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AI could change the world. But does that mean AI stocks will make investors rich? · Bitesize Retirement

• 0:00
  SPEAKER_00: AI is getting smarter.
• 0:01
  SPEAKER_00: So why are investors suddenly nervous about the companies building it?
• 0:05
  SPEAKER_00: For years, the big question on Wall Street was simple.
• 0:08
  SPEAKER_00: Who is winning the AI race?
• 0:10
  SPEAKER_00: Who has the best models, the most chips, and the biggest data centers?
• 0:15
  SPEAKER_00: Now investors are asking something different.
• 0:17
  SPEAKER_00: When will all this spending actually pay off?
• 0:20
  SPEAKER_00: And that question matters enormously if you're five to 10 years away from retirement.
• 0:24
  SPEAKER_00: First, a technology can succeed without every investor making money.
• 0:29
  SPEAKER_00: The Wall Street Journal recently examined a remarkable development.
• 0:33
  SPEAKER_00: AI systems are increasingly helping researchers develop better AI systems.
• 0:38
  SPEAKER_00: Imagine what that could mean.
• 0:39
  SPEAKER_00: Instead of relying entirely on human researchers to improve the next generation
• 0:44
  SPEAKER_00: of AI,
• 0:45
  SPEAKER_00: researchers may be able to use AI itself to accelerate
• 0:48
  SPEAKER_00: The technology could advance faster than many people expect.
• 0:52
  SPEAKER_00: Meanwhile,
• 0:53
  SPEAKER_00: companies such as Amazon,
• 0:55
  SPEAKER_00: Microsoft,
• 0:56
  SPEAKER_00: and Google are spending enormous sums on chips,
• 1:00
  SPEAKER_00: data centers, and computing infrastructure.
• 1:03
  SPEAKER_00: For companies, investing early may be essential.
• 1:06
  SPEAKER_00: Nobody wants to be left behind.
• 1:08
  SPEAKER_00: But building the infrastructure costs money today.
• 1:11
  SPEAKER_00: The profits may take years to arrive.
• 1:13
  SPEAKER_00: That's the difference between a smart corporate strategy and a smart stock purchase.
• 1:18
  SPEAKER_00: Second, a great company is not automatically a great investment.
• 1:23
  SPEAKER_00: Let's use a hypothetical example.
• 1:25
  SPEAKER_00: Imagine an AI company earning $1 billion a year.
• 1:28
  SPEAKER_00: Investors believe its annual profit could reach $10 billion in five years.
• 1:33
  SPEAKER_00: They're so excited that they pay a very high price for its shares today.
• 1:37
  SPEAKER_00: Five years later, the company delivers.
• 1:39
  SPEAKER_00: Its profit really does increase tenfold.
• 1:42
  SPEAKER_00: Surely its shareholders must be celebrating?
• 1:44
  SPEAKER_00: Not necessarily.
• 1:46
  SPEAKER_00: If the stock price already reflected that spectacular growth five years earlier,
• 1:50
  SPEAKER_00: the company may have done exactly what investors expected.
• 1:53
  SPEAKER_00: And if its valuation falls along the way, the stock could still disappoint.
• 1:57
  SPEAKER_00: Now, imagine the company grows its profit fivefold instead of tenfold.
• 2:02
  SPEAKER_00: That's an extraordinary business achievement.
• 2:05
  SPEAKER_00: But compared with the expectations built into the original stock price,
• 2:09
  SPEAKER_00: it could be a disappointment.
• 2:10
  SPEAKER_00: The lesson is simple.
• 2:12
  SPEAKER_00: Being right about the future of an industry is not the same as paying
• 2:15
  SPEAKER_00: the right price for its stocks.
• 2:17
  SPEAKER_00: AI could transform the world.
• 2:20
  SPEAKER_00: That does not guarantee that every AI investment made today will produce an attractive return.
• 2:25
  SPEAKER_00: Third, retirement introduces a second clock.
