ETF At Record Highs: Wait For US Election Or Keep Investing?

Summary

In this video, the speaker discusses the recent global economic events, including interest rate cuts by the Federal Reserve and the ECB, and China's economic stimulus. They explain how these developments have affected markets, particularly stocks and Bitcoin, which have seen significant gains. The speaker also shares their ETF portfolio performance, which is up 15.5% in 2024, and emphasizes the importance of staying consistent with long-term investment strategies, despite upcoming events like the U.S. elections. The video concludes with advice on remaining cautious but committed to a global ETF investment approach.

Takeaways

• 📉 The Federal Reserve (FED) cut interest rates by 0.5%, which led to a rise in the stock market and other risk assets like Bitcoin.
• ⚠️ Financial analyst Tom Lee advises investors to be cautious before the US elections in early November, as markets could be volatile.
• 🏦 The European Central Bank (ECB) also cut the overnight deposit rate by 0.25% due to slow growth in the EU, with another cut possible this month.
• 📈 China's economic stimulus caused its stock markets to surge, with indexes like the Shanghai Composite and Hang Seng rising 18-26%.
• 🌍 The global ETF covering the FTSE All-World Index had a positive month, closing up 1.48% in September and showing a year-to-date performance of 17.33%.
• 💼 The portfolio shared by the narrator and his wife saw a 1.85% increase over the last 30 days and is up 15.5% year-to-date in 2024.
• 📊 The narrator’s investment in ETFs, especially in the Invesco FTSE All-World (FOYLD) ETF, has performed well, increasing by 3.3% recently.
• 🇺🇸 Historically, US stock markets tend to perform well after interest rate cuts, with an average 9% gain in the 12 months following a cut when the S&P 500 is near its all-time high.
• 🔗 Emerging markets, including China, have outperformed developed markets in 2024, benefiting investors holding global or emerging market ETFs.
• 💰 The narrator and his wife plan to stick to their strategy of investing in global ETFs and allocating 10% to Bitcoin as a high-risk speculative investment.

Q & A

What triggered the recent rally in the stock market and other risk assets like Bitcoin?

The rally was triggered by the Federal Reserve's decision to cut interest rates by 0.5%, the first rate cut in over 4.5 years, along with China's significant economic stimulus and the European Central Bank (ECB) cutting its overnight deposit rate by 0.25%.

How has the FTSE All-World Index performed over the past month?

The FTSE All-World Index started the month roughly, dropping by as much as 3.8%, but managed to finish September with a gain of 1.48%, bringing its year-to-date performance to an impressive 17.33%.

What is the current performance of the ETF portfolio the speaker shares with his wife?

Their ETF portfolio is up 1.85% (€6,800) over the last 30 days and 15.5% (€50,700) since the start of 2024. The Invesco ETF shares, which they began buying in July, are also up 3.3% after a few rough months.

What is Tom Lee’s view on the market leading up to the U.S. elections?

Tom Lee, a well-known financial analyst, urges investors to be cautious before the U.S. elections on November 5th. While the easing cycle started by the FED is expected to be positive in the medium term, the short-term market movement could be volatile, with a potential post-election rally regardless of the outcome.

How have Chinese stocks performed recently, and what impact has this had on emerging markets?

Chinese stocks experienced a massive rally, with the Shanghai Composite and Hang Seng indexes increasing by 18-26% in a short period. This has positively impacted emerging markets, which have been outperforming developed markets so far in 2024, potentially continuing to do so for the near future.

What is the speaker's investment strategy regarding ETFs?

The speaker and his wife invest in a single ETF, the Invesco FTSE All-World, on a monthly basis through automated recurring investments. They cover both developed and emerging markets and plan to stick to this strategy despite the U.S. elections or market volatility.

What has been the overall return on the speaker's ETF investments since 2017?

Since they started buying ETFs in 2017, their portfolio has seen a total return of $16,400, with an average annual return of 11.25%.

How is the speaker’s speculative investment in Bitcoin performing?

The speaker’s Bitcoin allocation had a strong month, finishing up by 7.8%. Year-to-date, Bitcoin has returned 49.7% in 2024. Based on historical performance, October and November are usually strong months for Bitcoin, and the speaker has high expectations for the upcoming months.

