Stable Rise

Our October newsletter has now been sent out to our subscribers. This month, we’ve shared… How to invest in AI… AI is a major driver of recent stock market returns. The ‘Magnificent Seven’ companies (Nvidia, Microsoft, Amazon, Alphabet, Tesla, Meta and Apple) have a combined market cap of $14.42 trillion and have grown by 49% over the last year, and there are many smaller companies whose growth offers the potential for decent returns, albeit with more risk. As a result, investors are becoming increasingly interested in the sector - and there are three ways to get involved. You can join the AI craze by investing in individual stocks, AI-focused ETFs or mutual funds. Whether bonds are still a good investment… In August this year, interest rates fell for the first time since early 2020. It was a decision that made some bond investors think carefully about their future plans: the rate cut has resulted in new bonds being issued with lower coupon yields - and with lower expected incomes. Before selling up, industry experts are recommending that bond investors check the ‘real yield’ of their bonds. Other experts believe that the pricing of bonds is currently high compared with the potential profits that investors could make - but it’s down to investors themselves to analyse how interest rates and inflation are expected to change to decide whether bonds are still worth their time. What an increased Energy Profits Levy means for investors… This November, the government plans to raise the Energy Profits Levy from 35% to 38%. This will take the total tax rate paid by these companies up to 78%, and has understandably been met with uproar from the companies themselves and other UK entities. In addition to increasing the EPL and extending it until 2030, the government plans to tighten existing investment allowances, which currently allow businesses to reduce their tax payments if they invest in certain North Sea energy projects. While this may increase tax receipts in the short term, experts argue that it will actually decrease investment in UK oil and gas in the longer term, decreasing productions and putting 35,000 jobs at risk. What recency bias means in investing… One of the many reasons investors may not see the returns they’d like is recency bias. This term refers to the overinflation in importance of recent events when making investing decisions - ignoring both what has happened in the past, and the likelihood of current events continuing in the longer term. So, how can you avoid falling into this trap? Many investors research an investment’s past performance thoroughly, keep their emotions out of play when making decisions, and don’t invest in a particular asset purely on the basis that it is trending. Others swear by a diversified portfolio to avoid the recency bias risk - and invest for the long term rather than the short term to avoid temporary blips. 

In this month’s Stable Rise newsletter, our subscribers have discovered… The reasons why gold investment is increasing… Data from an online gold trading business reveals that individual investors in the UK are now investing more in gold - and not necessarily in huge quantities. Gold is often seen as a safe haven when times are tough - so with uncertain economic conditions, volatile financial markets and high geopolitical tensions, this data makes sense. With gold limited in its supply, its price increases when demand increases, and as a tangible asset, it can be sold easily when required. Could we see its popularity continue? How the National Wealth Fund will work… Back in July, the Labour government announced the creation of a new National Wealth Fund. The aim is to increase the amount of private investment in large-scale infrastructure projects in the UK - and the government will provide £7.3bn as a starting point. Their aim is to attract £3 of private investment for every £1 of government investment. Historically, the sectors that the Fund will focus on have been underinvested, could these government contributions reduce the risk and therefore attract the level of private investment that is needed? The definition and importance of buy-sell spreads… Transactions in investing - buying or selling an investment - will generally incur a cost. However, these costs aren’t necessarily constant. They can vary depending on a number of factors, but they are generally combined with the price of the investment unit. The sell spread is deducted from the sell price and the buy spread is added to the buy price, with the difference between the two giving the buy-sell spread. Using buy-sell spreads ensures that transaction costs are paid by actively trading members rather than split between every investor in that investment vehicle - some of whom may be inactive and leaving their investment to mature. It’s important to remember that buy-sell spreads change on a regular basis and should be checked before any investment activity to make sure the buying or selling timing is right. Why the UK is so popular for VC investment… According to new data, the UK is still the top European venture capital tech investment destination. UK tech start-ups and scale-ups raised a total of £7.4bn of VC funding in the first half of 2024: 16% higher than the same period last year, and nearly a third of the total VC funding in Europe in this period. But why is the UK so popular? EY suggests that we are a “leading global technology hub”, driven by our world-class universities, our highly-skilled talent pool and our innovative start-ups. They also cite collaboration between private and public sector companies as a reason to invest - but warn the UK not to become complacent. Issues like high interest rates and geopolitical tensions, they say, could result in some tech companies struggling to obtain the capital they need for growth. 

