The First 10 Years are the Most Important!

A Look at the Markets: S&P 500

The Fed announced a 0.5% cut in interest rates this week (Wednesday, 18th September 2024). After initially closing lower following the announcement, the markets opened higher yesterday as they digested the news.

Markets often experience an initial drop after the first interest rate cut in a cycle. This week’s cut was the first in four years. However, according to data released by Charles Schwab, the S&P 500 produced positive returns in the 12 months following the first cut in 12 out of the last 14 cycles, going back to 1929. Of course, past performance is no guarantee of future results.

The First 10 Years are the Most Important!

In last week’s newsletter (13th September 2024), we explored the power of compound interest. I want to expand that this week with an example of two recent graduates. Let’s call them Tom and Jill. Both are 25 years old and have just started their first job.

Tom doesn’t think much about his financial future and doesn’t invest anything until he is 35. He then invests 500€ a month until he is 65.

Jill thinks about her financial future. Additionally, she realises that, because she does not have any dependents (children), now might be the easiest time to invest some of her earnings. Jill invests 500€ a month for 10 years. When she is 35 Jill gets married and has children and does not invest any more money. However, she does leave the money in her investment account.

Tom invests 500€ × 12 (months) × 30 (years) = 180,000€

Jill invests 500€ × 12 (months) × 10 (years) = 60,000€

Who, do you think has the bigger investment when they retire at age 65?

Let’s do the maths. Let’s assume an average return in the stock market of 10% per annum.

Tom’s compounded returns at age 65 would be 1,139,662€. Pretty good, right?

Jill’s compounded returns after 10 years would be 103,276€.

Without adding any more money, Jill leaves this to grow in her investment account until she is 65 (another 30 years).

Jill’s compounded returns at age 65 would be 2,048,727€!

If either Tom had decided to start investing earlier, or Jill had continued investing 500€ a month for 30 years, their return would have been 3,188,390€.

What is the message?

If you are lucky enough to be 25 years old or younger start thinking about your financial future now!

If you are over 25 and still have not started investing, well, start thinking about your financial future now! 😊

Blackrock - Bitcoin: A Unique Diversifier

Last week, BlackRock released a nine-page white paper positioning Bitcoin as a hedge against global disorder. This is notable given BlackRock’s CEO, Larry Fink, had been famously sceptical of cryptocurrencies in the past. The paper signals a shift in sentiment within the world's largest asset manager, which oversees over $9 trillion in assets.

The report highlights the rising risks in today’s world:

However, the report also stresses that Bitcoin is "obviously a risky asset on a standalone basis" and carefully assesses its role within an overall portfolio.

This prompts the question: if Bitcoin is a viable diversifier for BlackRock, should it be for you? While Bitcoin may offer potential protection in volatile times, it's important to remember that any investment decision should be based on your personal circumstances, financial goals, and risk tolerance. Diversification can be helpful, but always ensure you're making informed choices. This is not financial advice.

Remember, past performance is no guarantee of future results. Always consider the inherent risks of any investment.

Trump Buys Burgers - with Bitcoin!

As Donald Trump continues his campaign trail, he visited a crypto-friendly bar in New York, purchasing burgers using Bitcoin. This marks the first public Bitcoin transaction by a sitting or former U.S. president.

In the upcoming presidential election, Trump appears to be more pro-crypto than the Democrats. However, in my opinion, it’s the long-term adoption of cryptocurrencies, not the short-term impact of election results, that will shape the future of digital currencies. Voters should also consider the complete package of policies rather than focusing on just one issue.

Word of the Day: Diversifier

Diversifier - noun - countable - a type of investment that you add to others in order to reduce the total risk of your investments