Although a baby can’t open a SIPP themselves, a parent or guardian can do so on their behalf. Under current UK rules, up to £2,880 a year can be contributed to a child’s SIPP, and with tax relief this becomes £3,600.

It may not sound like much, but this £240 (plus £80 from the state) a month can compound over time if invested wisely. Placed into a low-cost global equity tracker — assuming an average 8% annual return — and by age 65, the pot could exceed £8m.

However, if the rate of return is a little stronger, say 10%, that figure after 65 years jumps massively to £24m! But this is by no means guaranteed. The value of money invested in stocks can fall or the return might be much lower, so those millions might be out of reach!

But I assume constant contributions and a child increasing those contributions when they’re working. After all, £240 is unlikely to be a large commitment in 20/30 years (they would still receive tax relief).

Of course, that’s a long-term projection and the child wouldn’t be able to access the funds until their 50s, at least. But the point remains: starting early unlocks huge potential via the power of compounding.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

This is generational wealth

This strategy won’t appeal to everyone. It requires patience, discipline, and a long time horizon that those currently reading this won’t have — which is why, as my headline says, “it’s not for you.” But for those thinking generationally, a baby’s SIPP could be the cornerstone of an extraordinary retirement future.

Combined with a Junior ISA, this could provide a child born today with an extraordinary future. And hopefully one that involves very little financial stress.

Where to invest?

When it comes to building long-term wealth inside a SIPP, especially one opened for a child, the choice of investments matters enormously.

My daughter’s SIPP, for example, contains several trusts and conglomerates, but also a couple of handpicked, high-conviction stocks. One of which is Celestica (NYSE:CLS).

I added this stock to my daughter’s portfolio around 18 months ago as her first single company investment. Why? It was simply vastly undervalued, trading around 14 times forward earnings but with an earnings growth rate of near 30%.

The result has been around 700% growth since the initial investment. Now, not every stock pick has to be a big winner, but I believe this one’s reflective of what can happen if investors focus on metrics. What the numbers say should underpin every investment we make.

Risks? Well, the current valuation is one. But it’s also worth noting that with production facilities in East Asia, the company’s highly exposed to changes in US trade policy.

However, the stock remains part of my daughter’s portfolio. But I’m not adding any more right now. The valuation has become very hot. However, as an integral part of the artificial intelligence (AI) value chain, it’s something I may top up on if we see a correction. I think other investors could do the same.

The post Here’s how to target a £20m SIPP, but it’s not for you… appeared first on The Motley Fool UK.

However, while the current US market’s somewhat hard to navigate, quality companies that have been unduly sold off will come back. So here are some stocks worth considering as the market sell-off continues.

Celestica

Celestica (NYSE:CLS) was my highest conviction pick throughout 2024. But the recent sell-off in Celestica’s stock comes amid growing fears surrounding the US-Canada trade tensions, particularly the impact of tariffs.

However, it’s crucial to note that Celestica sources much of its production from Asia. This will minimise the impact of any Canadian-specific tariffs. While concerns about the trade war persist and absolutely could worsen, I believe these fears are overblown, especially as Celestica’s evolving business model increasingly focuses on high-value services, which are less susceptible to tariff disruptions.

Celestica’s recent Q4 2024 report showed impressive growth, with a 19% increase in revenue and a 46% rise in earnings per share (EPS). This beat expectations. Strong demand from hyperscalers and AI-driven infrastructure investments are expected to sustain growth.

Despite this, the stock remains undervalued, with a forward price-to-earnings (P/E) of 17 times and a price-to-earnings-to-growth ratio of 0.55. This suggests the stock is at least 45% undervalued. Given the strong fundamentals and growth outlook, this correction could represent an excellent opportunity to add to my position.

AppLovin

AppLovin (NASDAQ:APP) was another top pick of mine through 2024. Admittedly I incrementally sold my position as it reached 1,000% above my entry point. However, the recent sell-off has been incredibly sharp — falling more than 50% in one month. And at the current level, the stock looks a lot more attractive.

AppLovin is a mobile advertising and marketing platform that helps developers monetise apps through targeted ads and user acquisition strategies. And while its recent success has been driven by AI, it’s likely that the sell-off also reflects concerns about a recession in the US.