How does the ECB's recent interest rate cut affect the speaker’s investments?

The ECB recently cut the short-term deposit rate to 3.5%. Despite this reduction, the speaker earned €95 in interest on cash reserves in September, thanks to the 1:1 rate pass-through from their broker. However, there are expectations of another rate cut due to slow growth in the EU.

What percentage of the speaker's investments is allocated to high-risk assets like Bitcoin, and how does this fit into their strategy?

The speaker allocates around 10% of their portfolio to Bitcoin as a high-risk, speculative asset. Despite Bitcoin's volatility, this strategy has worked well for them since 2017. They plan to continue this approach alongside their more conservative ETF investments.

Outlines

00:00

📉 Market Reactions to Interest Rate Cuts and Global Stimulus

In recent weeks, significant financial events have occurred: the Federal Reserve cut interest rates by 0.5%, boosting stock markets and risk assets like Bitcoin. Financial analysts, including Tom Lee, warn investors to be cautious before the U.S. elections in early November. Meanwhile, the ECB cut deposit rates by 0.25%, and another cut may follow due to low growth in Europe. Additionally, China’s major stock indexes rallied 18–26% following a massive economic stimulus. This video will explore the impact on ETF investments, including a review of performance and potential strategy adjustments.

05:01

📊 ETF Portfolio Performance Amid Global Market Movements

The video shifts to reviewing the performance of a global ETF covering the FTSE All-World Index, which had a rough start in September but closed the month up 1.48%, marking a 17.33% year-to-date increase. The presenter shares personal ETF portfolio figures, revealing a 1.85% gain in the past 30 days and a 15.5% increase year-to-date, totaling $16,400 since 2017. Despite initial challenges, their newly acquired Foy Old ETF shares outperformed previous investments. The presenter credits lower fees as the reason for transitioning from Vanguard ETFs and hints at a video explaining this decision further.

📉 The Fed's Rate Cuts and Stock Market Rally Predictions

The Federal Reserve cut interest rates for the first time since March 2020, which positively influenced stock markets. Historical data shows stocks typically rise after rate cuts, with the S&P 500 averaging a 9% increase over the following year. Over a three-year span, markets have risen by 51% after rate cuts. However, Tom Lee urges caution as U.S. elections approach, predicting that wealth managers are delaying investments until after the election. While markets could fluctuate in the short term, history suggests a likely rally in November and December, regardless of the election outcome.

📈 China’s Stock Market Surge and Emerging Markets Outperforming

China’s recent economic stimulus caused its major stock indexes to surge by 18–26%, benefiting those invested in Emerging Markets ETFs. In 2024, emerging markets are outperforming developed markets, a trend that may continue. The presenter is confident in a strategy that invests in global ETFs covering both developed and emerging markets, ensuring exposure to productive companies worldwide. They advocate a long-term, diversified approach rather than focusing on specific regions. This strategy aligns with their belief that including global companies is the best way to ensure long-term portfolio growth.

🏦 ECB Rate Cuts, Interest Earnings, and Future Projections

The ECB recently lowered interest rates to 3.5%, benefiting the presenter, who earned €95 in interest on cash reserves in September. While another rate cut may come soon due to low growth in the EU and controlled inflation, the presenter is not surprised. They reflect on how few people expected rates to rise as high as 4%. Additionally, they note extra savings from using the Trade Republic card, which adds small bonuses to everyday spending, helping to optimize their family's financial situation.

💰 Bitcoin's Speculative Role in the Portfolio

The presenter addresses their small allocation to Bitcoin, which had a strong month, rising by 7.8% and reaching a year-to-date gain of 49.7%. They acknowledge Bitcoin’s volatility but maintain it as a speculative part of their portfolio, with October and November historically being strong months for the cryptocurrency. Despite criticism, they remain transparent about their Bitcoin investments and plan to continue allocating 10% of their monthly savings to it alongside ETFs. Their strategy, which began in 2017, has been successful but is not necessarily for everyone.