To all of our newsletter subscribers: check your inboxes, our August issue is ready and waiting for you. If you’re not a subscriber, this month you’re missing out on discovering… What outcome investing really is… One investing method favoured by some investors is outcome investing. Also known as goals-based investing or defined-outcome investing, it starts with defining your investing goal before establishing a way of achieving that goal. With this investing method, the more specific you make your goal, the more likely you are to be motivated to achieve it - without being tempted to move money around. It can be a good way to create a portfolio that is highly tailored and personalised - but outcome investing does have its downsides, too. Where investors are turning for information… New research suggests that many investors are switching away from more traditional methods of finding information about brokers, stocks, trading ideas and investing strategies. Now, chatrooms are becoming a favoured information source for many. It was back in 2020 - as a result of the “meme stock” phenomenon - that investing chatrooms started to surge in popularity. Four years on they remain popular, but it’s interesting to see that many investors use them alongside other information sources. This highlights that chatrooms may not always provide information that is completely reliable, and that using multiple information sources can help to provide a more rounded view. Where High Net Worth individuals plan to invest… In late June, research was published that reveals where High Net Worth (HNW) plan to invest over the next 12 months…and there was one particular area that came to the fore. Nearly three in five HNW investors stated that they planned to significantly increase their investment in real estate over the next year. It’s promising news for the housing sector, but it’s likely that there will be challenges along the way. Will we see increased investment in real estate materialise, or are these challenges too great? Why Net Asset Value (NAV) matters… Net Asset Value (NAV) is one of many metrics used by investors to understand the financial health and market position of a company - and thereby whether it’s the right choice for them. To calculate NAV you subtract a company’s total liabilities from its total asset value, and divide the resulting figure by the total number of shares in issue. These figures, of course, can change regularly - meaning NAV figures can fluctuate quite a lot. Investors can use NAV calculations to understand the value of their investment holdings, as well as to understand a company’s financial health before they decide where to invest their money. However, NAV can only reflect a company’s past performance - it can’t predict the future. As such, many investors use NAV not as a standalone metric, but in conjunction with other metrics to aid their investment decisions.  

Have you read our July newsletter yet? Check your emails to discover… Whether a focus on dividends is the right approach… The prospect of regular dividend income and the fact that dividend stocks have historically offered lower volatility and better returns than the S&P 500 explain why dividend investing appeals to so many. But dividend investing is not without its risks and drawbacks - Pre-pandemic, dividend payments were nearly hitting record highs but with cash flow decimated for many businesses, UK dividends saw a collapse of 42% in 2020 - and still haven’t completely recovered. What’s more, fluctuations in share prices could see your dividend payments essentially cancelled out - and remember that dividends are taxed as income by HMRC if not contained in some form of tax wrappers. Is a focus on dividends right for you? Whether investing in India is a good idea… The US and China are the biggest economies in terms of GDP, but other countries are showing sizeable growth. India now has a growth rate of 7% and the country makes up 18% of the MSCI Emerging Markets Index. India’s economic reforms are certainly helping to fuel growth, with the IMF predicting real GDP growth of 6.8% in 2024-25. Two of the country’s indices reached record highs in June 2024 and - unlike other BRIC countries - there are no geopolitical tensions between India and the western world. There are risks, though: Indian stocks are currently valued very high, and the weak rupee caused by India’s trade deficit could affect the returns of overseas investors.  What bottom-up investing really is… The two primary methods of fundamental investing are top-down and bottom-up. While the former starts the decision-making process with a macroeconomic approach, the latter first considers analysis of the company itself. As you’d expect, this approach requires a strong knowledge of the company in question. It can be a good way to identify companies that may be overvalued and can also allow you to choose investments based on your own specific investment criteria. It can, though, be very time-consuming - and may mean that you miss good choices based on overall market trends. Whether now is a good time to invest in the UK…? Recently, investors have been pulling their funds out of the UK and choosing to invest in more stable economies. But could that all be changing? Hargreaves Lansdown’s latest investor confidence index results reveal that investor confidence in the UK stock market is on the rise, and is now at its highest level since January 2022. What’s more, the FTSE 100 has bounced back, and in the first quarter of 2024, the economy grew at its fastest pace in two years. The Office for Budget Responsibility predicts overall economic growth of 0.8% in 2024, accompanied by falling interest rates and a growth in real household incomes as a result.

