By Peter Brooke
This article is published on: 8th April 2025
Quite understandably my inbox has been full of messages from concerned clients and musings from commentators and investment managers about how to respond to the current market reaction to President Trump’s raft of tariffs.
The uncertainty around how these tariffs will play out has led to large falls in stock markets, especially the US.
As discussed in my last newsletter Lets Talk About Risk, volatility is an important and unavoidable part of investing and will be negated by time in the market and can provide great opportunities. The key is to ‘stay the course’ and try and ‘see through the noise’.
However, I did want to get something out to you with some current thoughts about what is happening, what might happen in the near future and why ‘staying the course’ is the best option.
When markets turn volatile, perspective is everything.
The past week feels pretty tumultuous but, of course, we’ve been here before.
The table below shows the maximum intra-year drawdowns (DD) and end-of-year total returns (TR) for the S&P 500 from 1950 to 2025.
It reveals that after severe drawdowns, the market has often recovered the full decline and finished the year strongly positive.
Years to Note:
On each occasion, the best course of action would have been to avoid the noise and stay invested.
I hope that the above shows that though periods of volatility will always happen and always be temporary it is best to stay the course and try and avoid the noise;
I do appreciate that it is difficult with today’s ‘news’ channels adding to the feeling of panic on an hourly basis so I have shared below some links from firms much closer to the markets to share more detail about what is happening and what investors should consider in these temporarily volatile times.
Traversing Trump tariffs by Daniel Casali, Chief Investment Strategist at Evelyn Partners
Trump’s tariffs: how should investors respond? From Rathbones Investment Management
I would like, once again, to thank these expert commentators and the team at New Horizon Asset Management for their quick and important updates to a challenging situation.
As always, please remember that financial decisions should be made with careful consideration of individual circumstances and professional advice, I am here to support you.
If you have missed any previous news and updates these can all be found on the archive page here.
If you have any questions please use the the below channels, or the booking system – always drop me a quick message if you need a time slot outside of those available.
Mobile & Whatsapp: +33 6 87 13 68 71
Email: peter.brooke@spectrum-ifa.com
Facebook: Peter Brooke – Financial Advice
Calendly: https://calendly.com/peterbrooke/30min
By Katriona Murray-Platon
This article is published on: 4th April 2025
The clocks have gone forward, winter is officially over and the lovely sunny weather seems finally to have arrived. Spring has sprung but of course April also hails the beginning of tax season in France and the start of the new tax year in the UK, bringing with it new financial laws and measures.
The costs of buying a house in France are usually bourne by the purchaser. Most of these costs are taxes which are paid to the state, the department and the town/village (commune) but there is also the Notaire’s fee which needs to be taken into consideration. The amount taken by the department is usually around 3.8% of the purchase price but the department councils can decide to amend this rate every year and increase it by between 1.2% and 4.5% maximum. This maximum amount can then be increased by a further 0.5% to make it 5% as from 1st April 2025 and 31st March 2028 (Article 116 of the finances law for 2025, no2025-127 of 14.02.2025).Paris has already decided that this 5% rate will apply to deeds of sale signed as from 1st April. The date upon which these rates come into effect will depend on when the council notifies its decision to the tax authorities.
Some departments may decide to reduce or even not apply this rate. However first time buyers are exempt from this rate and will pay no more than 4.5%.
The measure introducing the lower VAT threshold of €25,000 has been postponed until 1st June 2025. VAT will apply to auto entrepreneurs as soon as their turnover exceeds €27,500 (if their turnover was less than €25,000 in 2024). If their turnover is less than €27,500 in 2025, the VAT will be due from 1st January 2026.
As from 2nd April, those people with EU, EEA or Swiss citizenship, must have an Electronic Travel Authorization (ETA). This will cost approximately €12 and can be obtained from the UK ETA app or the GOV.UK website.
If you need to take a taxi or ambulance to go to the hospital or return home you may have to share your journey with another patient. The aim of this measure is to reduce costs for the health care service. Two patients may be required to share a taxi or ambulance for part or all of the journey if the prescription specifies that the health of the patient would not be jeopardized by sharing the transport with someone else. However this can only apply if the detour to collect the other patient is no more than 10 km per patient and up to 30km maximum. Also the waiting time for the taxi/ambulance before or after the appointment cannot be longer than 45 minutes. This only applies for medical visits to treat certain kinds of conditions such as cancer, chronic liver failure etc. The patient can refuse to share their taxi or ambulance but will not be covered by their mutuelle and will not be fully reimbursed.
