Why Most People Get the S&P 500 Wrong!

The S&P 500 is not based on their performance, it's based on their size. If you're like a 60 year old, you want to be getting your dividend, you are retiring, you're cutting down your sessions. You might decide you want to invest in a distributive S&P 500 or even a bond that pays you your returns rather than accumulative S&P 500. If it's popular, it's not for me at the point it has problem, I start looking into it. Doesn't mean I'll buy, but that's my own approach. If you look across my portfolio, for me to arrive at that 87% return is not one stock. Some did much better, some didn't do that that good. And at the end of the day I'm happy. I still hold all of them. All the stuff I bought like four or five years ago. Some of the ones I bought 20 years ago, I still hold them. If you're a doctor or healthcare professional and you're worried about investing and you get confused about investing and since you worry that it's risky and you worry that you lose money, but you know that you should be investing and you don't understand concept, when you hear things like ISA stock and shares isa, it gets you confused, Then you want to watch this video. This video is a live recording of a live Q and A session with almost 100 doctors and healthcare professionals with burning questions around investing, Lifetime isa investment that doctors could do even above 40 years of age, as well as how to avoid the dreaded 60% tax trap and much more. So if you're interested in those topics and you like to hear the answers we discussed and the question that we addressed, then you want to dive into this video. And if you are new here, I'm Dr. Andy Green, founder of MoneyWiseDoctor.com I'm an ex salary GP, an entrepreneur and investor, and a MoneyWiseDoctor.com we help doctors and healthcare professionals make smarter financial decisions. Dive in. Risk premium is actually another area where obviously there's no straight mathematics you can do. It's going to be based on how much risk do you think you're taking and how much do you think you want it? Almost, of course, look at my personal portfolio. The question will be how much risk do you think you're taking and how much do you think you can get your returns back? For instance, if you're getting 4.4% from the government and someone is giving you 5.5%, I don't I wouldn't take that. Basically I would want to be seeing something like that is doing better than the S P500. Let me explain to you. If S&P500, which is basically you're buying like the broad market and we explain that next, If s and P500 return 25%, that means I can put my money in The S&P 500 gone to bed and I'll get 25%. If I want to make any investment, I'll be asking, can I get 25% on it? Okay, this person guarantees me they can give me 15%. I'm going to say, well, maybe I might consider it because it's a guarantee there's a fixed income. Meanwhile, S&P 500 could have done 1% or 25% or minus 2%. So risk premium is not an exact mathematics. And that's where it comes down to personal plan. Your personal financial plan, which is something we are going to look at throughout this next few days. Obviously we've done this day too. So you, your personal financial plan, you're going to have to sit down and decide. This is how I feel comfortable investing. Some people are happy to get average market returns or they think, well, if I can get anything that is just 5% above the average market returns, I'm going to take it. So the risk premium is not an exact mathematics. Obviously there's a lot of mathematical finance PhDs or risk premium calculation for hedge funds. But basically when it comes to risk premium, it's got to be something that you, you've got to have a plan, a strategy already that I think this is how I invest. I started mine when I was about 18, 19. I still keep to my strategy. There are some things that come that I think, oh, this is fantastic. Like Nvidia, Tesla. Because I know type of companies I invest in and they are just not the type of things I invest in. As Nvidia is very popular, I already have my own investment ethos. I don't just oh, it's very popular, I'm gonna buy it. No, if it's popular, it's not for me at the point it has problem, I start looking into it. Doesn't mean I'll buy, but that's my own approach for some other person here. I know a couple of people here in the Mastermind who are attended the four weeks master class investment master class last year for one of them. I know her approach is buying index funds. So she doesn't buy individual stuff. She says, I'm very busy I'm a mom and also I'm a trainee registrar in a very busy specialty. So I don't want to have to analyze companies or attend shareholder meetings like I do or investor calls or look at their returns on their competitors. So she just buys an index fund, which she buys automatically. She just sets up a direct debit. It takes out a percentage from our account every month, puts it into our stock and share licer. This is all set up. She doesn't have to do anything about it and just buys a particular index fund that she buys. I think she buys S and P 500 because that's the top 500. But that's her own approach to investing. She has understood her own approach and the risk she's willing to take.

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Are we good up to that point?

Yeah.

Thank you.