This month’s subscriber newsletter has now been delivered, and in June we’ve shared: Ways to tackle the gender wealth gap… In an April 2024 speech, Sheree Howard of the FCA said, “We all know about the gender pay gap. But what we do not talk about enough is the gender wealth gap”. So, how can we encourage more women to invest? Howard cites research that suggests that changing the language around investing could help - something that the FCA is working on to reduce this wealth gap. The definition of market capitalisation… Those making their first forays into stocks may have seen the term “market capitalisation” or “market cap”. But what does this mean - and why does it matter to investors? Market capitalisation is the value of a company that is publicly traded - calculated by multiplying the number of shares currently in issue by the current trading price of those shares. This lets investors know how much a company is currently worth. The higher a company’s market cap, the more likely it is that it has capital and access to lending to help it grow. Remember, though, other factors will contribute to its true value, so investors may wish to consider market cap alongside other factors when deciding whether to invest. Whether investing in defence is really ethical… In April, the Treasury and the Investment Association stated that “investing in good, high-quality, well-run defence companies is compatible with ESG considerations”. But is this statement true, or does it go against all of the work that has been done to define ESG investing and prevent greenwashing? The definition of ESG has changed over the years, but many fund managers still believe that any company that manufactures weapons should be excluded. Defence investing, though, can include various businesses beyond weapons manufacturers (training companies, equipment manufacturers and communications). Avoiding the whole sector could be an ethical choice but not necessarily an ESG one. Is the government’s stance on “ethical defence investing” just a ploy to gain more investment into the sector? What UK Treasury Bills are… The government uses various methods to raise money, including issuing debt instruments. Here, investors lend money to the government and receive it back with interest. Gilts are the most common form of debt instrument, but there’s another in the form of UK Treasury Bills. While a gilt is a longer-term investment, UK Treasury Bills have a maturity of 28 days, 91 days or 182 days. While gilts pay interest, UK Treasury Bills do not: instead, they are sold at a discount on their maturity value. UK Treasury Bills are taxed differently from gilts. Gains from gilts are considered capital gains, but UK Treasury Bills are classed as “deeply discounted securities”, meaning that any gains will be taxed as income unless held as part of an ISA. 