The online tax declaration service will begin from 10th April 2025. Although the tax form doesn’t change dramatically from one year to the next, there can still be small changes which will not be known until the declaration service starts after 10th April.
Also, if this is your first time doing your tax return, you will need to submit a paper return.
The downloadable versions of the forms will also be available after 10th April.
After a busy March, I am set for an even busier April with plenty of appointments in my diary. I am looking forward to driving through the beautiful French countryside and catching up with my clients. If you have any questions and would like to make an appointment with me to discuss your financial situation, please do get in touch.
By Peter Brooke
This article is published on: 30th March 2025
“Risk” is an unavoidable, and sometimes welcome, part of investing so having a better understanding of the different forms of risk can help investors make informed decisions that align with their financial goals. In this (quite long) article, we explore key types of “risks” and how they impact financial planning.
Definition: The possibility of something bad happening!!
Definition: The degree of uncertainty and/or potential financial loss inherent in an investment decision.
So we need to frame our conversations about “RISK” by trying to understand the ‘something bad’ in every decision we make.
Inflation Risk: The risk of doing nothing!
A.K.A. – The Erosion of Purchasing Power
Inflation risk occurs when the value of money declines over time, reducing its purchasing power.
For example, if inflation averages 2.5% per year, €100 will only buy €53.10 of goods in 25 years’ time.
To counteract inflation risk, investors should turn to non-cash assets like shares and bonds, which have historically always outpaced inflation over the long term.
What’s the something bad? – The risk of doing nothing and leaving money in a bank account will guarantee a financial loss over the long term.
Permanent and Total Loss of Capital
Companies can and do ‘go bust’ and for an investor in those company’s shares this would mean a total and permanent loss of capital – the share price falling to zero.
Therefore understanding how a company is managed and investing across a diversified group of high quality companies will minimise this risk.
Outsourcing to a fund manager to diversify this risk is a great way to ‘avoid the losers’ even if you don’t always ‘own all the winners’.
What’s the something bad? – Investing in just one or a few companies and not understanding the ‘fundamentals’ of each investment.
Volatility: Fluctuations in Values
Volatility is often ‘defined’ as RISK with respect to investments.
Volatility refers to short-term fluctuations in the price of an investment; for example a share price.
While dramatic drops can be unsettling, history shows that volatility is entirely normal and markets always recover over time.
For example, look at the chart below; since 1980, the US stock market (S&P 500) has experienced declines averaging 14.1% during each year, yet annual returns were positive in 34 of those 45 years (75%).
The red figures show the largest market drop in value for each year and the grey bars show the total return for that same year… for example 2024 shows a drawdown of 8% but the S&P 500 finished the year 23% up.
Volatility is NORMAL and does NOT mean a capital loss for the long term investor.
Volatility risk is mitigated by TIME in the market
Volatility is part and parcel of investing, and your investment time horizon almost without exception determines the likelihood of investment success. This chart shows the annualised returns over four different time frames (1, 5, 10 and 20 years) using data from 1950 to today.
A 50/50 portfolio of shares and bonds (the green bar) shows that in the last 75 years you could lose up to 24% or gain up to 49% in any given one year period.
However, over every 10 year rolling period in that same 75 years, your worst possible return would be 1% p.a, (ie. no loss) and the best would be 17% p.a.
The longer the investment term, the less relevant volatility becomes, and crucially, the longer the investment term, the greater the likelihood of investment success.
What’s the something bad? – Not maintaining a long-term perspective and reacting impulsively to market swings.
Longevity Risk: Outliving Your Wealth
With increasing life expectancy, investors must consider the risk of outliving their assets.
For a couple aged 65 today there is a 92% chance that one of them will live to 80 and a 49% chance one will live to 90.
Planning for a longer retirement by investing must now include more exposure to growth-oriented assets.
Sequencing Risk/ The Timing of Returns Matters
For retirees or those drawing an income from investments, sequencing risk— the order in which returns occur— can significantly impact portfolio longevity.
