1 00:00:00,000 --> 00:00:08,080 An engineering company reported that 10 years ago, it replaced 250 workers with nine robots. 2 00:00:08,080 --> 00:00:13,120 Now, the company still thrives and is still a major employer in the area, but performs 3 00:00:13,120 --> 00:00:15,920 well against its national and international competitors. 4 00:00:15,920 --> 00:00:22,520 Now, if we write history and the company decides not to invest in those robots and continues 5 00:00:22,520 --> 00:00:28,600 to produce goods using the human staff, well, gradually, competitors do introduce robots 6 00:00:28,600 --> 00:00:31,640 and the cost of producing their goods goes down. 7 00:00:31,640 --> 00:00:37,040 Our company now starts to lose orders as it can't remain competitive in the marketplace. 8 00:00:37,040 --> 00:00:45,320 So it downsizes a few times and then eventually closes with the residual damage that generally 9 00:00:45,320 --> 00:00:48,800 occurs in the local community when that happens. 10 00:00:48,800 --> 00:00:55,960 So labour-saving systems have already eliminated millions of man-hours in the UK, making remaining 11 00:00:55,960 --> 00:00:58,360 workers more productive. 12 00:00:58,360 --> 00:01:04,760 But artificial is simply another tool that any company can leverage to achieve more with 13 00:01:04,760 --> 00:01:08,640 a smaller workforce or completely replace some teams. 14 00:01:08,640 --> 00:01:16,000 For instance, a company I work for, we recently replaced our counter-clogs, Humanised Invoices, 15 00:01:16,000 --> 00:01:20,880 with an AI tool that read the invoices automatically and updated the finance system. 16 00:01:20,880 --> 00:01:27,200 Now, this was pretty new technology at the time, but most modern finance systems now 17 00:01:27,200 --> 00:01:29,040 have a similar capability. 18 00:01:29,040 --> 00:01:34,640 And many businesses have chosen not to hire for these straightforward jobs anymore. 19 00:01:34,640 --> 00:01:41,840 Now, a survey of 697 companies by Metro G, who are a research advisory firm, revealed 20 00:01:41,840 --> 00:01:50,840 that companies that didn't implement AI in 2023 hired about 89% more agents than other 21 00:01:50,840 --> 00:01:53,560 companies in their contact centres. 22 00:01:53,560 --> 00:01:59,760 When I was introduced to contact centres, this did lead to 36% of companies laying off 23 00:01:59,760 --> 00:02:02,920 an average of 26% of the workforce. 24 00:02:02,920 --> 00:02:05,400 And that was just within one year. 25 00:02:05,400 --> 00:02:10,640 Now these statistics are concerning and they reflect the impact on call centres, which 26 00:02:10,640 --> 00:02:16,560 to be honest, have already faced challenges from outsourcing, understaffing, automation, 27 00:02:16,560 --> 00:02:19,320 much more than other professional services. 28 00:02:19,320 --> 00:02:26,320 While other businesses have successfully reduced headcount and expenses, there's an underlying 29 00:02:26,320 --> 00:02:27,320 issue. 30 00:02:27,320 --> 00:02:34,280 In 1914, Henry Ford boosted his factory workers' wages to $5 a day. 31 00:02:34,280 --> 00:02:37,840 And it's supposedly to help them afford to buy a model tape. 32 00:02:37,840 --> 00:02:44,880 However, the real reason was really to lower employee turnover and prevent these workers 33 00:02:44,880 --> 00:02:46,960 from leaving and joining dodge. 34 00:02:46,960 --> 00:02:49,640 Now, this illustrates a harsh truth. 35 00:02:49,640 --> 00:02:55,800 If employment rates drop like these, as we've seen in contact centres, companies globally 36 00:02:55,800 --> 00:03:00,960 will face decreased revenues because jobless individuals can't buy things, they don't 37 00:03:00,960 --> 00:03:03,240 have the purchasing power. 38 00:03:03,240 --> 00:03:08,480 Even employed people do tend to cut back when there is a fear of job losses. 39 00:03:08,480 --> 00:03:15,040 However, if companies can use AI to increase efficiency and redeploy the workforce to grow 40 00:03:15,040 --> 00:03:18,480 the business, then this has got to be a win-win. 41 00:03:18,480 --> 00:03:23,280 Win for the growth in the economy and that's certainly a win for the employees of the company. 