📅 Investment Strategy Through Elections and Market Volatility

The video concludes with the presenter reaffirming their long-term investment strategy, despite market uncertainty around the U.S. elections. They plan to continue automatic monthly investments in a global ETF, with 10% allocated to Bitcoin, and will reassess at the end of the year if necessary. The overall strategy focuses on long-term stability and consistent growth, avoiding drastic changes due to short-term events. They encourage viewers to stay the course and not let market volatility or political events derail their investment plans.

Keywords

💡Interest Rates

Interest rates refer to the percentage charged by banks or financial institutions on loans, or the return on deposits. In the script, the Federal Reserve (FED) and the European Central Bank (ECB) cutting rates is a key point, as this impacts the stock market and other risk assets, pushing them higher. Lower interest rates make borrowing cheaper, encouraging investment and spending.

💡Federal Reserve (FED)

The Federal Reserve, often called the FED, is the central banking system of the United States responsible for monetary policy. In the video, the FED's decision to cut interest rates by 0.5% is highlighted as a major event, with a potential positive effect on the stock market, as lower rates typically stimulate economic activity.

💡European Central Bank (ECB)

The European Central Bank (ECB) is the institution responsible for managing monetary policy in the Eurozone. In the script, it is mentioned that the ECB also cut its deposit rate by 0.25%, reflecting attempts to boost growth in the European Union. This rate cut affects how banks lend and invest, influencing the broader European economy.

💡Stock Market

The stock market refers to the collection of markets and exchanges where stocks (shares of companies) are bought and sold. The script discusses how the stock market has responded positively to recent interest rate cuts, with specific indices like the S&P 500 and the FTSE All-World Index being up. This is a key indicator of investor sentiment and economic outlook.

💡Global ETFs

Global ETFs (Exchange-Traded Funds) are investment funds traded on stock exchanges that hold assets from multiple regions or countries. In the script, the speaker emphasizes their passive investment strategy through a global ETF that includes stocks from both developed and emerging markets, ensuring diversified exposure.

💡Emerging Markets

Emerging markets are economies in the process of rapid growth and industrialization, such as China and India. The video mentions how emerging markets, particularly China, have outperformed developed markets in 2024. This is attributed to economic stimulus measures in China, boosting investor confidence in these regions.

💡Bitcoin

Bitcoin is a form of cryptocurrency, known for its decentralized and digital nature. In the script, Bitcoin is highlighted as a highly speculative investment, with the speaker noting a 7.8% rise for the month and a strong year-to-date return of 49.7%. Despite its volatility, the speaker continues to allocate a portion of their portfolio to Bitcoin.

💡US Elections

The US elections, set for early November, are referenced as a potential source of market volatility. Financial analyst Tom Lee advises investors to be cautious leading up to the elections, as uncertainty over the outcome can impact market sentiment. However, historical trends suggest a post-election rally, regardless of who wins.

💡Economic Stimulus

Economic stimulus refers to government policies aimed at boosting economic activity, often through fiscal or monetary measures. In the video, China's economic stimulus is noted as a major driver of a stock market rally, with Chinese indices like the Shanghai Composite surging 18-26%. This highlights the global interconnectedness of economies.

💡Volatility

Volatility refers to the degree of variation in the price of an asset or market over time. The video mentions increased volatility leading up to the US elections and in the broader market due to various global economic factors, such as interest rate changes and geopolitical events. Investors are cautioned to expect more fluctuations before stability returns.

Highlights

The Federal Reserve (FED) cut interest rates by 0.5%, boosting the stock market and other risk assets like Bitcoin.

Tom Lee, a well-known financial analyst, advises caution for investors ahead of the U.S. elections in early November.

The European Central Bank (ECB) also reduced the overnight deposit rate by 0.25%, with expectations of further cuts due to low growth in the EU.

A major economic stimulus in China caused the Shanghai Composite and Hang Seng indexes to rise between 18-26% in a short period.

The FTSE All-World Index ETF ended September in positive territory, up 1.48%, with a year-to-date return of 17.33%.

The speaker's ETF portfolio is up 1.85% (€6,800) over the last 30 days, and 15.5% (€50,700) since the start of 2024.

Investments in Foy Old ETF shares, bought in July due to lower fees compared to Vanguard, are now up 3.3% after a challenging few months.