Nonetheless, the forecast remains enticing even if there will be some negative adjustments. The stock is currently trading at 33 times forward earnings, which may sound expensive, but with an expected earnings growth rate above 40%, the price-to-earnings-to-growth (PEG) ratio is just 0.75.

The risk here is that a Trump-engendered recession would see companies pull back on their advertising spend, and that could damage the earnings forecast in the near term. This is especially important as the firm pivots away from its traditional gaming market and into the much more lucrative e-commerce space. It’s worth watching closely.

Personally, with the price at $231 in the pre-market, I believe a lot of these risks are priced in. My daughter still has a reduced position in AppLovin, but I may consider re-adding it to my portfolio. After all, it’s a quality company with impressive margins.

The post As US stocks plummet amid Trumpian uncertainty, these could be standout investment opportunities to consider appeared first on The Motley Fool UK.

This model delivered comparable performance to the world’s best chatbots at seemingly a fraction of the cost. And over the weekend it was downloaded more than ChatGPT.

How DeepSeek shocked tech

DeepSeek-R1’s an open-source model with comparable performance to Western AI systems like ChatGPT. The model’s success has sparked concerns about the future dominance of US tech giants, causing a sell-off of US tech stocks. This development’s seen as a potential equaliser in the AI field, particularly benefiting researchers and developers with limited resources.

Diving deeper, DeepSeek-R1 impresses because of its cost effectiveness. Trained for just $5.6m, it operates at 95.3% less cost than Anthropic’s Claude 3.5 Sonnet and charges users only 2% of OpenAI’s O1 model rates. Its four-stage training process, including large-scale reinforcement learning on reasoning problems, has achieved O1-level performance at a fraction of the cost of its peers.

However, there’s another angle. DeepSeek R1’s claimed to be built on “less advanced” or “last generation” Nvidia GPUs (Graphics Processing Units), in line with export controls on the most advanced chipsets.

Some analysts are questioning whether this is possible and it may be a matter of time before we find out more. DeepSeek published its methodology, meaning it can be copied and evaluated. Some analysts suggest that China has evaded export restrictions and R1 could have been built on higher-end chips.

What does this mean for tech?

This development challenges the assumption that cutting-edge AI requires massive investments in advanced hardware and infrastructure. In addition to companies like Nvidia, stocks in the data centre segment have taken the biggest hit. These are the firms responsible for building the AI infrastructure that the sector has been clamouring for over the past year. This includes rack-scale providers, cooling companies and those in networking.

As I write, Celestica‘s (NYSE:CLS) among the hardest hit stocks. Sadly, it’s one of my favourites with a price-to-earnings-to-growth (PEG) ratio consistently under one. Celestica’s a leading provider of electronic manufacturing services (EMS) and operates multiple manufacturing facilities worldwide. The company specialises in producing complex electronic components and systems for various industries.

Celestica’s business model heavily relies on serving large technology companies, particularly hyperscalers like Amazon and Google who are investing heavily in AI and data centres. In Q3 2024, hyperscaler revenue increased 54% to $761m, accounting for 30% of total revenue. Thus, if we’re seeing a massive breakthrough in AI cost-efficiency, Celestica may see a slowdown in sales growth.

However, there’s certainly a possibility all of this is being overplayed. After all, greater LLM efficiency combined with the rapid expansion of data centres could represent another quantum leap forward for AI, making it more accessible and compounding performance gains. Moreover, cheaper AI should hasten its adoption, particularly among SMEs and the broader market. This could become apparent in the coming months.

I may have considered buying more Celestica, but it’s already my largest holding by some distance. I don’t want to become over-concentrated.

The post What does DeepSeek mean for the stock market? appeared first on The Motley Fool UK.

It’s hard to recover from a loss

I’m one of those weird people who works with Bloomberg TV on in the background all day. It’s certainly useful, but I always remember a clip from an old advertorial — which was shown probably every 30 minutes — in which, I believe, Bill Ackman says “If you lose 50%, you’ve got to go 100% to get back to where you started”.