42 00:03:23,280 --> 00:03:28,920 But what if the company can't introduce a robot or AI or make itself more efficient? 43 00:03:28,920 --> 00:03:34,240 Well, one growing trend is for companies to focus on creating products for the rich. 44 00:03:34,240 --> 00:03:39,440 The wealth gap is widening all over the world with the rich getting richer and the poor getting 45 00:03:39,440 --> 00:03:40,440 poorer. 46 00:03:40,440 --> 00:03:46,800 So, some companies are betting their future and generating income only from their wealthy 47 00:03:46,800 --> 00:03:47,800 customers. 48 00:03:47,800 --> 00:03:51,800 Now, this might seem extreme, but it's already unfolding. 49 00:03:51,800 --> 00:03:58,520 If we think about video game sector, the industry is capitalising on what's called the freemium 50 00:03:58,520 --> 00:04:04,400 model where most players get the game completely free or a small number, which they refer 51 00:04:04,400 --> 00:04:11,360 to as whale, spend substantial amounts of money, sometimes thousands of pounds on in-game features. 52 00:04:11,360 --> 00:04:19,640 These players are essential because they provide social opportunities for those who play and 53 00:04:19,640 --> 00:04:22,680 enjoy the status in the perks. 54 00:04:22,680 --> 00:04:28,360 In an era where budget-friendly entertainment is in demand, the gaming industry has realised 55 00:04:28,360 --> 00:04:33,600 that their profits actually do come from catering to those with disposable income rather than 56 00:04:33,600 --> 00:04:37,120 from their general population. 57 00:04:37,120 --> 00:04:43,840 As automation likely replaces more jobs, the value of labour may also diminish while the 58 00:04:43,840 --> 00:04:47,320 worth of income-producing assets may increase. 59 00:04:47,320 --> 00:04:51,360 The rapid evolution of AI and automation makes the future unpredictable. 60 00:04:51,360 --> 00:04:56,200 But those investing in these technologies will need to recognise what the gaming industry 61 00:04:56,200 --> 00:04:57,520 has already learned. 62 00:04:57,520 --> 00:05:03,480 There's greater profit in targeting affluent customers while everyone else serves generally 63 00:05:03,480 --> 00:05:04,480 as entertainment. 64 00:05:04,480 --> 00:05:11,200 Now, this trend isn't new as AI advances it will further amplify these issues that have 65 00:05:11,200 --> 00:05:13,480 been developing for years. 66 00:05:13,480 --> 00:05:19,600 Therefore, understanding the mechanics of money and how businesses adapt to a world 67 00:05:19,600 --> 00:05:24,120 where affordability becomes a challenge is crucial for our investments. 68 00:05:24,120 --> 00:05:30,680 Now, Lamborghini has sold more cars in the past decade than in its entire history. 69 00:05:30,680 --> 00:05:34,200 This really highlights the growing market for luxury vehicles. 70 00:05:34,200 --> 00:05:41,280 There's simply a bigger marketplace for 300,000-pound plus cars. 71 00:05:41,280 --> 00:05:50,560 From Ferrari to luxury groceries, exorbitant gym memberships, hotels and the rise of popularity 72 00:05:50,560 --> 00:05:54,480 of private jets and yachts. 73 00:05:54,480 --> 00:05:59,880 The much more commonplace nowadays, it's true that billionaires are becoming wealthier. 74 00:05:59,880 --> 00:06:05,320 Those who maintained even a modest investment portfolio over the past four years have amassed 75 00:06:05,320 --> 00:06:07,240 significant wealth. 76 00:06:07,240 --> 00:06:12,800 Some have benefited from really clever and astute investments while others just leveraged 77 00:06:12,800 --> 00:06:17,880 credit to take full advantage of these unprecedented asset bull market that you've been in. 78 00:06:17,880 --> 00:06:23,080 And few modern fortunes have been solely through hard work. 79 00:06:23,080 --> 00:06:28,960 Investing has shifted from being a means to secure your retirement to pretty much a necessity 80 00:06:28,960 --> 00:06:32,320 for maintaining quality of life for the rich. 81 00:06:32,320 --> 00:06:37,800 If automation continues to advance, it could reduce the value of human labor since machines 82 00:06:37,800 --> 00:06:44,680 can perform tasks instead, while asset values would rise as business owners capitalize on 83 00:06:44,680 --> 00:06:46,160 this automated labor. 