A market downturn early in retirement can lead to a faster depletion of funds compared to a downturn later in retirement.
Strategies like maintaining a cash reserve, actively managing portfolio risk as you approach retirement and diversifying investment assets will help.
What’s the something bad? – A market correction just at the point of retirement can significantly impact the quality of that retirement.
ROMO – The Risk Of Missing Out: The Cost of Not Investing
As well as the risk of not keeping up with inflation, there is also a significant risk (and great financial cost) in staying out of the market.
The ‘magic of compounding’ delivers substantial rewards for the patient, long term investor.
The 8 – 4 – 3 Rule
Here is a table showing the compounding effect of a 7% annual return:
What’s the something bad? – The risk of doing nothing and not benefiting from compounding returns.
Currency Risk
Expatriates often have assets in one currency but expenditure in another; for example a Pension in British Pounds and outgoings in Euros.
As global investors there will always be some form of underlying currency risk but mitigating the practicalities of moving money around from one currency to another is possible with careful planning.
Options could be:
What’s the something bad? – The risk of not correctly matching your assets with your liabilities – a large fluctuation affects your lifestyle.
Assessing Your Attitude to Risk:
All of the above is to help our conversation about ‘RISK’ but in order to best set up and review your investment portfolio we have a 3 part process to determine exactly how much investment risk you can tolerate:
1. Your ATTITUDE to risk – this is a psychometric test, via a questionnaire, to assess your in-built view on risks, volatility and returns.
2. Your CAPACITY to take risk – this is a deeper understanding of your overall situation and therefore your ability to weather ups and downs in portfolio values… i.e. do you have other assets, a large pension or property income; how reliant are you on your portfolio at any given time?
3. Your TIME HORIZON for investing – when do you need to access to this money? Will the access be to draw an income or large lump sums or even, all of the fund in one go? Or is this money just to be invested to pass on to beneficiaries?
The answers to these 3 questions provide us with a ‘score’ and ‘understanding’ of how you will use the money being invested… this allows us to assign a ‘Risk Benchmark’ to your portfolio, from which we will determine its asset allocation and then monitor its performance and volatility for the duration of the investment.
Obviously, your TIMESCALE changes over time and your CAPACITY can change as your life situation changes; even if you maintain the same inherent ATTITUDE to risk we must always review and monitor the overall position of your portfolio and potentially change your benchmark as time passes.
Final Thoughts
Investing always carries ‘risks’, but knowledge and strategy can help manage them effectively. Whether it’s inflation, market fluctuations, or longevity concerns, working with a financial adviser ensures that risk is considered within a well-thought-out plan. Overall doing nothing is the largest risk.
Staying focused on long-term goals, and avoiding emotional reactions to short-term market movements, usually leads to successful financial outcomes.
I would very much like to thank the team at RBC Brewin Dolphin for their kind input and help with this article, I truly hope you found it useful.
If you’d like to discuss your investment strategy and how to manage these risks, feel free to get in touch!
By Alan Watson
This article is published on: 25th March 2025
Join our expert panel on Thursday 27th March
18.00 (GMT), 19.00 (CET)
An informative webinar where our panel of experts will address topics such as relocating to France, mortgage, visas, buying and living in France, and currency transfers. We will also provide insights into the buying process in France.
By Richard McCreery
This article is published on: 19th March 2025
France is a great place to live and I’ve enjoyed every minute of my 25 years here. It’s not always easy living in a foreign country, especially in light of the Anglo-Franco relationship through the centuries (I had never realised that the French were so upset about what the English did to Jean of Arc until I joined the events committee in my village), but there are things we can do to make it is a little easier.
I always recommend expats learn to speak at least a little French and tell them not to worry about making mistakes. An attempt to communicate is always appreciated even if your grammar isn’t perfect. Always say ‘Bonjour’ upon entering a shop or a lift, ‘Au revoir’ when leaving. We might not always do it in the UK but some French people get really annoyed if you forget. And always look both ways when crossing the street, even if it is one way. French drivers often treat the rules of the road more like guidelines.
Expats coming to live in France should also not assume that the French approach to finances and taxes are similar to where you’ve come from. If we think about how complicated these subjects are even in our home country, then you won’t be surprised to hear that they may not be entirely straightforward in France either. Often there are differences that you might never have considered, some are small but some are so substantial that they could add up to hundreds of thousands of Euros.