It’s very obvious, but it’s something I think many novice investors overlook. Recovering from a loss on an investment, notably one as large as 50%, is very challenging and, for some investors, they may find it impossible.

Putting this lesson into practice

Putting these lessons into practice is, in part, straightforward. Diversification’s necessary to avoid losses having an existential impact on an investor’s portfolio. This doesn’t mean we can’t invest in high-reward stocks, but it means we hedge our bets by spreading risk.

The next step is investing in stocks with a margin of safety or a really strong value proposition — this is actually another Buffett lesson. For me, this tends to revolve around the price-to-earnings-to-growth (PEG) ratio as my focus is growth stocks. If the stock in question trades with a significant PEG discount to the wider sector, then it’s something I’ll consider.

Incremental gains

As such, the objective isn’t to invest all our money into one stock and hope for a multibagger. Instead, it’s about investing in a range of stocks with strong prospects with the objective of significantly beating the market.

So how can £1 turn into £1m? The answer’s with £500 of monthly contributions, 26 years, and an average return of 12% — that’s above average for novice investors, but many achieve much stronger growth.

One stock to consider

I keep banging on about a stock called Celestica (NYSE:CLS), but I think it’s a good example of how people can think about investing with a margin of safety. The Canadian company designs, manufactures and provides supply chain solutions for the electronics industry. And the stock’s recent surge has been driven by demand for its switches and routers — and other items — which are vital for data communications and information infrastructure, especially in artificial intelligence (AI).

Now trading for $110 a share, I first bought Celestica at $26, but I still think the stock offers good value. That’s simply because the company’s performance gets better and better while medium-term forecasts have improved. Even now, the stock trades with a PEG ratio of 0.91 — a 51% discount to the information technology sector average.

The company could definitely have stronger margins and there are reports that sales are quite concentrated among a handful of top customers. However, I still think this is a great stock and worthy of further research. I’d buy more but it already exceeds my own rules for concentration risk.

The post Here’s how Warren Buffett’s No.1 lesson can help investors as they try to turn £1 into £1m appeared first on The Motley Fool UK.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Starting with a bit of context

Falling interest rates are typically a good omen for stocks, especially when recessions are avoided. UK stock returns averaged 31.5% during the 1996-1997 and 1998-1999 rate-cutting cycles. Meanwhile US stocks averaged 14.1% returns in all 11 rate-cutting cycles since 1980.

However, investors should also consider that the S&P 500 is currently running hot, with some lofty valuations and much of 2024’s growth concentrated in the ‘Magnificent Seven’ tech stocks. In fact, the average index price-to-earnings ratio is 23 times. It was around 16 times when Donald Trump last came to office. While AI may accelerate earnings growth, the index is certainly looking more expensive.

Additionally, sentiment around UK shares and the FTSE 100 appears to be souring following the lacklustre Labour Budget. The changes to National Insurance Contributions will costs British companies billions, while the economy appears to be stagnating. This combination of factors in the US and UK makes broad index trackers a less compelling option at the moment.

Pick stocks, not sectors or indexes

So, my personal opinion is that 2025 may not be the year to invest in index trackers or even sector trackers. Instead, investors may benefit from a slighter riskier strategy where they pick individual stocks that may appear undervalued and could benefit from prevailing economic conditions. It might take more time, more research, and require more activity to obtain some diversity, but it could be worth it. That would be my New Year’s resolution.

One to consider

Celestica (NYSE:CLS) is a Canadian electronics manufacturer and supply chains solutions company, which I’ve recently topped up on. I think it’s worth other investors considering it too. The stock is up 230% over 12 months and 300% since my first investment. This has been driven by demand for its Cloud Computing Solutions. This momentum is evident in its recent performance. Last quarter, sales jumped 22% year on year, earnings soared 60%.

The Toronto-based firm focuses on producing cutting-edge computing systems, switches, and other essential components that drive data centres — the foundation of AI infrastructure. That said, there are some risks, with revenue typically being concentrated among a small group of customers.

