If I Started Investing In 2024, This Is What I Would Do
Summary
TLDRThe video outlines the speaker's investment strategy for 2024, emphasizing the unpredictability of the market and the risks of concentrating on a few top-performing stocks like the 'Magnificent 7'. Instead, the speaker advocates for a diversified approach through low-cost index funds, highlighting the historical performance of the S&P 500 and the importance of long-term, tax-efficient investing. The speaker also stresses that while investing is crucial, focusing on personal growth and income generation in one's career can significantly enhance overall financial success.
Takeaways
- 🚀 Tech stocks, particularly the 'Magnificent 7' (Meta, Apple, Amazon, Alphabet/Google, Microsoft, Nvidia, Tesla), were the top performers in 2023.
- 📈 The S&P 500 has seen an overall increase of about 23% since January, with the 'Magnificent 7' contributing significantly to this growth.
- 🔄 Market capitalization of the top companies changes over time, indicating that the biggest businesses can shift.
- 🌐 A global index fund can be a smart investment choice as it captures the performance of the entire market, not just a few standout companies.
- 📊 Historical data suggests that a long-term investment horizon of 10 years or more significantly increases the likelihood of positive returns.
- 💡 Investing should not be seen as a quick path to wealth but rather as a consistent, long-term strategy alongside other income-generating activities.
- 🛠️ The focus should be on maximizing day-to-day income and investments, rather than obsessing over minor differences in investment returns.
- 💼 Tax-efficient accounts like pensions or ISAs in the UK are recommended for protecting investments from tax.
- 🔍 Research and understand the terminology associated with index funds to make informed investment decisions.
- 🌍 A diversified approach to investing, considering both US and global markets, can be beneficial due to the cyclical performance of different markets.
- 🎯 The video provides resources for further exploration of investment strategies and tools for making informed decisions.
Q & A
What is the main theme that drove the market in 2023?
-The main theme that drove the market in 2023 was tech stocks, particularly the so-called Magnificent 7 companies.
Which companies are referred to as the 'Magnificent 7'?
-The 'Magnificent 7' refers to Meta (Facebook), Apple, Nvidia, Microsoft, Amazon, Alphabet (Google), and Tesla.
How have the Magnificent 7 performed in the last 5 years as of the recording date?
-In the last 5 years, Tesla and Nvidia have produced returns of 783% and 829% for investors, respectively.
How does the performance of the Magnificent 7 compare to the S&P 500 as a whole?
-While the S&P 500 has seen an increase of about 23% since January, the Magnificent 7 alone have increased by 70% as a group on average.
What is the significance of the top 20 companies by market capitalization changing over time?
-The changing composition of the top 20 companies by market capitalization over time illustrates that the biggest businesses and market leaders can change frequently, and past performance does not guarantee future success.
What did the study by Dr. Hendrick Bessen and colleagues from Arizona State University reveal about the stock market?
-The study revealed that between 1926 and 2015, 32 trillion of wealth generated by the stock market was created by just 4% of businesses, indicating that a small number of companies drive significant returns.
Why does the speaker prefer investing in low-cost index funds rather than picking individual companies?
-The speaker prefers low-cost index funds because they offer diversification, reduce the risk of missing out on the next big thing, and do not require the investor to be a stock-picking genius. This approach is more likely to achieve long-term financial goals.
What does Warren Buffett recommend for most investors regarding common stocks?
-Warren Buffett recommends that most investors will find the best way to own common stocks is through an index fund, as this approach tends to beat the net results delivered by the majority of investment professionals.
How does the speaker feel about betting on the continued dominance of American markets?
-The speaker is unsure about betting on the continued dominance of American markets, as historical performance shows that the influence of countries shifts over time, and it's uncertain whether America will maintain its exceptional performance.
What is the speaker's strategy for investing?
-The speaker's strategy is to invest in a global index fund with a long-term horizon, using a tax-efficient account, and focusing on consistent, monthly investments rather than trying to time the market or pick individual stocks.
