Another crazy few months for financial markets!
November/December 2024
Even before newly elected President Trump took office in January, investors began buying and selling assets to try and profit from whatever they thought the new President would do.
President Trump has a reputation for being “pro-business”, so many investors thought this would mean policies that would enable businesses to make money. And, as shares are ownership stakes in a business, it made sense for many people and institutions to buy equities (shares). These decisions boosted US stock markets after the election result was announced.
However, President Trump also had plans to spend. This meant more government borrowing and an increase in US debt. And just as with personal debt, the more you borrow, the more expensive borrowing because the risk of non-payment increases. Even with countries. So, bond yields rose, and bond prices fell. (A great time to buy!)
Then along came December, and prices continued to rise rapidly (inflation), mainly from not enough housing to meet the demand for it, but also from wage increases (not a bad thing, actually). This led to speculation that the US Federal Reserve (Fed) would keep interest rates higher for longer. And this means higher borrowing costs for businesses (and people), which means lower profits – stock prices dropped.
January 2025
The New Year was a rollercoaster for financial assets.
Initially, shares generally rose again until a Chinese generative artificial intelligence model was released, threatening ChatGPT’s market-leading position in the US.
Competition is actually great for consumers like you and me, as it means companies compete for your business. This competition often results in cheaper or better products, or both. However, for the company itself, it can mean lower profits as it now has to share its market space with a competitor. And this expectation means the company is valued at a lower amount, reducing its share price.
This is exactly what happened in January with US technology stocks – they lost value. Some of these companies are HUGE. For example, according to Hargreaves Lansdowne, Nvidia at this time was so big, it lost an amount equivalent to MasterCard’s entire value. And these big companies losing market value weighed down the prices of US stocks as a whole. Often, where the US leads, as it’s such a big geographical market, other stock markets will follow.
Bonds
This volatility in stock prices is why you can benefit from having bonds in your portfolio. Often, when stocks go down, bond prices rise and vice versa, although there are periods when they can move together, known as positive correlation. And a positive correlation was seen in the UK at the beginning of 2025.
The British Government decided to raise taxes on businesses, thereby lowering profits. This resulted in a drop in the share prices of many businesses. At the same time, the government increased the amount of money it borrowed, meaning the UK’s debt increased. This made the government a riskier prospect to lend money to, so bond yields – effectively interest paid to the bondholder by the government – rose, and bond prices dropped. It also didn’t help that this was part of a global trend of falling bond prices.
However, if you’re not too concerned about the change in bond prices, higher yields mean higher interest payments to a bondholder. And this can be a way to increase income in a portfolio, provided you also consider the risk of a government (or company) defaulting on payments.
Asset Purchases
As a result of global geopolitics and because I had some cash in my portfolio, I decided to invest in an international share fund. I’m a believer in holding a diverse portfolio of assets, and my portfolio is currently heavily weighted towards UK assets. The new UK government has not yet shown it understands how businesses make money, and I suspect this will hurt businesses and, subsequently, economic growth. This will not be good for UK assets, and I decided I needed a foreign policy!
When I think about where my money comes from, I live and work in the UK and am paid in GBP. This is a huge bet on the UK economy. And I don’t feel positive about it right now. Therefore, I need to diversify my income streams. After all, no one has a crystal ball, and we don’t know what’s around the corner. I certainly don’t think the UK is a great place to invest at the moment, and the UK government has given no sign that it appreciates this. Therefore, I’m not expecting much to change over the next year or two, and foreign assets may be worth holding. So, I bought some. I also put a small amount of money into a Gold fund because I’m expecting UK inflation to remain relatively high, and I need to offset it.
Let’s have a look at how my portfolio is progressing.
SIPP Value as at 31st October 2024: £24,222
Income Account
Balance brought forward (b/fwd) from October: £27.40
Dividend Income: £102.45
Management fees to platform provider: (£15.91)
Transfer into Capital Account: £113.94
Final Balance (to carry into February 2025): £0.00
Capital (Investment) Account
Balance b/fwd: £6,978.98
Interest: £23.60
SIPP Contribution Claim (From HM Government): £366.00
Received from Income Account: £113.94
Bought shares from International Share Fund: (£6,100.00)
Bought into a Gold Fund: (£500)
SIPP contributions (what I paid in directly): £1,483.20
Balance to carry forward: £2,356.76
Securities Valuation
At the end of October 2024, the Securities Portfolio part of my SIPP was valued at £16,187. I added £6,100 in international shares (see Capital account) and £500 in a Gold Fund. This brought the total to £22,787.
However, at the end of January 2025, the total value of the assets in my Securities Portfolio was £25,558. This means they had increased by £2,778, or 12.19%. WIN!
In total, as of 31st October 2024, my entire SIPP held £24,222 in assets. By the end of January 2025, it held £27,914, an increase of £3,692, or 15.2%. Not bad when you consider I had only added £1,483.20!
Total SIPP Value as at 31st January 2025: £27,914.
How is your pension pot doing?