Even so, the outlook remains attractive. Aannual earnings growth is projected at roughly 30% over the next three to five years. And demand for 400G+ bandwidth is forecast to grow at a 52% CAGR over the next three years. Moreover, it currently trades with a price-to-earnings-to-growth (PEG) ratio of 0.88, an appealing metric both historically and in today’s market climate.

The post 1 New Year’s resolution for ISA investors appeared first on The Motley Fool UK.

The US market remains expensive and continues to attract global capital — and suck global capital away from other markets. But savvy investors can find promising investment opportunities everywhere, particularly in advanced technologies.

The rapid advancements in artificial intelligence (AI), quantum computing, biotechnology, and gene editing, to name a few, are creating exciting investment landscapes. The global AI market is projected to compound at around 30% for the rest of this decade. Even better, this technological advancement is also supercharging the pace of global innovation.

For investors looking to capitalise on these trends, diversification is key. A portfolio of well-chosen investments could prosper in 2025 as markets adapt to emerging technologies, shifting economic conditions, and evolving global dynamics. 

Success starts in 2025

So, where could investors look for success in 2025? Well, there’s a plethora of opportunities in the US and the UK, as well as elsewhere in the world.

Here are some investment options that rank well on a quantitative basis. Most of these have strong price-to-earnings-to-growth (PEG) ratios. The PEG ratio has traditionally been a useful tool for investors, indicating how expensive a company is relative to its growth forecast.

While past performance and PEG ratios are no guarantees of growth, investors can consider these stocks as potential starting points for building wealth. By putting £500 a month into an ISA and investing in top-rated stocks, investors could put themselves on the path to getting rich and, in the long run, generating a strong second income.

AI can push this stock higher

Celestica (NYSE:CLS) is a compelling investment opportunity in the current AI-driven market, in my view. With a remarkable 231% return over the past year, the stock isn’t short on momentum.

Despite this surge, the company’s valuation remains attractive, trading at 24 times forward earnings with an expected 28% compound annual growth rate in earnings. This results in a favourable PEG ratio of 0.88, indicating potential undervaluation.

Celestica’s success is largely attributed to its Cloud Computing Solutions segment, where the company’s computer hardware has seen increased demand by hyperscalers. Moreover, management’s strategic shift towards higher-margin cloud computing operations has paid off — the CCS segment now accounts for over two-thirds of revenue and grew by 42% in Q3.

Concentration risk does present a concern for investors, with 10 clients representing two-thirds of the business. But I think Celestica’s strong position in the AI and data centre market makes it an attractive option for investors seeking growth and value in the technology sector to consider.

The post 2025: a great opportunity for investors to get rich and work towards a second income? appeared first on The Motley Fool UK.

However, honing in on three companies, investors may want to consider Celestica (NYSE:CLS), Nu Holdings (NYSE:NU), and Gorilla Technology Group (NASDAQ:GRRR) for possible market-beating growth. Each of these companies possesses unique characteristics and growth potential that could drive significant stock appreciation.

Undervalued in AI

Celestica is beneficiary of the AI revolution, with the company providing hardware and supply chain solutions for hyperscalers and data centres. Driven by the company’s Connectivity & Cloud Solutions segment, earnings were up around 70% in the past quarter, and more robust growth is strongly indicated by the forecasts.

Celestica’s current price-to-earnings-to-growth (PEG) ratio of 0.88 suggests that the stock may be undervalued relative to its growth potential. In fact, several AI-focused peers are trading at more than double this ratio.

While Celestica is smashing estimates and looks great value, investors should bear in mind that only 10 clients account for two-thirds of sales. This could represent concentration risk. Nonetheless, with the growth forecast in mind, Celestica — my largest holding — has all the hallmarks of a potential big winner in 2025.

New banking

While there are host of neo banks in the UK, none of them have made a splash quite like Nubank, run by parent company Nu Holdings. The Warren Buffett-backed company, which is Latin America’s largest neo bank, has a market cap of $50bn as I write.

Nubank has generated explosive customer growth in recent years, reaching 109.7m global customers in Q3 2024, up from 89.1m year-over-year. This rapid expansion, particularly in Brazil, Mexico, and Colombia, is expected to continue as it leverages the financial needs of underbanked populations.