Why does the speaker emphasize that investing should be a boring activity?
-The speaker emphasizes that investing should be boring because it's a long-term strategy that involves consistent, automatic contributions rather than constant monitoring and reacting to market fluctuations. This approach allows the investor to focus on other areas of life that can produce meaningful returns.
Outlines
🚀 Investing in 2024: The Thought Process
The speaker begins by outlining their personal thought process on investing in 2024. They discuss the temptation to invest in the 'Magnificent 7' tech stocks that dominated the market in 2023, including Meta (Facebook), Apple, Nvidia, Microsoft, Amazon, Alphabet (Google), and Tesla. Despite their recent success, the speaker warns against concentrating investments on these companies, as the market's top performers change over time. They emphasize the importance of not relying solely on the past performance of stocks and consider a diversified investment approach.
🌐 Diversification Through Index Funds
The speaker advocates for diversification by investing in low-cost index funds rather than individual stocks. They explain that index funds allow investors to own a piece of a wide market segment, reducing the risk associated with picking individual winners. The speaker also discusses the historical performance of the S&P 500 and how it has consistently provided average returns, despite the constant change in its constituent companies. They argue that this long-term, cyclical performance is a safer bet than focusing on a few companies or even the entire American market.
💼 Practical Steps for Investment
The speaker shares practical steps for investing, starting with choosing the right account to maximize tax efficiency, such as a pension or an ISA (Individual Savings Account) in the UK. They also discuss the importance of selecting a platform to invest through and provide resources for finding the best brokers and ISA providers. The speaker emphasizes the need to understand fund names and offers a glossary to help decode them. Finally, they caution against viewing investing as a quick path to wealth and instead, encourage a balanced approach that focuses on both market investments and personal skill development.
Mindmap
Keywords
💡Investing
💡Tech Stocks
💡Magnificent 7
💡Market Capitalization
💡Index Funds
💡Diversification
💡Compounding
💡Tax Efficiency
💡Risk Management
💡Long-Term Investment
Highlights
The speaker outlines their thought process for investing in 2024, emphasizing that it's not financial advice but personal opinion.
Tech stocks, particularly the 'Magnificent 7' (Meta, Apple, Nvidia, Microsoft, Amazon, Alphabet, and Tesla), were the standout performers in 2023.
The 'Magnificent 7' have significantly outperformed the S&P 500, with a 70% increase as a group compared to the index's 23% rise.
The speaker warns against the temptation of only investing in the 'Magnificent 7' due to their recent success, as the top companies change over time.
The speaker discusses the importance of diversification, noting that a concentrated bet on a few stocks risks missing out on the next big opportunity.
Investing in low-cost index funds is presented as a strategy that doesn't require stock-picking skills or luck, aligning with Warren Buffett's advice.
The speaker explains that index funds allow investors to capture the entire market's growth rather than focusing on specific sectors or countries.
Historical data shows that the performance of the US versus the world moves in cycles, suggesting that betting solely on American markets may not always be the best strategy.
The speaker advocates for a long-term investment horizon, emphasizing that the chances of making money in the stock market increase significantly with longer time frames.
Investing should be seen as a steady, boring process rather than a means for quick riches, according to the speaker.
The speaker suggests focusing on improving one's day-to-day skills and income potential rather than obsessing over minor investment returns.
The speaker provides resources for further exploration of investment strategies and tax-efficient account options.
A Google sheet is mentioned as a resource to help decode fund names and understand the differences between various popular funds.
The speaker concludes by encouraging viewers to take action and reminding them that investing is a long-term endeavor.
