If I Started Investing In 2024, This Is What I Would Do

Summary

The 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

00:00

🚀 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.

05:02

🌐 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.

10:02

💼 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.

Keywords

💡Investing

Investing refers to the act of allocating resources, usually money, with the expectation of generating an income or profit in the future. In the context of the video, investing is about making decisions on where to put one's money to grow wealth over time, with a focus on the stock market and index funds.

💡Tech Stocks

Tech stocks are shares in companies that belong to the technology sector. These companies are typically involved in the development, manufacturing, or distribution of electronic hardware, software, or other related technology services. In the video, the speaker mentions that tech stocks, particularly the 'Magnificent 7', were the top performers in 2023.

💡Magnificent 7

The 'Magnificent 7' is a term used in the video to describe seven prominent technology companies that have been particularly successful in the stock market. This group includes Meta, Apple, Nvidia, Microsoft, Amazon, Alphabet, and Tesla. The term emphasizes their outstanding performance and market influence.

💡Market Capitalization

Market capitalization, or market cap, is the total value of all a company's shares of stock. It is calculated by multiplying the company's share price by its total number of outstanding shares. In the video, the speaker uses market capitalization to discuss the top companies in America and how this list changes over time.

💡Index Funds

Index funds are a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to mimic the composition of a financial market index, such as the S&P 500. The speaker in the video advocates for investing in low-cost index funds as a strategy for long-term wealth accumulation, rather than trying to pick individual winning stocks.

💡Diversification

Diversification is an investment strategy that involves spreading investments across various financial instruments, industries, and other categories to optimize potential returns and minimize risk. The video emphasizes the importance of not concentrating investments in a few stocks or sectors but rather diversifying across the entire market.

💡Compounding

Compounding refers to the process by which an investment grows not only from the initial principal but also from any earnings or interest that the investment generates. In the video, the speaker discusses the power of compounding as a key to wealth accumulation over the long term.

💡Tax Efficiency

Tax efficiency in investing refers to the strategy of minimizing the tax impact on investment returns. The speaker in the video emphasizes the importance of using tax-efficient accounts, such as pensions or ISAs, to shelter investments from taxes and maximize returns.

💡Risk Management

Risk management is the process of identifying, assessing, and prioritizing risks followed by coordinating and implementing appropriate responses to minimize, monitor, and control the probability or impact of unfortunate events. In the video, the speaker discusses risk management in the context of investing by avoiding putting all eggs in one basket and instead spreading investments across a broad market index.

💡Long-Term Investment

Long-term investment refers to the strategy of holding investments for an extended period, typically more than a year, with the expectation that they will grow in value over time. The speaker in the video advocates for a long-term investment approach, emphasizing the benefits of consistent, long-term investing over trying to time the market or chase short-term gains.

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