The company saw a 56% rise in revenue in the third quarter, while net income rose 82.6%. However, investors should be wary that the stock is valued heavily on expected growth. The forward price-to-earnings (P/E) ratio is 24.5 times, but this is forecast to fall to 8.5 times by 2027.

Moreover, some analysts have highlighted some potential challenges in loan management with a rising non-90+ day non-performing loan ratio. Despite the risks, this could be one of the cheapest stocks on the market based on earnings towards the end of the decade.

Gorilla Technology

Security, network, and business intelligence firm Gorilla Technology Group, while less well-known than the other two companies, has shown explosive growth potential that could mirror Nvidia’s success. The London-based AI firm is truly surging, up over 700% in the last six months.

The company recently updated its expectations for 2025, and it generated a lot of investor interest. With EBITDA rising rapid to between $18m to $25m in 2025 and net income exceeding $15m, it’s an interesting prospect with a market cap around $200m.

However, the truth is that the market doesn’t know a lot about Gorilla Group. While it looks like an interesting proposition on paper, very few analysts are covering the stock. It also has negative cash flow, and may struggle with execution risk as it scales to larger contracts. It may be a risky investment, but the potential is huge.

The post 3 companies that could emulate Nvidia stock’s success in 2025 appeared first on The Motley Fool UK.

This wealth could be used to facilitate an early retirement and complement any pensions pots an investor may have. And investors don’t have to max out their ISA contributions to build a portfolio that could generate significant passive income.

Here, I’ll explain how a 30-year-old could build a large retirement pot in a Stocks and Shares ISA by contributing just £500 a month.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Caution to the wind

Many novice investors are motivated by get-rich-quick stories, but this can prove dangerous, especially if the investors in question elect to concentrate their investments in one or two stocks. After all, if an investor loses 50% of their investments, they’ve got to gain 100% just to get back to where they started.

However, the path to success lies in diversification, and diversification doesn’t mean slow or low returns. For instance, my portfolio surged 79% between 1 March and 30 December despite having around 25 stocks, bonds, and funds in my portfolio.

Diversification also protects us against any poor investment decisions we might have made. And trust me, even the best researched investments can go wrong: I thought Vistry Group was a winner in the UK housebuilding sector — it turns out that the company had vastly underestimated costs.

Sensible investments can generate big returns

An investor with £500 a month could look to achieve this diversification by making one or two investments per month. But there’s nothing to stop each of these investments being the next big winners or multi-baggers, even though modest growth is all we need to leverage compound returns over the long run.

At 30, most people will be expected to work for another 38 years. So, let’s visualise how £500 invested monthly could grow over 38 years.

As we can see, the rate of growth proves to be very important as the portfolio compounds over time.

• 5% growth: the portfolio reaches approximately £574,000.
• 10% growth: the portfolio grows significantly more, reaching around £1,518,000.
• 15% growth: the portfolio soars to a substantial £4,069,000.

This money can be withdrawn tax free!

A starting point

Investors could consider a stock called Celestica (NYSE:CLS) as a starting point with their £500 per month. This Canadian company has surged on the growing demand for computer hardware on the back of the artificial intelligence (AI) revolution.

Driven by growth in its Cloud Computing Solutions, the business has recorded approximately 70% growth in earnings over the past 12 months. And moving forward, the company’s earnings are expected to grow by 28% annually over the next three to five years.

While this stock has surged already, the evidence suggests it’s still undervalued. At 24 times forward earnings and with a price-to-earnings-to-growth (PEG) ratio of 0.88, it trades at a considerable discount to tech peers.

A concentration of sales among 10 clients is one reason for concern, and we could see some profit taking after the recent bull run. However, it’s a stock worthy of consideration. It’s also my biggest holding, which I recently topped up despite a 250% rally since my first investment.

The post If a 30-year-old puts £500 a month into a Stocks & Shares ISA, here’s what they could have by retirement appeared first on The Motley Fool UK.

Want to see how investing for passive income works? Well, here’s how much an investor could generate by taking a long-term approach and reaping the benefits of compound returns.

Returns may vary

If a UK resident were to open a Stocks and Shares ISA today and start investing £500 a month in stocks, they’d need to accept that the growth of their investments is by no means guaranteed.