Thank you. Right. Lovely, Malika. Yeah, thank you. That was a really key question. Risk premium. Because sometimes it's not a straightforward thing to understand. Now that you've understood fixed income assets. Okay, I've got just a bit of time left. I'm going to show you the next level. Let's say you want to invest in the stock market. Right. And how I explain this is for the football fans here. Let's say you want to say which club is going to win the Euro championship. You're not sure. Okay. But you think, you know what? I think Chelsea has got a good chance. I might be talking absolute rubbish here, but let's just say you think Chelsea has got a good chance. I don't know if in real life they've got a good chance or not. And you think, oh, I'm just going to invest in Chelsea. If you do that and Chelsea wins the euro, then you're going to cash out, you're going to make it big or. Because that's an alternative, could be. I don't know if Charles is going to win But I think a club in the Premiership. So the Premiership may be the top 20 clubs in the US, in the UK and England, let's say the top 20 clubs, I think one of them is going to win. So I'm not going to put my chips with Chelsea, I'm going to put my chips with the Premiership. So in that case, you are reducing your risk because you have diversified football funds here. Does that make sense? And if you like cricket, replace football with cricket in your head. In this case, rather than invest in Chelsea, you have diversified by saying, well, I don't know which club is going to win, but I'm just going to invest in the Premiership top 20 clubs, and I think one of them will win. That means that if one of them wins, your returns might not be as good as if you had invested only in Chelsea, but your risk is also lower. Because if Chelsea doesn't win, maybe my you win. If my you doesn't win, Arsenal, my win. If Arsenal doesn't win, any of those clubs might win. Now, that is the same approach with individual stocks. You're buying individual companies. These individual companies basically could outperform, like last year. For someone who was interested in my portfolio last year, I think Meta was one of the best performing companies in my portfolio. I think it returned about 250%. Basically, it carried almost the whole portfolio. Of course, there was Coinbase, which I thought was actually a dead stock. A mistake. I thought. I thought it was a mistake. But with the crypto boom coming back, coinbase is about 100%. And then there are also stocks like Alibaba, which when I bought Baba, is a Chinese company, which when I bought it in 2019 or, sorry, 2020, I thought it was an absolute amazing stock. And the company is still a good company, they're still generating good returns, but it's. It's becoming worse. So basically, if you look across my portfolio, for me to arrive at that 87% return last year is not one stock. Some did much better, some didn't do that good. And at the end of the day, I'm happy. I still hold all of them. All the stocks I bought like four or five years ago. Some of the ones I bought 20 years ago, I still hold them. They are those I've sold along the line in the last 20 years. But basically you don't want to do that if you don't know what you're doing. So you might decide, no, I'm not going to buy Chelsea. One stock. Replace Chelsea in your head with Nvidia or With Tesla or with Coca Cola or just one company. You might decide, no, I'm just going to buy S&P 500, which is like a list of all the top 500 companies in the U.S. i might decide I'm going to buy a global index fund which is like maybe you buy the top 2000 biggest companies in the world. And again, S&P 500 is not based on their performance, it's based on their size. So that is a type of index fund. Okay, now this is not hedge funding at all. This is has nothing to do with hedge fund. But we can talk about hedge funds in a later session. So is there any confusion around individual stocks versus index fund? Because I want to actually drop something really quite crucial now. So is there any confusion around buying an individual company which is like you invest your money in one company or you invest in a fund like an index fund. Okay, if you got any question, feel free to ask now.

For the opportunity. So I mean I just want some clarification between the SMP 500 which is US based and the global one. What's the global one?

Right, okay. They are called different names. I mean it all be all depends on what platform you're using to buy. There's all stocks index, there are all sorts of different types of index, but it will all depend on the actual platform you're using to buy. So if you look at this uc its fonts, you see the different names. There's banggood ftse. So that is also a global stock. But again this session is not to go into each each individual product because obviously we've got like another few days where we can actually do practical sessions. You can log on and check. But the global one is Vanguard ftsc. There are several of them. Basically what you want to know is that this is how it is when you decide on a platform you want to use. They might have different names. And also for instance, when you come to, even if you decide to go with S P500, there's S and P500 accumulative which means that the dividends are not paid out to you, they are just reinvested. Which means it's like compounding on steroids. But then there's Also S&P 500 distributive. See where your personal financial plan comes in place. If you're like a 60 year old, you want to be getting your dividends, you are retiring, you're cutting down your sessions, you might decide you want to invest in a distributive. S and P500 or even a bond that pays you that pays you your returns rather than accumulative S&P 500. But if you're at 30, 34, 35 and you've got a longer investment horizon, you might decide, no, I don't want to a distributive S&P 500. I don't want the dividends to come out. I want them to go back into reinvesting my money to make sure that it's growing at a higher, accelerated rate. Okay.

Well, I hope you found that helpful and more importantly, I hope it helped you to see investing in a new light. This is just a small section of what we cover in the full masterclass. If you'd like me to drop more of these clips, just let me know in the comments. Comment, invest and share this video as well with friends who may need to hear this. And if you are ready to stop winging it and guessing, guesswork is not good for investing. If you want to learn how to become a confident investor to learn how to invest properly, check out our Investing Readiness Scorecard with the links in the description.

It will help you determine whether you're.

Really ready to start investing and what you need to do before you even start thinking about investing to reduce the chances of you losing money. And until then, see you soon.

Bye bye.