With simply a few weeks left of 2024, many traders are considering and planning forward for subsequent yr. Given the valuation of many UK shares versus US friends, I think about that there shall be loads of chatter about the place to take a position.

But as somebody that’s been concerned within the inventory market for a few years, there are a couple of key errors to keep away from on this entrance.

Don’t confuse the index with particular person shares

The FTSE 100 hit all-time highs earlier this yr. Subsequent yr, I imagine the index will commerce even larger, probably above 9,000 factors. As a result of this, some traders would possibly shrink back from shopping for FTSE 100 shares, arguing that it’s too costly or that purchasing one thing at all-time highs isn’t a sensible transfer.

This considering confuses the index efficiency with inventory efficiency. Although the FTSE 100 is likely to be at highs, there’s nonetheless worth in particular person shares. It doesn’t imply all FTSE 100 shares are at all-time highs and overvalued.

So the error to keep away from right here is to not make investments as a result of somebody thinks the index is overvalued. With the best research, alternatives can at all times be discovered for good worth shares.

The problem with REITs

Some traders will take a look at UK property real-estate funding trusts (REITs) as an inexpensive space to purchase. They’ll flag up the truth that for a number of, the online asset worth (NAV) of the portfolio is larger than the share price. In some instances, this generally is a 20%-40% low cost.

For instance, contemplate the Schroder Actual Property Funding Belief (LSE:SREI). The present dividend yield’s 6.73%, with the inventory up 10% over the previous yr. The share price at present trades at a 19% low cost to the NAV. It was final equal to the NAV again in late 2016.

It’s true that in the long run the share price ought to rise to across the identical degree because the NAV. But this will take a number of (certainly many) years to occur!

One cause why this REIT has the discrepancy is as a result of industrial actual property’s fallen out of favour with traders over the previous couple of years. The shift in the direction of extra versatile working for the reason that pandemic has prompted some to promote property shares, although the worth of the REIT portfolio hasn’t materially lowered.

After all, the beneficiant dividend yield’s nonetheless engaging for earnings traders. The belief has elevated dividend per share funds for a number of years. However I really feel it will be a mistake to think about this inventory purely on the expectation of a share price rally again to the NAV in 2025.

Please observe that tax remedy will depend on the person circumstances of every shopper and could also be topic to alter in future. The content material on this article is supplied for info functions solely. It’s not meant to be, neither does it represent, any type of tax recommendation.

2024 themes

Some areas out there did very properly in 2024. For instance, the banking sector. But not all themes will play out the identical approach subsequent yr. Banks are seemingly going to come back beneath extra stress with rates of interest getting minimize from nations just like the UK and US in 2025.

The rise of AI in 2024 is a theme that would proceed subsequent yr. However the level is to not assume that simply because one sector did properly final yr that historical past will repeat itself in 2025.