Stock markets are inherently volatile, with values fluctuating based on economic conditions, corporate performance, and global events. However, by making sensible investment decisions, individuals can increase their chances of achieving their financial goals over the long term.

On the other hand, if we invest in the wrong assets, we could be looking at negative returns. And if we lose 50% on an investment, we’ve got to go 100% to get back to where we were. That’s why billionaire investor Warren Buffett’s first rule is: “Don’t lose money”.

Here you can see how higher growth rates dramatically accelerate the portfolio’s value over 30 years, emphasising the importance of intelligent decision-making and compounding in long-term investing.

At the higher end of the above example, these investment — worth nearly £3m — could easily generate £150,000 in passive income annually. At the lower end, well, investors might have to settle for less than £15,000.

Investors could consider Celestica

So where could investors start? Well, one company to consider with attractive valuation metrics, strong momentum, and benefitting from supportive trends is Celestica (NYSE:CLS).

Celestica has emerged as a beneficiary of the ongoing revolution in artificial intelligence (AI) and the surging demand for high-performance hardware. The Toronto-based company specialises in manufacturing advanced computing systems, switches, and other critical components that power data centres — the backbone of AI infrastructure.

These supportive trends have been clearly reflected in sales, earnings, and the share price. In the last quarter, sales were up 22% year on year, earnings +60%, and the share price has surged more than 200% over 12 months.

The downsides? Just 10 customers represent more than two-thirds of sales. This introduces an element of concentration risk and it’s something worth bearing in mind.

However, investors will likely be buoyed by the earnings growth forecast — around 30% annually over the next three to five years. This growth expectation leads us to a price-to-earnings-to-growth (PEG) ratio of 0.88. That’s attractive by historical standards and exceptional in the current market.

The post If an investor puts £500 a month in an ISA, here’s how much passive income they could generate appeared first on The Motley Fool UK.

Consistent contributions remains key

Writing at the end of 2024, it seems appropriate to highlight that trees don’t grow to the sky. The US stock market has delivered incredible growth over the past 12 months, but with valuations looking quite spicy, it may not be a great time to invest a big chunk of money.

Instead, maintaining consistent investment contributions is a wise strategy. This approach, known as pound cost averaging, involves investing a fixed amount at regular intervals, regardless of market conditions.

Benefits of this strategy include:

• Mitigating the impact of market volatility by averaging out the cost of shares over time
• Encouraging disciplined investing habits
• Reducing the stress of trying to time the market perfectly

Taking the emotion out of it

The second strategy involves using quantitative models for investing, and moving as far away as possible from investing based on pure emotion. This should help investors navigate what is becoming an increasingly complex market environment, characterised by enhanced volatility and, in the US at least, sky-high valuations.

And while investors may have been rewarded in recent years for picking US stock market trackers, it may be a good time to use quantitative models to find pockets of value within the market.

One stock that continues to stand out for me is Celestica (NYSE:CLS). The stock is up 250% over the past year, indicating that it has very strong momentum. However, it’s currently trading at 25 times forward earnings and is expected to grow earnings by a compound annual growth rate of 28% over the medium term. This leads us to a price-to-earnings growth (PEG) ratio of 0.92. That’s a bargain in the current climate.

The company operates two main business segments — Advanced Technology Solutions and Cloud Computing Solutions — and has surged on the back of demand for products and lifecycle services in the cloud segments, much of it related to artificial intelligence (AI).

However, investments aren’t risk free. Some analysts have highlighted that two-thirds of Celestica’s business comes from just 10 clients, suggesting some degree of concentration risk.

Nonetheless, it’s hard to argue that this isn’t a business on the up. The AI boom has allowed the company to shift towards higher margin operations in cloud computing. The group now receives more than two-thirds of its revenue from the CCS segment, which grew by 42% in Q3, while the ATS segment, which includes serving the aviation industry, only grew by 5%.

Momentum, growth, profitability, and attractive valuation. This stock has a lot going for it. Celestica is my largest holding and I’ve recently added to it.

The post 2 ISA strategies for success in 2025 appeared first on The Motley Fool UK.