This month’s Stable Rise newsletter has now been sent out. This month, subscribers are discovering… Where Stocks & Shares ISA holders are investing this year… Where are you investing your ISA funds this year? If you’re keen to see what others are doing when it comes to Stocks & Shares ISA investing, Interactive Investor have shared their data. Top funds include the Fundsmith Equity Fund which, despite its impressive history, is currently underperforming compared to its competitors. Top investment trusts, meanwhile, include Scottish Mortgage (which invests in high-growth businesses) and Greencoat UK Wind (which may appeal to ESG investors, plus it has been paying high dividends). Remember, though, that the popular choices may not always be indicative of future performance… Whether now is a good time to invest in China… China is the second-largest economy in the world (based on GDP) - and has been one of the fastest-growing, too. With the OECD predicting that the nation will have the second-highest global GDP growth rate in the next few years, is now a good time to invest in China? The country is not without its challenges. The population is declining, youth unemployment is high and debt and deflation are causing concern. This has resulted in a slowing in stock market performance - but there may be glimmers of hope. China is home to some of the largest global companies, meaning great potential for growth. However, intervention by the state is needed before things can improve. The truth about investing in nuclear deterrents… In March, Rishi Sunak announced plans to invest £200m into the UK’s nuclear deterrents and civil nuclear industry. It’s all part of the country’s nuclear energy targets…but are nuclear deterrents a good investment for individual investors? The plan is to launch the first of four new ballistic missile submarines in the early 2030s, with a replacement nuclear warhead also on the agenda. However, the National Audit Office believes that meeting the deadline is unrealistic - and also predicts that the UK’s nuclear deterrent programme will require £8bn in investment over the next 10 years alone: significantly higher than the official government estimate. What the Bitcoin halving event means for investors… Last month saw the fourth Bitcoin halving event: a four-yearly event where the reward for mining new blocks is halved, and the number of new Bitcoins introduced is reduced. It’s an event designed to increase the scarcity of Bitcoin, with the aim of pushing up its value. Since then, Bitcoin’s value has fallen. This may not necessarily be bad news: the same thing happened in 2020, 2016 and 2012, with the price rising over the following year. In theory, a halving event should increase Bitcoin prices - but with so many competing cryptocurrencies, future Bitcoin prices will ultimately be decided by what people think it is worth. 

Stable Rise newsletter subscribers: you’ll now find the latest issue in your inboxes. If you’re not a current subscriber, this month you’re missing out on learning about… Whether pension fund managers should have complete investing freedom… The UK government is facing calls to mandate pension fund managers to invest member funds in certain asset types and classes. This push aims to encourage greater investment in ESG and UK growth - but is it really a good idea? New research from the Pensions and Lifetime Savings Association reveals that pension fund managers disagree: they want to maintain their freedom to invest how they (and their members) want. That isn’t to say they wouldn’t invest more in UK assets: 70% said that they would if the government provided the right incentive for them to do so. What are your thoughts? Whether the UK defence sector is a good investment… 2022/23 marked the third consecutive year of increased investment in UK defence by the government. Rising global threats were the reason behind this decision - but should private investors follow suit? UK defence stocks are wide-ranging, from companies that manufacture and sell equipment to those providing services like cybersecurity or training. These products and services are sold to the government so in theory, if the government’s spend increases, the bigger the market for these products and services will be. However, this isn’t always the case: lengthy contracts of 10 years or more, supply chain disruption, increased raw material costs and ESG guidelines can all make the decision about whether to invest in defence more challenging.  What we know about the new British ISA… In his Spring Budget, Jeremy Hunt announced plans for a new British ISA. As well as supporting UK-listed companies in their search for growth, the new ISA will also increase investors’ tax-free allowances, giving them greater investment opportunities. An extra tax-free £5,000 per year - on top of the existing £20,000 ISA allowance - could well appeal to investors who have reached their ISA limit and want to invest more tax-free. However, we are still awaiting the consultation on exactly what constitutes a “UK investment”. What this year’s global elections could mean for investors… This year will see an unprecedented 50 elections taking place across the globe, and while a change in government will be welcomed by some, others will see it as a time of immense upheaval. The same goes for investors. Looking back to 2010, the FTSE 100 fell by 4.04% in the month following the UK General Election: a fall caused by the uncertainty of what a coalition government would look like. Once this was ironed out, though, the index gained 12.57% between June and December. Data also shows that indices like the FTSE All-Share Index and the S&P 500 have risen in the year following a change in government, but remember: the initial effects of an election will often be short-lived.