• 2:29
  SPEAKER_00: Imagine a couple who are both around 60.
• 2:31
  SPEAKER_00: They have $1.5 million in a 401k, and they plan to retire in five years.
• 2:37
  SPEAKER_00: They believe AI will transform the economy over the next decade.
• 2:41
  SPEAKER_00: They might be absolutely right.
• 2:44
  SPEAKER_00: Their portfolio is heavily concentrated in technology stocks,
• 2:47
  SPEAKER_00: and the portion they rely on falls 40% around retirement.
• 2:51
  SPEAKER_00: If their entire $1.5 million portfolio suffered that same hypothetical decline,
• 2:57
  SPEAKER_00: its value would drop to $900,000.
• 3:01
  SPEAKER_00: That 40% is an illustration, not a forecast.
• 3:04
  SPEAKER_00: If they have a pension,
• 3:06
  SPEAKER_00: Social Security,
• 3:07
  SPEAKER_00: or sufficient liquid reserves to cover their expenses,
• 3:10
  SPEAKER_00: they may have time to wait for a recovery.
• 3:13
  SPEAKER_00: But what if they need to withdraw money from the portfolio every month to pay their bills?
• 3:18
  SPEAKER_00: Now they could be forced to sell investments while prices are depressed.
• 3:22
  SPEAKER_00: That is one of the fundamental differences between accumulating money
• 3:26
  SPEAKER_00: and spending it in retirement.
• 3:28
  SPEAKER_00: When you're working,
• 3:29
  SPEAKER_00: a market decline may be something you can wait out while continuing to contribute.
• 3:33
  SPEAKER_00: When you're retired, the market can be falling while withdrawals continue.
• 3:37
  SPEAKER_00: And the market doesn't know when your mortgage, insurance premium, or grocery bill is due.
• 3:43
  SPEAKER_00: So the retirement question isn't simply,
• 3:46
  SPEAKER_00: which industry will grow the most over the next 20 years?
• 3:49
  SPEAKER_00: It's also,
• 3:50
  SPEAKER_00: if I'm right about the future but wrong about the timing,
• 3:53
  SPEAKER_00: can my retirement income afford to wait?
• 3:56
  SPEAKER_00: Fourth, the solution isn't necessarily to abandon growth investments.
• 4:01
  SPEAKER_00: It's to rethink the income structure.
• 4:03
  SPEAKER_00: Money needed for living expenses in the next few years doesn't necessarily belong in
• 4:08
  SPEAKER_00: the same risk category as money intended to grow over the next year.
• 4:13
  SPEAKER_00: Some households already have enough guaranteed income from Social Security
• 4:17
  SPEAKER_00: and pensions to cover essential expenses.
• 4:20
  SPEAKER_00: Others may need to build an additional income floor.
• 4:23
  SPEAKER_00: Still others may use a combination of cash reserves The right
• 4:33
  SPEAKER_00: structure depends
• 4:35
  SPEAKER_00: on spending needs,
• 4:36
  SPEAKER_00: available assets, taxes, risk tolerance, and existing income sources.
• 4:42
  SPEAKER_00: But the principle is powerful.
• 4:43
  SPEAKER_00: You don't need to predict when the next technology sell-off will happen.
• 4:47
  SPEAKER_00: You need a retirement plan that can keep functioning if it does.
• 4:51
  SPEAKER_00: AI may turn out to be one of the most important technological revolutions of our lifetime.
• 4:56
  SPEAKER_00: But if you're approaching retirement,
• 4:58
  SPEAKER_00: you don't have to bet your next five years of living expenses on when
• 5:01
  SPEAKER_00: the stock market recognizes that success.
• 5:04
  SPEAKER_00: Your investments may have time to wait for the future.
• 5:06
  SPEAKER_00: Your retirement bills arrive every month.
• 5:09
  SPEAKER_00: Those two timelines need to work together.