That is why I’m going to share a few tips for managing your finances and making life in France smoother and less stressful.
By Peter Brooke
This article is published on: 7th March 2025
I’m always looking for ways to improve how we can work together, ensuring that your financial planning experience is seamless, efficient, and tailored to your needs. To that end, I am excited to share some recent technology updates that will enhance our communication and collaboration.
These two new enhancements add to the suite of tech tools I am already using to save time, improve communication, improve my efficiency in dealing with follow up tasks and provide you with the best financial planning service possible.
Spectrum advisers and our clients are spread across Europe and so we have invested into an innovative virtual office via App.Spatial.chat to offer a more interactive and engaging way to meet remotely. This platform allows for an easy to use virtual face-to-face experience, making it easier for us to discuss your financial plans in a comfortable, secure setting – whether you’re at home or on the go.
This tech does not replace face-to-face meetings but offers us another way of meeting. I will be offering this as an invite option via my Calendly Booking system as well as zoom, teams, telephone calls and, of course, face to face meetings.
When you enter the Spectrum Virtual office, as a guest, you will see a brief introduction as to how it works, you can then enter the main office or any of our ‘country’ offices, via the list on the right hand side of the screen.
Our meetings will be conducted in my own personal office which is password protected so we have complete privacy from anyone else who might be online at the time.
I look forward to seeing some of you there over the coming months.
To ensure I capture every important detail during our discussions, I will now be using Otter.ai to record virtual and even live face to face meetings, with the agreement of my clients.
This tool allows me to create accurate transcripts of our conversations, helping me stay fully aligned with your financial goals and ensuring that nothing is overlooked.
Rest assured, all recordings and transcriptions will be handled securely, I permanently delete each one as soon as I have downloaded the transcribed notes and follow up to task lists, maintaining strict confidentiality in accordance with data protection standards.
Click on the following image to view a brief introduction to Otter
If you prefer for me not to record our meetings, please say so, and I will turn off the tech. Likewise, if you want me to send you the notes I would be very happy to.
Cash Calc Secure Client Portal for data gathering, expense tracking, document sharing and even secure messaging: https://the-spectrum-ifa-group-1002.cashcalc.co.uk/register?ref=MTIzMTU=
Calendly booking system for easy call and meeting booking linked straight to my diary https://calendly.com/peterbrooke/30min
DocuSign and Adobe Sign – these allow me to send you paperwork to sign digitally and securely to save us all time and the requirement to print and post documents.
The future of finance is undeniably tech-enabled. By embracing AI and support tools like these, we plan to remain competitive, agile, and customer-focused.
Feel free to get in touch if you have any questions via the below channels, or the booking system – always drop me a quick message if you need a time slot outside of those available.
If you have missed any previous emails, click here to access the Archive.
For now, have a great day, speak soon…
By Katriona Murray-Platon
This article is published on: 6th March 2025
Even though Spring is officially a few weeks away, it certainly feels like it is in the air with the sunnier weather and flowers popping out. We have a large Mimosa tree in our garden which is full of bright yellow, fragrant flowers.
Although it’s ‘better late than never’, we now have a finance law and a budget as of 6th February. The income tax bands have been increased by 1.8% rather than the originally announced 2% as inflation is lower than anticipated.
The new tax bands are as follows:
| Under €11,497 | 0% |
| From €11,498 to €29,315 | 11% |
| From €29,316 to €83,823 | 30% |
| From €83,824 to €180,294 | 41% |
| From €180,294 | 45% |
A new tax; called the “contribution differentielle sur les hauts revenus” (CDHR), has been introduced, and will come into effect next year, for those who earn over €250,000 as an individual or €500,000 pa for couples. This is to guarantee a minimum tax of 20% on their income earned in 2025. Those tax payers who are subject to this tax (i.e. those whose income is largely exempt or subject to the flat tax of 12.8%) have to make an advanced payment of 95% between 1st and 15th December 2025. The exact amount of tax will be calculated in Summer 2026.
