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Finance Fridays - Issue #25

Finance Fridays - Issue #25

S&P500 getting beat up, AI Bubble Bubbling, Learning Notion

Seyi Agboola
August 16, 2024

#25 - Finance Fridays - S&P500 getting beat up, AI Bubble Bubbling, Learning Notion

This is the Reality Cheque’s newsletter where I document my journey to financial freedom through learning more about personal finance. Every week expect curated content on personal finance, career advice and entrepreneurship. And the best part is it'll always be less than 5 minutes to read!

*This is not financial advice, just me brainstorming about things related to money. Stocks are extremely volatile - value can go down as well as up. All investments and income streams may be subject to tax.

💹 Why is the S&P 500 getting beat up?

Finance influencers are interesting beings. They claim investing is about the long term but can’t resist commenting on temporary volatility in the market. But I get it. It’s the content creation game where generating attention is what puts food on the table.

Look at these 2 charts.

1 Month View of the S&P 500

6 Month View of the S&P 500

The only difference is patience. As a great man once said, this too shall pass.

But in answer to the question. It seems that the market is:

A: Correcting for the recent AI explosion

B: They are worried about overinvestment into AI

C: Japan raised interest rates while US held interest rates

But fundamentally, all the top tech companies are still growing and generating cash flow.

💹AI Bubble is Bubbling Baby

Ahh the “AI bubble is bursting” calls are gathering steam!

AI's trillion dollar time bomb - In summary, investors know AI is useful but will it be trillion dollars useful?

Why The Stock Market Is Crashing - Sasha has been praying for the AI bubble to burst and he has some solid arguments to support it but at the same time he’s slightly hyperbolic about it.

Honestly, I think both AI will change the world and the AI bubble will burst. It will not burst like the dot com era or the more recent NFT fiasco. In my opinion it’ll fizzle out to a more reasonable level of hype.

The issue isn’t the technology, it’s the ability to monetise it.

A company having AI-powered products and services doesn’t inspire me to pay more for it. Nor does using AI guarantee a better quality product. So what will probably happen is that companies will become more efficient with AI at the cost of quality. Then they will slowly replace workers since that’s where the real money in AI is - replacing human labour. This will be deeply unpopular but inevitable since these billions of AI have to be paid back eventually.

🏘️Should Lifetime ISAs be pension boosters?

Randomly I realised that Lifetime ISAs can be withdrawn without a penalty when you are 60.

Given that I’ve spoken in the past about how useless Lifetime ISAs are becoming in today’s Housing Crisis. Withdrawing at 60 seems more likely than using it on your first home. So for 25% return every year you get a small pension boost. The main difference is there’s no compound interest. So in theory let’s say the base bonus is always 25% and the base interest averages out at 3%, what does the long term returns look like?

I’ve used a compound calculator to outline the scenarios if you invested £5000 per year (£100 a week):

Lifetime ISA at a 3% interest rate

You’ve contributed 75% (150k)
You’ve been given a bonus of 25% (50k)
And you’ve earned an interest of 3% (192k approx.)

Stocks & Shares ISA with 10% interest

You’ve contributed 100% with no bonus (160k)
You’ve earned 10% interest (2.1m approx)

Cash ISA at 5% interest

You’ve contributed 100% with no bonus (160k)
You’ve earned 5% interest (368k)

What I’ve learned from this short exercise is:

The Lifetime ISA is truly dead to me, it won’t save me money on a house as long as that 450k limit exists
It’s not a great investing instrument either
It’s too restrictive to dedicate a significant portion of my portfolio
You should view interest rate changes in magnitudes. A 1% difference isn’t just 1%, it’s more like 25% or 20% difference over an extended period of time of returns.

👔 Always Be Learning Something New

I’ve started learning Notion because I think it’ll be as big as Tableau and JIRA in the enterprise world within 10 years. I think we should always be learning new tools even if we don’t use them at work which brings me to my next point.

Don’t restrict yourself to the tools you use for work because your next workplace might use different ones. And that might be the reason you don’t get through the final interviews. A lot of jobs require knowledge of a specific set of applications and being able to use the same apps puts your CV nearer the top of the pile.

So never stop learning.