Transcripts
in this video I'm going to outline my
exact thought process on what I would do
if I was starting to invest in 2024
we'll discuss what I would buy why and
how and I do hope you understand that
this isn't financial advice it's just me
giving you my opinions on what I would
do but below I've linked loads of
further resources for you to help you
make your own decision and to help make
this easier but let's just start with
what would I buy with
literally if we look back at what drove
the market in 2023 well there is one
theme tech stocks were certainly the
star of the show for most of 2023 the
so-called magnificent 7 magnificent 7
magnificent 7 The Magnificent 7
Magnificent the Magnificent 7 is a name
given to just seven companies meta
platforms AKA Facebook Apple Nvidia
Microsoft Amazon alphabet or Google and
Tesla unless you have a very supportive
M like mine who doesn't want to destroy
your already fragile ego you don't get
called Magnificent without doing
something pretty impressive and there is
no denying that these companies have
been smashing it recently if we look at
the Last 5 Years alone we can see that
the likes of Tesla and Nvidia have
produced returns of 783 and 829 for
investors at the time of recording this
if we look at a list of the top 500
companies in America the so-called S&P
500 we can see that since January it's
up about 23% this is an amazing return
but the Magnificent 7 alone are up 70%
as a group on average if you strip out
the Magnificent 7 from the S&P 500 in
America then the other 493 or so
companies that are left are only up
about 6% a handful of the companies are
flown while the rest of the American
Market has essentially dragged that
performance down if you'd only bet on
the Magnificent 7 you would have done
very well indeed in the last year so the
temptation as a new investor is to go
well I'll just do that then these guys
win so I'll just buy these seven
businesses but hold on a second on
screen now are the top 20 companies in
America based on Market capital
capitalization all that simply means is
the total value of all the shares added
together I want you to focus on just the
top four here for a second all familiar
names or part of that magnificent 7
let's now just go back 10 years to 2013
the top four look a bit different
Walmart and X on mobile feature in this
list another 10 years back to 2003 and
only Microsoft is still there we also
have General Electric in the mix go back
to 93 there is no magnificent 7
Coca-Cola is right up there and in 1990
just 3 years before it all looks
different again what I'm trying to show
you is here that the biggest businesses
in America and the world changes pretty
often what might be a magnificent
company say back in the day like Ron in
the early '90s doesn't even make the top
20 30 years later on I'll be investing
for at least a decade more on that in a
moment but am I confident that the
companies I think are sure fire bets
today will be that over that kind of
timeline and more importantly by betting
on a handful of businesses am I going to
miss out on the next big thing in 1990
could I have seen the rise of the
Magnificent 7 of course not I'd be all
in on Coca-Cola and Exxon two companies
that produce strange black liquids oil
is like liquid gold that might have been
a good strategy that might have served
me well over that time period but I
might have also missed out on the next
big thing identifying which companies
will be the one that drives the returns
is pretty tough in 2018 Dr Hendrick
bessen binder from Arizona State
University released this paper within it
there were some pretty startling
observations around the stock market he
found that between 1926 in 2015 the 32
trillion of wealth generated by the
stock market was delivered by just 4% of
businesses so what about the rest of the
companies what did they do most of them
failed Vladimir mik found that of the
500 companies in the S&P 500 as of
October 1st 1990 only 302 of them were
still in existence 10 years later I hope
you can see that just backing the
winners of the last year is an approach
that's full of risk a sort of recency
bias if you will so if only a handful of
companies win but that handful changes
constantly how are we meant to decide
what to buy well using the example of
the S&P 500 again even though the makeup
of that list changes year by year for
the last 100 years it has somehow still
managed to produce an average return of
about
10.53% for investors before inflation
that means an investment of about2 200 a
month for 40 years at those rates of
return would produce a pot worth 1.5
million off deposits of about 96,000
I've just taken a while there to explain
my reasoning as to why I personally
don't focus on picking individual
companies and instead I buy lowcost
index funds because essentially my
opinion is it's that approach that is
most likely to allow me to achieve my
financial goals and it doesn't require
me getting incredibly lucky or being a
stock picking genius Warren Buffett
arguably the greatest investor ever said
himself most investors both
institutional and individual will find
the best way to own Common Stocks is
