[Read online for greater insights and graphical analysis]

Welcome to The Monthly Compound — my personal recap of what happened in the world of money and investing from the last month, and most importantly, what I am doing about it.

📈 Equities: A difficult month beneath the surface. Global equities slipped, bond yields jumped and higher interest-rate expectations put pressure on many sectors, even while large US technology companies continued to hold up the headline indices.

🇺🇸 US shares: The S&P 500 fell around 0.5% in September, but the Nasdaq gained 1.9% as mega-cap technology and AI stocks continued to outperform. Smaller companies had a much tougher month, with the Russell 2000 down 5.3%.

🇬🇧 UK shares: The FTSE 100 fell around 2% during September, although oil majors including Shell benefited from sharply higher energy prices. The FTSE 250 performed slightly better, falling around 1.6%.

🌏 Asia: A mixed and volatile month. Hong Kong's Hang Seng fell around 3.7%, while Asian markets more broadly wrestled with higher global bond yields, expensive energy and uncertainty over interest rates.

🏦 Interest rates: The era of straightforward rate cuts took another knock. The US Federal Reserve raised rates by 0.25% to 3.75–4.0%, while the Bank of England held rates at 3.75% — although three MPC members voted for a rise.

📉 Inflation: Inflation is proving sticky again. UK CPI rose to 3.1%, while US CPI reached 3.4%, with higher energy costs becoming an increasingly important part of the story.

🤖 Theme of the month: AI versus everything else. AI-linked mega-cap stocks continued to prop up the major US indices, but underneath them the market was considerably weaker. September was a useful reminder that an index can look relatively calm while many of the companies inside it are falling sharply.

Government bond yields jumped in September as investors reassessed how long interest rates may stay high. Sticky inflation, higher energy prices and rising government borrowing have all pushed yields higher.

For long-term investors, that cuts both ways. Existing long-duration bonds can fall in value when yields rise, but new money can now earn far more attractive fixed-income returns.

Higher yields also create more competition for equities. If investors can earn around 5% from high-quality government debt, expensive shares need to work harder to justify their valuations…

With current yields, bonds are increasingly looking more lucrative.

📈 Equities: The foundation of my portfolio. This month, I invested around 49% of my available investment capital into low-cost index funds, giving me ownership of thousands of companies across the world. This will always be the case, consistent, repeatable investing in global stocks.

🍷 Fine Wine: My alternative investment allocation. This month, around 49% of my investment capital went towards continuing to build my fine wine portfolio. A 5% target allocation.

₿ Bitcoin: A small, higher-risk allocation. This month I invested around 2% of my available investment capital into Bitcoin, while ensuring it remains a controlled percentage of my overall portfolio.

💹 Growth: During September, my total personal portfolio wealth increased by 0.88% compared with the previous month, rising by around £2495.97. Of that increase, £1050 came from new contributions, with the remainder driven by investment growth and market movements. It was a relatively weak month overall with minimal gains and September mostly living up to its historic performance, which is usually mute.

The Compounder - Summary of Asset Performance - End Sep 26

Portfolio commenced, Jul 2019.

September looked relatively calm if you only watched the headline index. But, it wasn’t by any stretch…

The equal-weight S&P fell 5%, while almost 80% of S&P 500 stocks declined. A handful of enormous technology companies masked what was happening underneath.

So what? The S&P 500 looked resilient, but market breadth was weak. A small number of mega-cap stocks were doing most of the heavy lifting — a reminder that owning ‘the market’ doesn’t always mean your risk is evenly spread.

This is one of the reasons I believe in my 5-ETF fund approach. Whilst certain funds became dependant on big tech and AI to stay afloat this month, other ETFs in my portfolio made gains.

Don’t judge the market by the headline index.

The S&P 500 can look calm even when most of its constituent stocks are falling. When a small number of mega-cap companies dominate the index, they can mask much broader weakness underneath.

Diversification is not simply about owning lots of stocks. It is also about understanding where your returns are actually coming from, how concentrated your exposure has become, and whether you are being adequately rewarded for the risk you are taking.

Understanding that can help you diversify more intelligently, manage risk and still capture attractive long-term returns.

Personally, I haven’t invested directly in the S&P 500 for more than 18 months. That isn’t because I think the S&P 500 is a bad investment — far from it. I remain very bullish on equities over the long term.

I simply think parts of the AI trade have become expensive and increasingly frothy. There are still plenty of profitable companies, sectors and markets elsewhere that offer compelling opportunities, while also helping diversify risk away from the largest US technology stocks.

That doesn’t mean abandoning America. It means recognising that there is a much bigger investment world beyond the S&P 500.

October has historically been a reasonably good month for equities, but this year the usual seasonal pattern matters far less than what is happening in bond markets.

UK gilt yields are the key risk at home. The 10-year has recently pushed above 5.5% and the 30-year above 6%, levels not seen for decades. If yields stay elevated, they tighten financial conditions across the economy: mortgages, business borrowing and government financing all become more expensive, while equities have to compete with increasingly attractive bond returns.

That does not automatically mean stocks fall sharply, but it raises the pressure on expensive valuations. September already showed what that can look like, with weaker market breadth and a much tougher environment beneath the headline indices. The FTSE 100 has also just suffered its worst week since April as the bond sell-off hit risk appetite.

So October could remain volatile. A stabilisation in yields would give equities some breathing room, but another leg higher could quickly become the dominant market story.

That said, none of this changes my strategy. I’ll keep investing through the highs and the lows, adding consistently and letting time and compounding do the heavy lifting.

Happy compounding, and have a great October everyone!

The Compounder
Long-term investing made simple.

The Compounder is for financial education and commentary only. I am not authorised or regulated by the Financial Conduct Authority and I do not provide financial advice, investment advice, or personal recommendations. Nothing published here should be taken as a recommendation to buy, sell, hold or switch any investment, fund, pension, ISA, crypto asset or financial product. Always do your own research and consider speaking to an FCA-authorised financial adviser if you are unsure.