84 00:06:46,160 --> 00:06:53,640 Now, this scenario has led to people discussing things like UBI, universal basic income. 85 00:06:53,640 --> 00:07:01,080 And this is where a government payout provides basic needs for the individuals. 86 00:07:01,080 --> 00:07:06,440 It's been proposed to sustain the economy of people who can't earn income due to job 87 00:07:06,440 --> 00:07:09,080 outsourcing or automation. 88 00:07:09,080 --> 00:07:14,520 But it creates a divide where individuals either rely on government assistance or belong 89 00:07:14,520 --> 00:07:16,760 to the wealthy class. 90 00:07:16,760 --> 00:07:27,040 And then recently, reports have been published where significant UBI experiments gave 1,000 91 00:07:27,040 --> 00:07:31,960 residents in Texas and Illinois a thousand pound a month with no conditions, while a 92 00:07:31,960 --> 00:07:35,160 control group of 2,000 received only $50. 93 00:07:35,160 --> 00:07:39,320 Now, this initiative aimed to measure spending decisions. 94 00:07:39,320 --> 00:07:43,600 And it was funded back to you by Sam Altman from Open Research. 95 00:07:43,600 --> 00:07:47,360 And he'd expressed a concern over job displacement from technology. 96 00:07:47,360 --> 00:07:52,040 And Wallace did he may have said there's a good market and tool for him as organization. 97 00:07:52,040 --> 00:07:55,200 It's findings still holds some value. 98 00:07:55,200 --> 00:08:00,800 Notably, those that received the thousand pound payment to end up earning less on their 99 00:08:00,800 --> 00:08:06,920 own compared to the control group when accounted for the subsidy being removed. 100 00:08:06,920 --> 00:08:12,440 While all households earn more overall, researchers noted that many recipients actually reduced 101 00:08:12,440 --> 00:08:15,880 their working hours to focus on leisure and family. 102 00:08:15,880 --> 00:08:23,360 And they really did embody this kind of idealized vision of a future where machines do the work. 103 00:08:23,360 --> 00:08:28,880 Although mental health did improve for all participants, the benefits diminished over 104 00:08:28,880 --> 00:08:31,120 time. 105 00:08:31,120 --> 00:08:35,840 Food security initially increased and there was a general rise in living. 106 00:08:35,840 --> 00:08:40,240 But this was eroded over time as prices increased. 107 00:08:40,240 --> 00:08:47,200 This reflected the slow and destructive impact of outsourcing, which turned many UK cities 108 00:08:47,200 --> 00:08:52,040 into almost ghost towns without any particular solutions for it really. 109 00:08:52,040 --> 00:08:58,280 The ultimate goal for those investing in automation is kind of a utopian, automated future, while 110 00:08:58,280 --> 00:09:04,600 a priority for everyone else is ensuring that we're not marginalized when that vision occurs. 111 00:09:04,600 --> 00:09:11,200 So how does this play out in helping us to make better investments for our pensions? 112 00:09:11,200 --> 00:09:16,360 Well you may decide that your hard-earned pension money should go to Nvidia and AMD who produced 113 00:09:16,360 --> 00:09:20,440 the chips that run the data centers that run the AI. 114 00:09:20,440 --> 00:09:26,240 Or maybe you invest in Microsoft, Google and Amazon actually run the data centers themselves. 115 00:09:26,240 --> 00:09:32,840 Or maybe the real value will be generated by those companies using the AI technology 116 00:09:32,840 --> 00:09:34,840 to streamline their operations. 117 00:09:34,840 --> 00:09:40,560 I mean when I was young there was a blockbuster video shop on every corner. 118 00:09:40,560 --> 00:09:46,200 When a couple of guys invented Netflix, which was a CD share and service back then, they 119 00:09:46,200 --> 00:09:49,480 offered to sell the business to Blockbuster. 120 00:09:49,480 --> 00:09:55,280 Blockbuster lacked the vision to change their business model and now there is no Blockbuster. 121 00:09:55,280 --> 00:09:58,200 Netflix pretty much beams out to all our living rooms. 122 00:09:58,200 --> 00:10:04,560 So how do we pick those smart companies with the talent in the boardroom to become a Netflix 123 00:10:04,560 --> 00:10:06,040 and not become a blockbuster? 