A parent, grandparent or great-grandparent can give €100,000 to a descendant without paying tax up until 31st December 2026, subject to certain conditions. The beneficiaries of this gift must use this money in the six months following the gift to buy a new property, or a property soon to be completed or for energy efficient renovation costs to an existing property. If the person does not have children, the money can be given to a niece or nephew. This is in addition to the usual gift allowances. The property purchased or renovated must become and remain their primary residence for the next five years. Since the gift would need to be declared through a notaire, it is important to ask them whether in your situation this allowance can be used.
You can give up to €1000 to charities which provide food, aid, or housing for people in need and get a tax reduction of 75%. Any amounts over this threshold are subject to a tax reduction of 66% up to 20% of the taxable income. The same allowance is granted for donations to charities that protect victims of domestic violence.
There has been much concern from small businesses about the lowering of the VAT threshold to €25,000. This has now been suspended whilst the tax authorities consult with professionals and the minister for the economy has said that for now micro entrepreneurs do not have to make any additional declarations. However the VAT thresholds have already been lowered in the 2024 finance law. In 2025 if your turnover exceeds €85,000 for sales/puchases or lettings or €37,500 for services, you have to charge VAT in 2026 or even in 2025 if you have gone over the threshold of €93,500 or €41,250 respectively.
If you have any questions on any of the matters mentioned above or would like to discuss your own financial situation please do get in touch.
By Occitanie
This article is published on: 24th February 2025
In most countries, tax-efficient savings and investment schemes exist, with the aim of encouraging people to save for their medium and long-term goals. However, the problem when we become resident in France, is that the tax-efficiency that we enjoyed from our ‘home’ schemes (e.g. in the UK, ISAs and Premium Bonds) is usually lost.
This is because as a French resident, you are liable to French taxes on all your worldwide income and gains, except for anything that might be exempted by the terms of a Double Taxation Treaty between the home country and France.
In our last article we covered tax-free cash deposits available in France for short-term needs and liquidity. For the medium to long-term, there is one product that stands ‘head and shoulders’ above the rest and that is an Assurance Vie.
What is an Assurance Vie?
An Assurance Vie (AV for short) is an insurance-based investment in a tax wrapper. It can be as simple or as complicated as you wish to make it, and it has some rather special properties:
Millions of French people use the AV as their standard form of saving and investment and many billions of Euros are invested this way via French banks and insurance companies, which offer their own branded product. However, we work with providers across the European market and favour international providers of an AV typically situated in highly regulated financial centres, such as Dublin and Luxembourg. Some of the advantages of the international AV product compared to the domestic French policy are:
How do I choose what to invest in inside my Assurance Vie?
You may have strong views on this yourself, or you may have no ideas at all, but in all cases, it helps if you have a good financial adviser at hand. His or her job is to help you understand the whole concept of investment and to help you establish your attitude to investment risk.
Your adviser will show you different types of investment options, explain how they work, and how much risk is involved. You make the final decision, but his or her help can be invaluable, and your adviser will be with you to provide ongoing support and advice.
Does an Assurance Vie have other advantages?
Without doubt, the AV is effective for inheritance planning. AVs are considered to be outside of your estate and you can leave them to your chosen heirs on your death (not just the ones Napoleon thought you should leave them to). You can leave each individual beneficiary a sum completely free of French inheritance tax which is in addition to the standard inheritance tax allowances. To maximise this attractive inheritance benefit, an AV should be established and funded before age 70 since, for sums invested before age 70, your chosen beneficiaries are each entitled to an inheritance tax allowance of up to €152,500. For amounts invested after age 70, inheritance benefits still exist but are much reduced.
Can I take income from an Assurance Vie?
Yes, you can use the funds in your AV to provide income if required and, when the policy is 8 years’ old, it becomes particularly tax efficient since an additional tax-free allowance of €4,600 for an individual or €9,200 for a couple, is available to offset against any taxable gain in relation the amount withdrawn – this is in addition to the usual personal allowances.
Is an Assurance Vie right for me?
An Assurance Vie is a valuable asset, helping you to shelter your capital and income from unnecessary taxation during your lifetime and protection for your loved ones when you are gone. However, everyone’s circumstances are different, and it is essential that you take professional financial advice before investing into this type of product.