Have you subscribed to the Stable Rise newsletter yet? If so, the latest issue should now be in your inbox, and covers the following: The risks and rewards of junk bonds Bonds are often seen as one of the safer investment types. Junk bonds, however, are different. A type of corporate bond, they involve investing in corporate debt. Your junk bond purchase means that you lend money to the bond issuer - and they promise to pay you back with interest when the bond matures. However, this may not always happen. Because of their high risk of default, junk bonds can pay higher rates of interest than investment-grade bonds - and have a lower risk of losing money than stocks. Whether Self Invested Personal Pensions are the right choice There are lots of retirement planning options out there…so how do you decide which is right for you? One personal pension type available is the Self Invested Personal Pension (SIPP). The SIPP is essentially the pension’s wrapper: it’s you who chooses exactly where and how you invest your funds. A SIPP offers the same tax benefits as other pensions, but with far more flexibility. There are, however, downsides. Any lump sum withdrawals of over 25% of the fund will be taxed - and it may not be ideal for novice investors who may not have the confidence to choose the makeup of their retirement funds. How to invest in UK IPOs An IPO is one of various ways in which a company can go public for the first time. It often happens because a company wants to raise money for future growth, and allows retail investors to buy shares in a newly listed business. If you’re not sure where to find out about upcoming IPOs, check the London Stock Exchange website - and some online trading platforms will have their own lists too. IPOs can allow you to invest in a company you have an interest in - and you may even be given a say in how the company is run. Companies that go public are generally growth-focused, meaning the potential for high returns. However, there is plenty of risk involved, with share prices often fluctuating wildly post-IPO - and with UK IPO listings relatively sparse in the last year, it may be hard for you to find the right opportunity right now. Whether saving really is better than investing right now Recent research shows that just 26% of people put their money into something other than cash ISAs or regular savings accounts last year - and this figure has fallen by 6% since the previous year. The cost of living crisis, says the research, has prompted people to want to save for a rainy day and to put clear financial goals in place for the future. The truth is, though, says the brand that conducted the research, that saving alone may not be the best approach for some. While investing could have kept pace with inflation in 2023, cash savings didn’t: the two should go hand in hand for those planning for the future. 

It’s that time of the month - the time when our newsletter subscribers receive our latest update in their inboxes. This month they’re reading about… …whether international index funds are a good investment… Because of the state of the UK economy in recent years, some investors have decided to look further afield for better returns. One option is international index funds - but, as with any investment, there are risks as well as potential benefits. Investing outside of the UK is one way for individuals to diversify their portfolios. Often, international markets can rise and fall at different times from the UK, so an international element to a portfolio may be able to reduce volatility. However, currency fluctuations can add risk - and with global differences in regulatory requirements, the risk of fraud or manipulation could be higher with international investments. …whether now is a good time to invest in telecoms… Last April, the Government announced the Wireless Infrastructure Strategy, designed to evolve telecoms in the UK. They have big plans to improve 5G connectivity and increase high-speed broadband coverage…so does this make it a good time to invest in telecoms? The answer is that there are pros and cons. Telecoms are an essential service, so there will always be a demand. However, businesses in this sector can be heavily laden with debt, and high levels of regulation can make genuine differentiation between providers difficult. Could a Government focus on the sector change things, though? …what dynamic asset allocation really is… If your investment portfolio is managed, it could be managed in one of a number of different ways. One of these is dynamic asset allocation, whereby the manager adjusts the weights of a portfolio to take into account the current market performance, trends and risks. They’ll increase the weight of assets that are performing well, and decrease the weight of those performing less well. The flexibility of dynamic asset management means that portfolio managers can respond quickly to any market changes, potentially beating the market and resulting in higher returns. However, it takes a great deal of time and resource, and requires an incredible understanding of market conditions, company news and trends. Because of the regularity of transactions, it may also result in higher transaction costs than some alternatives. …”the January Effect” in investing… First observed in 1942, “the January Effect” refers to the theory that the way a stock performs in January will predict its performance throughout the year. There are various predictions as to why this happens: the timing of January bonuses, the sale of underperforming stocks at the end of the previous year - even just for psychological reasons. Since it was first observed, the world of investing has changed and grown - and now, investors tend to use a range of other factors to decide where to invest their money at the start of each year.