Newsletter – May 2024

• Inflation & Interest Rates Set to Drop…a bit
• Implications for Investors
• Effect on My Example Portfolio
• New Portfolios & Rebalancing
• WTF (What’s the Fact?) – Tik Tok, Clarice
• Performance & Costs

Click Here to watch the video version of this Newsletter

Inflation and Interest Rates Set to Drop…a bit
The rate at which prices are rising is set to fall later this year. That’s not the same as prices themselves falling, it just means they’ll be rising less quickly…but still much faster than the Bank of England’s target rate of around 2% a year.

Inflation in the UK fell to 3.2% in March from its peak of 11% in 2022. Unfortunately, the sharp rise in prices will not be reversed, leaving people worse off no matter how low the rates of inflation and interest fall.

Interest rates are a major tool used by the Bank of England (and other central banks) to influence inflation. The main base rate set by the Bank of England is currently 5.25%, way higher than it was between 2009 and 2021. BUT this rate is more “normal” when you look back over decades. The relatively recent low rates were in response to the financial crisis of 2007-2009; yes, we’re still dealing with the fallout from that.

Anyhoo, the UK’s base interest rate might nudge down to below 5.00% towards the end of the year, but don’t expect any sharp changes unless the UK economy hits even bigger problems than it already has.

Implications for Investors
The higher interest rates have nudged up the returns that bonds pay; bond issuers (governments and companies) effectively compete with savings accounts to persuade investors to buy their bonds – the higher the interest rate, the higher the return the bond has to offer to persuade investors to buy those bonds.

Meanwhile, big traders and investors (banks, insurance and pension companies with billions to invest) have been getting excited about the prospect of lower interest rates leading to lower debt payments and higher profit margins leading to higher share prices.

This has helped to push share prices up: company shares in the UK, as measured by the FTSE All Share Index, are at their highest-ever level.

Effect on My Example Portfolio
My portfolios are designed to follow what’s going on in the global investment markets (share prices and bond prices) while keeping fees and charges at the absolute minimum.

As a result of the increased hope for lower interest rates, my example portfolio (see it here) has risen by around 11% after fees/costs etc. since I set it up in May 2023. It was even higher earlier this year but, as expected, the prices of the funds in which my portfolio is invested, came down a bit.

There are three important points to bear in mind about this return:

• The rises or falls don’t reflect my skills or lack of them – I just set up the portfolio copying big companies’ research but for much lower fees
• I expect prices to fall and rise and not to just go up and up
• The rise was so high, way above the long-term benchmark of around 6%, that it simply had to come down.

New Portfolios and Rebalancing
I’m in the process of setting up new portfolios to demonstrate a broader range of risk levels and amounts to invest. I’m also going to rebalance my existing portfolio as it’s been a year since I set it up, so I want to make sure that it’s on track and continuing to copy the model portfolios.

I’ll create a video of that and share a link once I’ve done it.

WTF (What’s the Fact?) – Tik Tok, Clarice
Teenagers are like up in like arms and stuff because TikTok is under threat in the US. Yes, the simplest way to burn your young life might be literally like dealt a blow because the US government objects to China’s part-ownership of this totes Gucci digital medium.

Back in my day we had the choice of upper crust BBC types showing us how to make tinsel-covered-coat-hanger-house-fire-starters; ideal for insurance claims.

Alternatively, when you really wanted to see how much worse your life could be, you could watch a bunch of brats with regional accents asking “Why Don’t You?” before they emphatically demonstrated precisely Why You Don’t by showing a series of kids-most-likely-to-be-bullied doing anything from hand bell ringing to creating innovative new recipes, such as a cheese sandwich.

If you must waste your life staring at a screen (a bit like now), you can do no better than this excellent rendition of “Danny Boy” by the Muppet trio of Swedish Chef, Animal and Beaker AKA “The Leprechaun Brothers”. It’s sic, lit, GOAT etc.

Performance & Costs
My portfolio to date: +/-14.33% gross, +/-12.86% net (after costs).
Industry average (3,999 firms across 2023) +2.82% gross.