Tom Francis, Head of Advice at Octopus Money, takes a look at what’s been happening in the economy and the global stock markets in 2024.

How your Octopus Money portfolios performed

So, for this year, where have the returns in the portfolios actually come from? Before we dive in, it’s important to note two things. 

Firstly, remember that our portfolios are made up of two main types of investment, equities (another name for shares), and bonds. Historically, equities are more volatile than bonds, but tend to offer higher levels of return over the long term. As with all investments, returns are not guaranteed. 

Secondly, your own account and investment performance will differ slightly to the figures we discuss below. This is because the timing of when you contributed, or switched over to Octopus Money will usually be different to the year to date figures we are talking about below. 

What happened with equities?

So, let’s take a look at equities to begin with. 

The star performer this year has been the US, with the S&P 500 fund adding just over 15%. The S&P 500 is an index fund that tracks the largest 500 companies listed on stock exchanges in the States (think Amazon, Google, and Apple to name a few).

The UK has not been far behind, with the FTSE 100 (a fund that tracks the largest 100 companies listed in the UK – think HSBC, Rolls Royce and Unilever to name a few) adding just shy of 11% in 2024. 

The other key components of the equity side of portfolios are made up of the emerging markets fund, which added just shy of 6% this year, and the world index fund, which added around 12%. 

What happened with bonds?

Now let’s take a look at the bond side. 

As a quick recap, bonds are typically more stable types of investment, which are issued by governments and large companies. They usually have an inverse relationship with shares, which means when shares are performing well, bonds tend to underperform. Importantly, the opposite is usually true, when share markets underperform, typically bonds will perform well.

UK government bonds (often referred to as gilts) have added 1.65% of returns this year, which is a great example of the bond side of the portfolio adding modest returns, while the equity side has performed well. As well as the UK, global bond funds have returned around 4% this year.

What has impacted markets so far, and what are the trends to come?

There have been a few key themes which have dominated market news in 2024. Firstly, nations appear to have inflation under control. In the wake of covid, inflation has been high, and as a result central banks had to increase interest rates to fight it lower. It appears that inflation is now falling to target levels, and therefore central banks can think about reducing interest rates again. 

This will continue to be a theme for the rest of the year, and into 2025. The challenge for central banks is timing the reduction of interest rates so it continues to keep inflation in check, but also not overly impact businesses. Higher interest rates mean higher borrowing costs, which impact economic activity. 

This has a direct impact on investment performance. 

As well as inflation and interest rates, another key event is the US election, due to take place in November. The polling is currently neck and neck, and the outcome of the election will have impacts on investment markets. Two key areas which are fluctuating based on the expected US election outcome are oil prices (and companies involved), and socially responsible investments. This is due to Kamala Harris’ historic views in favour of a more “green” economy, to name one. 

We’ll be back with another update at the end of the year!

*With investing your capital is at risk. Your investments may go down as well as up, and you may get back less than the amount you invested.