124 00:10:06,040 --> 00:10:13,600 Well if I was there 20-something with a general investing account, I'd certainly try my best. 125 00:10:13,600 --> 00:10:17,680 However as a 50-year-old something with a pension account, I don't see that kind of 126 00:10:17,680 --> 00:10:20,440 a shoot as suitable for me. 127 00:10:20,440 --> 00:10:22,560 I'll explain this with an example. 128 00:10:22,560 --> 00:10:27,440 When I was a kid and the Grand National was on, my dad used to split his bet over about 129 00:10:27,440 --> 00:10:28,440 30 horses. 130 00:10:28,440 --> 00:10:36,280 He'd win every year and by win I mean of the 30 horses, one of them would always win and 131 00:10:36,280 --> 00:10:40,320 overall the winners from that race would about clear what he paid out on his bets. 132 00:10:40,320 --> 00:10:44,440 I mean sometimes he won a little, sometimes he lost a little but never lost everything 133 00:10:44,440 --> 00:10:46,720 and never won big. 134 00:10:46,720 --> 00:10:53,120 Now rather than betting the ranch on the big winners in the AI race, why not bet on all 135 00:10:53,120 --> 00:10:54,120 the riders? 136 00:10:54,120 --> 00:10:57,080 The winners will be in that bunch. 137 00:10:57,080 --> 00:11:03,200 Now this is easy in pension investment and it's called index investing and in most cases 138 00:11:03,200 --> 00:11:09,880 investors should really focus on low-cost index funds as their main investment strategy 139 00:11:09,880 --> 00:11:15,920 and I'll outline why a low-cost index funds is a good investment choice for me and for 140 00:11:15,920 --> 00:11:22,000 most individuals, especially for those currently using high-fee actively managed funds which 141 00:11:22,000 --> 00:11:24,360 is common amongst Britons. 142 00:11:24,360 --> 00:11:29,880 The rationale for index funds can be distilled into a few key points. 143 00:11:29,880 --> 00:11:36,000 Cost efficiency, diversification, investment returns, tax efficiency and simplicity. 144 00:11:36,000 --> 00:11:37,960 Now I'll begin with a background on index funds. 145 00:11:37,960 --> 00:11:42,600 So an index fund is essentially a collection of stocks that intend to mirror a particular 146 00:11:42,600 --> 00:11:50,800 market or a segment, for example the S&P 500 and this represents US large companies and 147 00:11:50,800 --> 00:11:56,920 it uses a capitalization weighted model where larger companies like Apple and Amazon have 148 00:11:56,920 --> 00:11:59,720 more influence than smaller ones. 149 00:11:59,720 --> 00:12:04,920 This method is widely adopted for evaluating investment strategies and creating index funds 150 00:12:04,920 --> 00:12:07,080 that follow the indices. 151 00:12:07,080 --> 00:12:12,440 And throughout this discussion I'm going to specifically refer to capitalization weighted 152 00:12:12,440 --> 00:12:17,520 market index funds rather than any other kind of strange composite. 153 00:12:17,520 --> 00:12:23,440 In contrast, actively managed funds attempt to outperform market indices by selecting 154 00:12:23,440 --> 00:12:26,280 certain stocks and timing market exposure. 155 00:12:26,280 --> 00:12:32,720 Over the past 60 years index funds evolved from an obscure concept to a popular investment 156 00:12:32,720 --> 00:12:39,080 vehicle and this was supported by a wealth of academic research since 1968 demonstrating 157 00:12:39,080 --> 00:12:44,200 that actively managed funds often failed to provide enough value to justify their higher 158 00:12:44,200 --> 00:12:48,120 fees with most actually underperforming over time. 159 00:12:48,120 --> 00:12:52,480 The first point to support the low cost index fund is their low fee structure. 160 00:12:52,480 --> 00:12:58,760 In the UK the average fee for an index fund is 0.19% whereas actively managed funds generally 161 00:12:58,760 --> 00:13:02,120 hover around there 0.85%. 162 00:13:02,120 --> 00:13:08,240 Now these higher funds correlate with diminished investment returns without any identifiable 163 00:13:08,240 --> 00:13:09,240 advantages. 