If there are any subjects you would like us to cover in one of these articles or if you would like to contact one of our advisers for a financial consultation (no fee), then please get in touch at info@spectrum-ifa.com
By Tim Yates
This article is published on: 17th February 2025
As John Cleese conceded in Monty Python’s “Life of Brian”, they did provide sanitation, medicine, education, public order, irrigation, roads, a fresh water and a public health system – oh and wine! However, they also came up with – pensions.
In 13BC Emperor Augustus had Roman soldiers stationed across the empire, including some poor souls stuck in Britain disillusioned with the weather and living conditions. To keep morale up, Augustus introduced the first Defined Benefit “Final Salary”, pension scheme. After 20 years’ service soldiers could retire with a lump sum equal to 13 years’ salary. It was initially funded by regular taxes but later by a 5% inheritance tax. Perhaps the UK Chancellor has been studying the Romans recently!
Not much then happened on the pension front until the 17th century when the Germans started the first pension fund in 1645. It was set up to provide benefits for widows of the clergy followed in 1662 by a similar fund for widows of teachers. It took another 200 years for civilian pensions to become widespread, with Germany leading the charge again under Chancellor Otto von Bismarck.
Fast forward to today and global pension funds hold over $55 trillion in assets. The largest 300 account for $22 trillion, with the top 10 holding $7 trillion. Japan and Norway’s government pension funds top the list at around $1.5 trillion each. The problem is that many of these funds (Norway being the exception) are struggling and are unsustainable in their current form.
Back in the 17th century, pensions weren’t costly. People worked until they dropped – literally. The pension age was 60, but the average life expectancy was only 45. Today, life expectancy in the Western world is over 80, and many retire in their mid 60’s, meaning pension funds have to support retirees for 15 years or more. That’s problem number one.
Problem number two is “lifestyle investing”. This affects Defined Contribution (DC) “Money Purchase” schemes. As retirement nears, fund managers gradually move investments from the stock market into government bonds, historically seen as the safest asset.
Bonds are basically IOUs and if issued by the UK government are called gilts (because the original certificates had gold leaf embossed edges). These bonds promise to return the initial investment after 10, 20 or 30 years, paying annual interest in the meantime. Investors typically don’t hold them until maturity but trade them in the open market instead.
Imagine in 2020, I borrowed £10,000 from you on a 10 year, interest only basis at 1% a year. At the time, it seemed a good deal – your bank was paying next to nothing. Now, in 2025, you realise you could lend that money elsewhere and get nearly 5%. But I’m not keen to repay early. Your only option, if you want the higher rate of interest, is to negotiate a lower payout, meaning you get back less than £10,000. That’s how bond markets work.
Before the UK’s 2015 pension freedom reforms, most people took 25% of their pension pot as a tax-free lump sum (tax free in the UK not France) and used the rest to buy an annuity which gave them a guaranteed lifetime income. Since 2015 when everyone was given the flexibility to do basically whatever they liked with their pension, most people have taken their tax-free lump sum and then left the remaining funds in “drawdown” – staying invested and taking an income every year – rather than buying an annuity. This seemed safe after decades of low interest rates. But rising rates in 2022-23, driven by inflation, caused bond yields to soar and bond prices to plummet, hammering lifestyle funds.
Charles Stanley, a leading UK wealth management firm, recently analysed the impact of over- reliance on bonds. If you had invested £150,000 five years ago in a portfolio with 80% shares and 20% bonds, it would now be worth £210,000. But if you had gone all in on bonds, your portfolio would have shrunk by 20% to £120,000. This illustrates the divergence between shares and bonds in recent years.
So, what’s the takeaway? First don’t panic. If you have a final salary (DB) scheme, you are protected – provided your scheme is well funded. If you have a DC pension but don’t monitor it , or don’t have someone reviewing it regularly on your behalf, then you should.
We get regular health checks. Our cars get checked once they reach a certain age. Pensions and other investments are no different. Regular reviews ensure you maximise returns, minimise tax exposure, provide financial security for yourself and your family, and avoid unwelcome surprises. After all, the Romans may have invented pensions, but it is up to you to make sure yours actually works for you.
By Peter Brooke
This article is published on: 4th February 2025
Looking forward to 2025
Another year and another wonderful Spectrum conference. More on that in a moment.