Since 2017, their ETF investments have produced a total return of $16,400, with an average annual return of 11.25%.

Historically, U.S. stocks rise by an average of 9% in the 12 months following a rate cut when the S&P 500 is within 5% of its all-time high.

Emerging markets, particularly in China, have outperformed developed markets in 2024, benefitting ETF investors.

The ECB's recent rate cut means a short-term deposit rate of 3.5%, with the speaker earning €95 in interest on cash reserves for September.

Bitcoin saw a 7.8% rise in September and has a year-to-date return of 49.7% in 2024, with October and November historically being strong months.

The speaker and his wife are maintaining their long-term investment strategy of buying a single global ETF covering the FTSE All-World Index every month.

Their investment portfolio also includes 10% allocated to Bitcoin as a speculative, high-risk bet, which has performed well since 2017.

The couple plans to reassess their risk exposure and potentially rebalance their portfolio by the end of the year.

Transcripts

the last few weeks were very eventful

the FED finally dropped interest rates

by 0.5% pushing both the stock market as

well as other risk assets like Bitcoin

higher we do have famous Financial

analysts like Tom Lee urging investors

to be cautious before us elections in

early November though the ECB also cut

the overnight deposit rate by a further

0.25% 2 weeks ago and according to the

financial times we may in fact see

another decrease in rates as soon as the

middle of this month due to low growth

in the U not only only that a

significant economic stimulus in China

sent the country's stocks on a massive

rally last week with the two major local

indexes the Shanghai composite and the

hangang shooting up as much as 18 to 26%

within a short amount of time today

we'll discuss what all this means for us

as passive Global ETF investors how our

portfolio performed and if we're

changing our strategy in any way let's

begin by taking a look at how the stock

market performed last month looking at

the global ETF covering the footsie o

World index the startup the month was

quite rough with the footsie o dropping

as much as 3.8% at one point But

ultimately managing to finish September

in positive territory at plus 1.48%

which means its year-to-date performance

is currently sitting at an impressive

17.33% now let's see where the ETF

portfolio I share with my wife stands in

actual numbers we're currently up 1.85%

or € 6,800 over the last 30 days and

15.5% or

50,7 since the start of 2024 our invest

Foy old ETF shares which we started

buying in July instead of Vanguard due

to the lower fees are also finally up

3.3% after a couple of rough months if

you're interested in the reasons why we

started buying this one while at the

same time keeping our existing Vanguard

shares make sure you check out this

video afterwards and lastly our total

return since we started buying ETFs in

2017 now stands at plus

$16,400 with an average return of

11.25% per year since then by the way

you can find the best Locust Brokers for

ETFs in Europe linked Down Below in the

description which is a great way to

support me if you'd like to one reason

why the stock market turned around may

be due to the Federal Reserve in the US

finally cutting interest rates for the

first time in over 4 and a half years

since March 2020 with more Cuts expected

to come later this year since the last

stringent monetary policy tends to be a

positive signal for stocks at least when

nothing else is broken in the economy

the stock market has been rallying since

historically speaking stocks in the US

have been up an average of 9% in the 12

months following a rate cut when S&P 500

was within 5% of its all-time high as

was the case during the latest cut and

over a three-year period following a

First Rate cut once again with a S&P 500

within 5% of its all-time high things

are looking even better historically

with an average total return of 51%

after 3 years there are obviously no

guarantees since it's impossible to

successfully predict how the market is

going to move in the short term but as

you can see at least based on historical

data there's no reason to be worried

having said that Tom Lee a famous

financial analyst who has been right

more often than not over the past couple

of years is urging investors to be

cautious before us elections on November

5th here's what he had to say I think

the FED Unleashed uh us on an easing

cycle and that's going to be positive we

know it's actually historically positive

3 months 6 months out but what stocks

doing the next month is a bit of a coin

flip and I think that's what we're

seeing because there's some

repositioning that took place and also

we're now thinking about the 40 days

into the election so does the fact that

the election is but 40 days away sort of

ruin the perfect scenario for stocks to

get that post fed bump I I think it

delays it um just because you know in in

the conferences that I've been speaking

speaking at and seeing wealth managers

and family offices a lot don't want to

