Victoria Scholar discusses rise in interest rates
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Tens of millions of Britons invest in global stock markets either through their pensions or tax-free stocks and shares Isa allowance.
Shares are riskier than cash, but should deliver a superior return over the longer run.
US technology stocks were the most popular investment of the last decade, as investors made fortunes.
Incredibly, at one point six tech firms were valued at more than $1trillion (£8.33trillion): Apple, Amazon, Alphabet, Facebook, Microsoft and Tesla.
That made them the biggest companies ever by market capitalisation, until last year’s sell-off.
War in Ukraine, the cost of living crisis and rocketing inflation and interest rates all spooked investors, who decided these stocks were overvalued and dumped them.
Tesla, Facebook and Netflix fell by two thirds or more.
The six largest US tech stocks were worth almost £9trillion at the end of 2021, but crashed to around £5.75trillion by year end.
That’s a loss of nearly £3.25trillion, equivalent to the entire UK economy.
While few private investors will have directly bought individual shares in these companies, many had indirect exposure through their pension and Isa investment funds.
These plunged in value, ravaging the value of their retirement savings.
Some of the most popular tech-focused funds did not have technology in the title, notably the Scottish Mortgage Investment Trust and Baillie Gifford American.
Some investors will have therefore been shocked to see them crash by half.
This year has brought better news because the US tech sector is rocketing as optimism returns.
Year-to-date, Elon Musk’s electric car company Tesla is up a staggering 75.74 percent. That would have turned a £10,000 investment into a staggering £17,574 in just two months.
Meta has also rebounded strongly, rising 49.54 percent. That would have turned £10,000 into almost £15,000.
Netflix, Apple and Amazon are up almost 25 per cent, while Alphabet is up 17.57 percent and Microsoft has climbed 7.83 percent.
This is feeding through to Isa fund performance, with Scottish Mortgage recovering by 9.43 percent year-to-date.
Baillie Gifford American has climbed 11.5 percent, measured over three months.
Tech investors foresee better times ahead when the US Federal Reserve finally stops increasing interest rates.
Earlier this month, it lifted its funds rate by 0.25 percent to between 4.5 percent and 4.75 percent. That’s the highest since October 2007.
Soon the Fed will stop hiking rates and could even start cutting them by the end of the year, once there is clear evidence that inflation is beaten.
When that happens, investors will breathe a sigh of relief and tech stocks could climb higher.
As ever with shares, investors should tread carefully, as there is no guarantee that recent blazing performance will continue.
Recent ups and downs underline the importance of investing for the long term, with a minimum period of five years and ideally much longer.
Measured over five years, Tesla has still delivered an incredible return of 812.22 percent, despite huge volatility along the way.
That would have turned £10,000 into a scarcely believable £91,222.
Similarly, the Apple share price is up 295.14 percent over five years, while Microsoft (193 percent), Alphabet (100 percent), Amazon (54 percent) and Netflix (46.67 percent) have also been hugely rewarding.
Facebook/Meta is only up six percent over five years, though.
Any Isa investor who sold tech funds at the end of last year will be kicking themselves as they recover this year.
When investing, it is also important to understand the risks as well as the rewards, and take the long view.
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