Last year, in Budapest, was my 20th conference with Spectrum after which I offered a fairly cautious outlook for the year to come. You can review my thoughts in The view from the Danube
I have now just returned from a superb four days in Casablanca, hence the name of this piece, which was our first ever conference outside of Europe. We had another great group of experts who shared their views on the key themes likely to shape 2025. From the future of US markets under Trump 2.0 to opportunities in bonds and the transformative power of AI; here’s a summary of the insights most relevant to your investments and financial goals. Overall I feel cautiously optimistic looking forward to 2025.
Even with the slightly pessimistic outlook for 2024, the US stock market had an exceptional year, with the S&P500 delivering one of its strongest performances in history, though much of this was led by a small handful of stocks.
As we look to 2025, several factors suggest US markets could remain a standout:
Momentum: The US economy grew by 3.2% in 2023 and is forecasted to grow 2.8% in 2024, showing resilience despite high inflation and interest rates.
Earnings Growth: US companies are projected to achieve earnings growth of 13.8% in 2025—significantly higher than the 7.4% forecast for European companies.
Profitability: The US has long maintained a profitability edge over other developed economies, and Trump’s deregulation efforts could further enhance competitiveness.
Structural Advantages: Energy independence, favourable demographics, and leadership in technology (particularly AI) continue to position the US ahead of its global peers.
With the Republican Party securing a clean sweep in the 2024 elections, President Trump is expected to have more freedom to implement his policies in his second term. Here’s what investors should consider:
Bonds are regaining their appeal:
Attractive Yields: UK gilts are offering a 5.5% yield, equivalent to a real return of nearly 3%, presenting an appealing alternative to equities, especially in Europe.
Diverse Opportunities: Investors are also finding value in international bonds, including those from Portugal, Romania, and Germany.
Volatility Awareness: Bonds have become as volatile as equities, underscoring the need for a well-diversified portfolio.
The AI revolution is driving innovation and creating new opportunities across industries. It is important to consider those companies who will be enabled by AI and who will earn from “enabling the enabled” as well as those companies supporting the infrastructure of AI.
Key investment areas include:
Data Ownership and Infrastructure: Companies like RELX (legal and medical data) and Equinix (data centres) are poised to benefit from the AI boom.
Efficiency Gains: Firms such as Rentokil and Waste Management are leveraging AI to optimise operations and drive growth.
Cloud Infrastructure: AI can’t happen without the Cloud.
Understanding and managing risk is critical to achieving long-term financial success. I will be writing a newsletter in the coming months focussing solely on ‘risk,’ but for now here are key considerations:
Inflation remains sticky: The risk of doing nothing could erode your cash’s value over time.
Volatility: Short-term market fluctuations are normal but tend to even out over time, emphasising the importance of staying invested.
Longevity: For couples, there’s a 50% chance one partner will live to age 90—making a long-term income strategy essential.
Sequencing Risk: Timing withdrawals during retirement requires careful planning to avoid depleting your assets prematurely.
With markets adapting to new norms, a balanced and diversified approach remains crucial:
US Market Focus: While US equities remain a core component, avoiding over-concentration in sectors like AI is vital. Just 7 companies make up 33% of the S&P 500 index and contributed 55% of all the returns of the S&P500 in 2024 – the largest concentration in history.
Employ Active Managers: Passive investors have had a great run, especially if invested in US equities but as we have already seen this month the AI Titans have sold off on one piece of news from China. Active managers will control these concentration risks.
Global Bonds: High yields make bonds an attractive addition to portfolios, particularly for those seeking income and stability.
Alternative Investments: Assets like gold can provide a hedge against geopolitical risks and inflation.
I would very much like to thank the investment management teams at RBC Brewin Dolphin, Rathbones Investment Management, Evelyn Partners, New Horizons, Alquity Investments, VAM Funds and Prudential International for their time and expert views for the content in this update.
Here are some links to other articles supporting this summary if you want to dive deeper into the details:
US Continues to Outperform https://www.evelyn.com/insights-and-events/insights/can-us-outperformance-continue/
A look back on 2024 https://www.evelyn.com/insights-and-events/insights/2024-investment-review-ifa/
Trump 2.0 https://www.lgtwm.com/uk-en/insights/market-views/trump-politics-the-global-order-250934
The excellent monthly Rathbones Sharpe End Podcast https://www.rathbonesam.com/uk/sharpe-end-podcast#podcasts