through an index fund those following
this path are sure to beat the net
results after fees and expenses
delivered by the vast majority of
investment professionals so an index is
just a list of companies and an index
fund is a pot of money that buys the
businesses on that list the next
question is then what Index Fund do we
buy it take the guess work out of
investing like a steady hand there are
index funds that do all sorts of things
you can track the top 500 companies in
America that's the S&P 500 we spoke
about before you can track every listed
business in America you can track the
world you can track the world without
America track the world without the UK
India Japan I mean just take your pick
you can literally choose the market you
want to track but should you on screen
is a chart that shows the evolution of
the global stock market since the 1900s
up to about a couple of years ago notice
how the relative standings of countries
change over time in 1900 the UK was
about 25% of the global stock market
today it's around 4% in the 70s and '
80s Japan Rose to become a global
superpower and people thought it would
replace America as the dominant Market
on the planet then this happened here
this pie chart shows the same thing
nicely so you have on the left the
percentage of the global stock market a
country made up in 1899 and then on the
right how much of the market they had in
2020 America's actually even more than
this now it's about 60 65% of the global
market depending on how you measure it
America's performance in the last decade
especially has been exceptional which
leads investors to go well I'll just
keep buying America then but it's kind
of similar to The Magnificent 7p point
before over time the influence of
countries shifts the Indian stock market
just overtook Hong Kong as the seventh
most valuable Market in the world many
would argue that the UK Market is very
cheap at the moment I mean maybe that's
for good reason but in the '90s and
early u0s the UK stock market was place
to be I cover this topic of the USA
markets versus the rest of the world in
detail in a video that I'll link in the
end cards if you want to explore it
further and I will say that I think both
a USA only and a global approach will
work well for investors when you buy the
global market 65% of what you buy is
going into America anyway but in the
same way just buying the Magnificent 7
is a concentrated bet on a handful of
stocks and then runs the risk of missing
out on the next big thing so is a bet on
the American markets in my opinion
betting on their continued dominance is
basically saying I think they're going
to do better than everyone else and I'm
just not sure that is the case
historically the performance of America
versus the world has moved in Cycles as
we can see here you've probably noticed
there's an overall theme to my
investment approach I can't predict what
will happen in the next 12 months I
don't even know what's going to happen
in the next 12 minutes let alone 12
years out so what history has shown us
is that companies and whole countries
rise and fall in their influence so why
bet on a specific section of the global
economy when I can just capture it all
and ride the long-term trend of the
market upwards whatever you decide to do
is up to you and honestly it's kind of
like going the gym is an all over
compound routine 3 times a week or a
five-day bro split the best thing to do
in the gym the answer is both will help
you build muscle if you consistently do
them long term in a minute I'll talk you
through precisely about where I would
buy these funds and give you the sorts
of tools that I would use to decipher
the names of them but what I want to do
first of all is kind of talk about this
time point in a little bit more detail
pick any day between January 1971 and
July 2022 and invest for just 24 hours
in a global Index Fund you would have
had about a 52% chance of making money a
toss of a coin now pick any day and
invest for 3 months instead your odds of
winning rise to
65.6% if you increase that time period
for a year then your chances of winning
up to 73% and 10 years or more 94% and
this is why you hear people saying any
money that you invest you should be
really prepared to tuck that away for 10
years or more just to highlight that
point further here are the annual
returns of the S&P 500 every year since
the late 1920s this line here on screen
shows the average return of 10% a year
that we discussed before but notice that
in almost none of the years did the
market give you the return of 10% only
one or two are actually close the 10%
return is made up of Lo Lo of ups and
downs it's a wild ride this and it's one
that you have to stay on to see the
benefit okay so now you know my
justification as to why by a global
index f with a 10-e Time Horizon also
now let's look at how I actually buy the
investment and where before I buy the
investment I need an account to put it
in I want that account to be a tax
efficient account that protects me from
tax in the UK this is typically either a
pension or some sort of Isa for stocks
and shares you would either use a stocks
and shares Isa or maybe you could use a
