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
