students funds are held in a SIPP pension enabling him to move his money between different asset classes within his pension arrangement.
The students six chosen funds over the last 12 months have all gained in value. He holds 5 equity funds, and 1 corporate bond fund. He seeks good growth and feels the risk is worth taking. With his equity funds at high levels and the uncertainties outlined above, he is pondering what next? Leave all alone or take profits to protect against future loss? Move all to safety?
All His Funds Have Risen in Value in the Last 12 Months to Date
One of his two equity funds provide investments in UK equities (+14.66%), the other in Global Emerging Markets (+17.3%). A further two funds hold shares in Global Infrastructure Funds both gaining over (+18%) his remaining equity fund holds gold and silver yielding (+42.31% ). That leaves the UK Inflation Linked Corporate Bond which lends money to businesses in the UK (+8.09%).
At outset our student decided on his fund choices to go for growth but be wary of uncertainties. This drove him to choosing two infrastructure funds as these were perceived as less likely to fall as far as other equities in troubled markets. (The track record is indeed for this asset class to rise and fall but achieve steadier growth). His choice of gold has paid off handsomely as investors have fled for the perceived 'safety' of normally volatile gold, so pushing up the price under demand.
It would be tempting for our student to say "all is going well I will leave everything alone." He is wise enough to know that past performance is not a guide to future performance. Market conditions can change. So now he ponders his next move.
What Will He Do Next?
The worthwhile profits are there for the taking. He might take the profits but leave the original amounts invested where they are. The profits could be held in a 'safe' Money Market Fund or sit in cash, still within the pension structure. He says markets will fall along the way and when they do, he can drip feed or place all of the profits back into equities after a modest price fall. This will increase/leverage his return for the longer-term future. If dramas occur and the market falls very steeply, he is comforted by the fact he has stored cash to take even greater advantage of falling prices and buying back at bargain levels.
Our student will come back to me with his decision before he jumps. A chance for me to ask why he has made his decision, so together we can make sure he has the understanding, knowledge and guidance he needs. Will be interesting to hear from him soon.
What Will You Do?
Every probability your funds also have risen with the markets. I will be sending a further update looking at our five strategies and discussing how each might be affected in terms of risk and opportunity alongside the issues that face our world and our lives at the current time. Book an appointment to catch up for information and guidance on your choices in the current day. Always happy to hear from you. Please use the Calendly link to book a time www.calendly.com/yourfinancialfriend
PLEASE NOTE: A financial or economic commentary like these, are written to explain, interpret or give an opinion on economic events and markets to help readers understand what’s happening and why it matters. Designed to help you make informed decisions of your own by making you aware of opportunities, risks and potential rewards in the market.
