The Growing Risk of Not Being Global …
Last week we heard that DeepSeek – a Chinese Ai startup similar to ChatGPT – supposedly developed an Ai chatbox for only $6m.
Until now, the market believed such Ai technology wasn’t possible without needing Nvidia chips (that sell for approx $40,000 per piece).
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DeepSeek = Deep Shock for US tech?
Nvidia shares dropped 17% on the news (since recovered a little). Overall, the US tech sector declined 3% on the day (since recovered fully).
In its reaction, the market was effectively asking: What if Ai technology can really be developed at such low cost?
US tech companies want to dominate Ai. To that end, $ hundreds of billions have been spent on Ai hardware and infrastructure.
Whether or not we believe DeepSeek’s claims, the fear this introduced in the US tech sector should not be ignored
S&P 500 – Opportunity or Risk?
Some people think the S&P500 is the only way to invest – falsely believing it to be well diversified. In our Investor Circle, we prefer truly diversified Global Funds and ETFs.
In reality, having only the S&P500 means owning just one country and, effectively, one large sector …
The S&P500 has become increasingly tech heavy – see first chart below. At over 30% tech is the largest sector in the S&P500, by far. Actually, it’s even higher: tech stocks like Amazon are categorised as Consumer Discretionary.
The second chart shows how the weighting has changed over time – it’s now near record highs. Which has been a good thing for returns (so far) …
Returns: Tech has been the driver so far …
In the last 10 years, Tech has been a major driver of returns for the S&P500 which has returned an average of 12.4% pa. But not always; in 2022 it underperformed with global markets doing better.
Why has tech performed well? Big tech like The Magnificent 7 stocks have seen strong profits growth + a lack of serious competition from other countries.
On the flip side, sector valuation P/Es of 25-35x have climbed to levels that make the space pricey and vulnerable to bad news, as we observed during the week.
What Now?
Profits for tech companies are still expected to grow with strong demand and product innovation. Tech may still continue to perform well.
But we can’t rule out new competition. Either from other countries or from other unexpected players like DeepSeek. Ai is moving fast. New startups are developing new technologies at a rapid pace. So future tech volatility should be expected
The REAL winner from Ai …
So it’s hard to forecast individual long-term winners. But just like with the emergence of the internet, the real winners will be the wider economy, hence the wider stockmarket.
In Summary, Go Global …
Unless you are great at picking stocks and sectors (most people are not, certainly not the pros), the far better way to invest is to be Globally diversified.
Which means you won’t be taking bets on individual sectors or countries*.
Plus, Global is a much simpler way to invest – in a set-and-forget way.
Always Remember:
- Time in the Markets always beats timing the markets
- Stay Diversified
- Minimise those leakages: Fees, Inflation, and Taxes
- Financial Markets are a great source of recurring income
- ETFs, Balanced Funds and Options achieve all the above
- Being educated helps you outperform 99% of the population
… to ensure your investments work for YOUR financial freedom (not someone else’s)
And …
For more guidance, our Investment Academy will help you implement all of this in a step-by-step way.
Thousands of people have learnt how to diversify and pound-cost-average into low-cost, set-and-forget ETFs & Funds for inflation-beating growth. And Options to create recurring income.
Click here to learn about our Investment Academy
Finally …
– Don’t take the above as advice as it may not apply to you personally
– Your Capital is at Risk
– You may not be covered by the FSCS
– Anything mentioned in a podcast or in a previous article was valid at that time and may not continue to be now