li as well the key thing here is to use
an account that shelters your
investments from tax there's a large
amount of people in the UK that still
use General investment accounts even
though they've not maxed out their ISO
pension allowance again completely up to
you but for me personally I would always
be maxing those allowances before I
considered investing outside of an Isa
or a pension or a sip especially when
the allowances for capital gains and
dividend taxes are so low at the moment
in the description of this video there
is a link to a video that covers all of
the benefits of all of the different
types of ises if you need a refresher on
those okay now picking a platform going
through every platform its features and
then all of the different funds on these
platforms would honestly take hours so
what I've done to speed this up first of
all I link all of my favorite Brokers
that I use in the description of every
video you'll also find next to that a
video I make every year that tells you
my favorite Isa providers and why but
I've also put together this Google sheet
where I cover some of the most popular
Global and US focused funds on a few of
the most popular platforms here in the
UK these are not recommendations just
simply me trying to explain what some of
the most popular funds are so that I can
help you see some of the differences
more importantly I've put together an
extensive glossery of fun terms so when
you look at the names you can see what
each bit means hopefully I'm thinking
this will be more useful and will help
you decode some of these names a little
bit teach your person to fish and all
that again this sheet isn't investment
advice it's just me trying to help you
tocode the absolute nonsense that is
forun names I think they're a bit of a
major barrier to people investing in
lowcost index funds because they just
see the names and they don't know what's
going on now the final thing that I
think it's important for us to
understand about all of this is
investing isn't going to make you rich
well it will but hear me out I remember
when I first discovered the idea of
investing and the power of compounding
and it was like some light bulb went off
in my brain it was like this is the
thing I will do this is the thing that's
going to sort my life out all it's going
to take is 20 to 30 years of dedication
and consistency and then I'll be a maid
man I think this is the wrong way to
view investing for two reasons it
encourages you to focus on investing too
much and it just places your goal well
off into the distance and then you can
fall into that trap of you know I'll be
happy once I get there what I've learned
over time is that while investing will
make you rich in the traditional sense
as in by the time I turn 60 or whatever
I'll probably have a lot of money
focusing on my investments loads takes
away from the habits in my life to
actually Drive meaningful returns I see
people obsessing over what the best
Index Fund is or this investment return
this last year and this one did this or
this is the best fund manager going
sweating hard for an extra one or 2% a
year that you know does make a big
difference if you invest £200 a month
for 30 years at 10% you get £ 456,000
but if you get an extra 2% a year you
then end up with £700,000 which is a
really big difference but instead of
focusing effort on the stock market
which let's face it probably isn't your
area of expertise otherwise why would
you be watching a video that's aimed at
beginners I personally would just see
the stock market as a place that I part
my money and then I would go focus on
leveling up what I do dayto day get a
promotion move jobs up skill whatever
invest your time there and let's say
instead of you know getting that extra
2% return in the market you find a way
to double what you invest each month on
average through a side hustle or a
promotion instead of £200 a month you
get to £400 a month well then you'll end
up with £900,000 I might sit here every
week cracking jokes and slapping beats
on investing content in an attempt to
kind of jazz it up a bit but the truth
is investing should be boring I want to
track the market inside of a tax
efficient account and I want to do that
every month and I just want to set it
and forget it it's a place to compound
the wealth that you're generating in
your day-to-day life because it's in
that day-to-day life where you have
control where you can take the risks and
roll the dice and upskill and just tear
up basically because that will
produce the outside returns you can then
take those returns and plug them in the
market where hopefully they'll generate
you a nice return over the next few
years here's that video where I discuss
America versus the rest of the world in
more detail and here's the one where I
discuss what I think are the best Isa
providers in the UK at the moment but
below there are loads of links to help
you get started with all of this but
just before we sign off well done for
taking action 2024 is going to be
amazing you're amazing and here's one of
those big Beats mentioned thank
[Music]
you
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