Last week my daughter, wife, and I enjoyed a trip to Twycross Zoo.  We have visited the zoo three times in the last 7 months as we have annual passes, and we all love a little walk around looking at the animals.

This time around it was a sunny day but the night before it had rained heavily leaving muddy puddles everywhere at the zoo.

Our daughter discovered the joys of jumping up and down in them.  Making tiny splashes in her wellies, covering her waterproof suit with a Jackson Pollock style splattering of brown on pink.

I last wrote a blog on 31 October 2023, and I talked about how investment markets can be testing but if you hold your nerve, good things can happen.  I wasn’t wrong!

What has happened in investment markets?

Since 31 October inflation rates in the UK and US have fallen which has lowered market expectations of future interest rates.  Therefore, any investment that was making an income return has seen its capital value increase as the market expectation is that the rate of return on cash will fall in the future meaning any investment held pre-fall paying an attractive rate of interest will outperform cash.

This is one market trigger we expected to see at some point in 2023, albeit it came later in the calendar year than we would have liked.

How much did we increase by?

The effect on portfolio was a sudden increase in value.  As a ballpark number our medium risk portfolio increased in value by about 10% over the space of 6 weeks, which took us up to New Years Eve.  The increase was so dramatic that our high risk portfolio turned from negative to positive for calendar year performance.

What will investments do now?

Naturally, there are a great deal of different investments our clients hold which diversify their portfolios.  Interest rate movements are one lever that moves portfolios and if I had to, I would single them out as being most influential short-term factor.

If rates do begin to fall, I would expect our medium risk portfolio to deliver c. 10% for the year up to New Years Eve 2024.

If rates don’t fall, the medium risk portfolio should deliver c. 5%.

In putting these numbers out there, I am making several assumptions about corporate strength and earnings being OK but not extravagant, central bank policy being restrained but progressive, election years in the UK and US bringing little bounces, and an average number of corporate failures during the year, to name a few.

Summary

Investing in 2024 may feel a little like jumping in muddy puddles.  At times enjoyable but you will get muddy.

Returns should be progressive this year but I doubt they will be uniform or steady.  I would expect a similar return profile this year in that I think we will do well as investors but there will be loss making months, marginal months, and then months of great profit.

Markets are highly unpredictable, and we should focus on good cash flow management and the discipline of taking profits when made to allow future expenditure.

Enjoy the journey little puddle jumpers!