commit Capital until after election day

and it I don't think it matters who wins

it's just they want to get that event

behind them oh so you think we're going

to have sort of a dash to the finish uh

after election day is is out of the way

yeah and that's pretty typical you know

in fact uh in in election years the

November December rallies are pretty

tremendous and in fact when markets are

up more than 10% in the first half you

also get big rallies November December

sort of choppy through September so

basically whether markets move up or

down until the election is a bit of a

coin flip but if history is any

indication we're likely to see a rally

afterwards no matter which candidate

wins does this mean you should stop

investing or change your investment

strategy until November 5th of course

not it it simply means you shouldn't be

surprised to see more volatility than

usual this month speaking of markets

moving quickly a massive economic

stimulus in China send the country

stocks flying higher with its two major

indexes the Shanghai composite and the

hangsang shooting up as much as 18 to

26% within a single month if you're

investing in Emerging Markets either via

an Emerging Market ETF or via Global ETF

like the footy o as we like to then your

portfolio is also currently profiting

from Chinese stocks performing well this

year in fact we're finally seeing

something we haven't seen in quite a

while Emerging Markets have been

outperforming stocks from developed

markets in 2024 so far and I wouldn't be

surprised to see them continue to

outperform for a while as they have some

catching up to do when looking at the

past few years compared to stocks from

developed markets either way I'm happy

that a simple ETF investment strategy

where my wife and I just buy a single

ETF the Invesco foi o on a monthly basis

covers the entire world including stocks

from Emerging Markets like China

according to their market cap as I never

want to ask myself a few years or

decades down the line if we made the

right decision by excluding a specific

region I'd rather own all of the most

productive companies from the entire

world no matter in which country they're

based in now and in the future as I

mentioned in the intro the ECB cut

interest rates again about 2 weeks ago

which means the short-term deposit rate

now stands at 3.5% per year since trade

Republic is still passing it on one to

one without taking a cut in September we

earned a total of €95 in interest on our

cash reserves there secured by € 100,000

bank deposit guarantee plus once again

an extra €1 15 from the 1% save back

using the trade Republic card for all of

our expenses as a family according to

the financial times we may sadly see

another decrease in rates as soon as the

middle of October due to low growth in

the U and likely also because inflation

seems to now be under control while it's

disappointing to see rates continue to

drop from a high of 4% Just 4 months ago

I think this shouldn't come as a

surprise after all very few of us me

included ever expected them to go that

High to begin with now let's quickly

take a look at my highly speculative

small allocation to bitcoin which I

somehow always get negative comments

about whenever I mention it I get it

some people hate it with a passion and

that's okay but I want to be open and

transparent about what I choose to hold

in my personal Investment Portfolio so

here we are Bitcoin had a great month

finishing up around 7.8% and sitting at

a year-to-date return of 49.7% so far in

2024 based on its historical returns

October and November tend to be some of

the best performing months for Bitcoin

so I do have high expectations but let's

see what happens as for our overall

investment strategy my wife and I are

not planning to change anything no

matter what happens before us elections

or who ends up winning we'll keep buying

a single ETF covering the footsy or

world at the start of every single month

via automated recurring Investments and

whenever I have some extra cash to

invest since I am self-employed and

don't make my money on a fixed date each

month and while the vast majority of our

monthly savings are going into that one

ETF we're planning to keep investing

around 10% in Bitcoin as a speculative

high-risk bet using bit bble allocating

to this risky asset has worked very well

for us since 2017 in addition to ETFs

but it's of course not for everyone then

by the end of the year we'll see where

things stand and if we need to do some

rebalancing so that we're not taking on

more risk with our overall portfolio

than we're comfortable with longterm all

right before you take off don't forget

to gently tap the like button if you

enjoyed the video and to subscribe if

you haven't yet if you'd like to support

me feel free to use my links in the

description below to the best Locus

brokers in Europe for ETFs and other

Financial tools I use none of what I

talked about today was of course mous

investment advice I'm just sharing my

personal opinion based on my own

experience as an investor thank you guys

so much for watching have a wonderful

day and until next time