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The stock market is having an up year in 2024, driven higher by the stampeding US bull market and widespread excitement about the revolutionary potential of artificial intelligence (AI).
My own portfolio is on track for one of its best ever years. That said, there’s still a few trading days of the year left, so I’m not counting my chickens just yet.
Getting started early
Younger people today are investing more than ever before. According to the World Economy Forum, 70% of retail investors globally are aged under 45.
This is a smart move on their part. The earlier one starts investing, the longer investments can grow. And it’s time that turbocharges the compounding process (interest building upon interest).
For example, let’s assume two people start investing for retirement at 70, putting away £500 a month. The difference in outcomes between starting at age 35 and 25 is astonishing.
| Investor starting at 35 | |
|---|---|
| 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 |
| Investor starting at 25 | |
|---|---|
| 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 |
| 40 | £2,110,920 |
| 45 | £3,285,302 |
The tables show a difference of nearly £2m! And all because one investor had a 10-year head start getting the compound snowball rolling with their £500 a month.
Jumping straight in
However, some of these tech-savvy young investors might be making a mistake. That’s because around 66% of them are spending less than 24 hours deciding what to invest in.
As Andrew Prosser, Head of Investments at InvestEngine, points out: “Younger investors have been raised on digital services that are immediate and convenient, so it’s not surprising that two-thirds of young people spend less than a day deciding on where to invest their savings.”
The risk here is that rushed investing decisions might lead to poorer results. Prosser adds: “Younger generations would be wise to take some time before investing, to understand their appetite for risk, and to diversify their investments, so that when one stock falls, the whole portfolio doesn’t fall with it.”
He recommends exchange-traded funds (ETFs) as a good choice, as they track indexes, thereby reducing risk through diversification.
One of the most popular is the Vanguard S&P 500 UCITS ETF, which tracks the largest blue-chip US stocks. It’s up around 200% in 10 years.
Battling my own FOMO
The risk with making investing decisions inside 24 hours is that they might be motivated by FOMO (fear of missing out). Those are four very dangerous words for an investor.
I know this first-hand. I’ve been feeling pangs of FOMO recently with Joby Aviation (NYSE: JOBY). This is an intriguing company aiming to launch an Uber-like electric air taxi service in late 2025.
I first bought this high-risk stock at $4 in March 2023, then again this year at $5. After surging 42% in two months, it now trades for just under $8.
Yet instead of being satisfied with that, I’ve been wondering whether I should invest more money, just in case it goes even higher. FOMO, in other words.
I won’t because Joby is yet to receive clearance for its aircraft (though it’s getting closer). Plus, we don’t know what demand there’ll be for flying taxis (though some analysts see the market opportunity reaching $1trn+ by 2040).
Joby is backed by Toyota, the best-selling carmaker in the world, and Uber. It’s one of the most exciting — but also riskiest — stocks I hold.
