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The stock market is having a bullish year in 2024, driven higher by a volatile US bull market and widespread excitement about the transformative potential of artificial intelligence (AI).
My portfolio is on track to have one of its best years. That said, there are still a few trade days of the year left, so I’m not counting my chickens just yet.
Early start
Young people today are investing more than ever. According to the World Economy Forum, 70% of retail investors worldwide are under the age of 45.
This is a smart move on their part. Once a person starts investing, long-term investments can grow. And it’s time to turbo charge the compounding process (interest that builds upon interest).
For example, let’s imagine two people start investing for retirement at age 70, putting away £500 a month. The difference in results between starting at age 35 and at age 25 is amazing.
| An investor starting at 35 | |
|---|---|
| A year | balance* |
| 1 | £6,247 |
| 5 | £37,389 |
| 10 | £94,917 |
| 15 | £183,432 |
| 20 | £319,622 |
| 25 | £529,168 |
| 30 | £851,581 |
| 35 | £1,347,652 |
| An investor starting at 25 | |
|---|---|
| A year | The balance |
| 1 | £6,247 |
| 5 | £37,389 |
| 10 | £94,917 |
| 15 | £183,432 |
| 20 | £319,622 |
| 25 | £529,168 |
| 30 | £851,581 |
| 35 | £1,347,652 |
| 40 | £2,110,920 |
| 45 | £3,285,302 |
The tables show a difference of almost £2m! And all because one investor had a 10-year head start that snowballed with their £500 a month.
Jumping straight in
However, some of these tech-savvy young investors may be making a mistake. This is because almost 66% of them spend less than 24 hours deciding what to invest.
As Andrew Prosser, Head of Investments at InvestEngine, comments: “Young investors have been raised on fast and easy digital services, so it’s no surprise that two-thirds of young people spend less than a day deciding where to invest their money..”
The danger here is that hasty investment decisions can lead to very bad results. Prosser adds: “Younger generations will be wise to take time before investing, to understand their appetite for risk, and to diversify their funds, so that if one stock falls, the whole portfolio does not fall with it..”
He recommends exchange-traded funds (ETFs) as a good choice, as they track indices, thus reducing risk through diversification.
One of the most popular is Vanguard S&P 500 UCITS ETFwhich tracks major US blue-chip stocks. It’s up almost 200% in 10 years.
Fighting my FOMO
The danger with making investment decisions within 24 hours is that they may be motivated by FOMO (fear of missing out). Those are the four most dangerous words for an investor.
I know this personally. I’ve been feeling pangs of FOMO lately Joby Aviation (NYSE: JOB). This is an exciting company that aims to introduce a Uber-such as an electric air taxi service by late 2025.
I first bought this very risky stock at $4 in March 2023, and again this year at $5. After rising 42% in two months, it is now trading below $8.
However instead of being satisfied with that, I have been wondering if I should invest more money, in case it goes up a lot. FOMO, in other words.
He won’t because Joby has not received permission for his flight (although it is getting closer). Also, we don’t know what the demand for flying taxis will be (although some analysts see a market opportunity of up to $1trn+ in 2040).
Joy is supported Toyotathe world’s best-selling car company, and Uber. It’s one of the most exciting – but also the most dangerous – stocks I own.
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