164 00:13:09,240 --> 00:13:14,240 John Bogel who founded Vanguard highlighted that an investor in lower costs generally leads 165 00:13:14,240 --> 00:13:21,320 to better outcomes and Bill Sharp revealed that when accounting for costs the average 166 00:13:21,320 --> 00:13:27,080 return of actively managed funds are lower than those of passively managed funds. 167 00:13:27,080 --> 00:13:32,120 Although some active managers might appear to add value pre-feeds, once you take the 168 00:13:32,120 --> 00:13:36,440 fees into consideration the truth generally reverses. 169 00:13:36,440 --> 00:13:42,960 Now another reason funds are preferable is their superior diversification. 170 00:13:42,960 --> 00:13:49,440 Index funds hold a wide array of stocks across the market, a bit like my dad Beton on 30 171 00:13:49,440 --> 00:13:51,120 horses in the Grand National. 172 00:13:51,120 --> 00:13:57,080 Now actively managed funds tend to concentrate on fewer stocks and their pursuit of outperforming 173 00:13:57,080 --> 00:13:58,080 the market. 174 00:13:58,080 --> 00:14:04,840 I know this selective strategy might yield higher returns if you're lucky and successful. 175 00:14:04,840 --> 00:14:08,280 But picking can lead to significant losses. 176 00:14:08,280 --> 00:14:14,120 As most stocks do underperform, I mean data from 1926 to 2016 reveals that only a small 177 00:14:14,120 --> 00:14:20,160 fraction of US stocks exceeded returns of the safer investments like treasury bills. 178 00:14:20,160 --> 00:14:24,800 I mean Beton on all horses and your Beton on all the winners. 179 00:14:24,800 --> 00:14:30,000 The second significant point is that index funds typically outperform the vast majority 180 00:14:30,000 --> 00:14:31,880 of actively managed funds. 181 00:14:31,880 --> 00:14:39,560 The 2023 study of US equity mutual funds from 1991 to 2020 found that over half of these 182 00:14:39,560 --> 00:14:45,160 funds underperformed compared to index funds and after counting for fees only a small percentage 183 00:14:45,160 --> 00:14:47,920 managed to achieve better results. 184 00:14:47,920 --> 00:14:54,760 This includes more extensive studies that actually corroborate these findings over longer term 185 00:14:54,760 --> 00:14:56,920 horizons. 186 00:14:56,920 --> 00:15:02,640 Ministers frequently seek out actively managed funds expecting past winning managers to keep 187 00:15:02,640 --> 00:15:03,640 performing well. 188 00:15:03,640 --> 00:15:07,760 But evidence suggests that this isn't just an illusion really. 189 00:15:07,760 --> 00:15:12,600 While some active funds may have outperformed historically, there's little support for the 190 00:15:12,600 --> 00:15:18,000 idea that past success will translate into better future results. 191 00:15:18,000 --> 00:15:22,520 Index funds not only provide high returns but are also tax efficient. 192 00:15:22,520 --> 00:15:27,920 This is due to their lower turnover rate which results in fewer taxable distributions for 193 00:15:27,920 --> 00:15:29,160 investors. 194 00:15:29,160 --> 00:15:32,960 Another advantage is simplicity. 195 00:15:32,960 --> 00:15:38,400 Assessing the performance is really straightforward compared to actively managed funds where performance 196 00:15:38,400 --> 00:15:42,760 can be quite challenging to interpret really. 197 00:15:42,760 --> 00:15:48,840 Now I focused generally on total market index funds. 198 00:15:48,840 --> 00:15:52,760 It's crucial to be cautious that not all index funds are equal. 199 00:15:52,760 --> 00:15:58,120 Some thematic index funds that track popular trends may perform poorly in the long run 200 00:15:58,120 --> 00:16:02,160 like a green energy fund or a crypto fund. 201 00:16:02,160 --> 00:16:07,800 Hence I choose capitalization weighted total market index funds. 202 00:16:07,800 --> 00:16:14,840 So in summary, low cost index funds are diversified, cost effective and historically outperform 203 00:16:14,840 --> 00:16:21,080 most actively managed funds when you take fees and taxes into consideration. 204 00:16:21,080 --> 00:16:25,920 But thanks for watching and if you found this video helpful, please share it with others 205 00:16:25,920 --> 00:16:30,520 who may still be using high fee actively managed funds. 206 00:16:30,520 --> 00:16:46,600 See you on the next one.