Invest in an AI-first Economy

Step 3 – Invest in an AI-first economy In this module, you’ll learn why it’s important to invest in our new AI economy. In addition, you’ll learn what investments you should be making now to ensure your success. Who will be the world’s first trillionaire? Who will win and who will lose in the new AI economy? During the agricultural revolution, we had visionary societies like the Sumerians, Egyptians, and Chinese. They all capitalized on the key technologies of the agricultural revolution. As a result, they became some of the largest and most powerful civilizations on Earth. During the industrial revolution, we had visionaries like John D. Rockefeller, Thomas Edison, and Henry Ford. They all capitalized on the key technologies of the industrial era. As a result, they became some of the wealthiest and most influential people on the planet. During the information revolution, we had visionary companies like IBM, Microsoft, and Google. They all capitalized on the key technologies of the information age. As a result, they became some of the wealthiest and most powerful corporations on the planet. During the AI revolution, there will likely be future visionaries. They will also capitalize on the key technologies of the age of AI. As a result, they will likely become some of the wealthiest and most powerful people, businesses, and governments on the planet. In fact, many experts predict that the world’s first trillionaire will likely be created from wealth generated by AI. The AI revolution will likely have a significant impact on our economy and capitalism as we know it. These changes will require that individuals, businesses, and governments need to adapt in order to function in an AI-first economy. First, we’re seeing a shift in returns to capital vs. returns to labor. Returns to capital are essentially how much money you can make by investing in capital assets. These include investing in machines, software, data, and more. Returns to labor are essentially how much money you can make by soliciting your labor for income. This includes physical labor, knowledge work, and highly specialized labor. Over the past few decades we’ve seen a continuous upward trend in returns to capital. As a result, the value that you recieve from investing in capital assets continues to increase. On the other hand, we’ve seen a continuous decrease in returns to labor. As a result, the value that you recieve from each hour of your labor continues to decrease. Essentially, labor is becoming cheap and automation is becoming highly profitable. This phenomena is referred to as “The Great Decoupling”. Essentially, productivity in the USA continues to rise year after year. However, somewhere in the 1970s labor compensation broke away from the productivity-gain trend. This diverging trend will likely continue and become amplified with further AI automation. Second, data may likely become one of the most valuable resources in our information economy. Those who have the most data, and the ability to enable AI with data, will wield tremendous power in our information economy. In fact, there are data sets that exist today that are currently valued at over a billion dollars. Think about that that’s just a bunch of ones and zeros in a computer somewhere worth over a billion dollars. Third, the AI revolution will likely lead to a significantly more non-linear economy. Those with smart machines will have even more power and those without smart machines, unforuntately, will likely have even less power. It will become progressively harder for individuals, small businesses, and even some governments to compete with large established tech companies. How should you invest in an AI-first economy? What should you be doing today to capitalize on AI automation? First, before you make any other kinds of investments, be sure to invest in yourself first. The best way to leverage your time, money, and resources is to invest in: your education and your career. We’ve already covered this in depth in the previous two modules. However, it is important enough to be stated again. The best investment you can make right now is an investment in yourself. Second, invest in AI solutions to solve real-world problems. No matter who you are there are AI solutions available today (or soon will be) that can solve a wide variety of problems that you face on a daily basis. If you’re a business owner, you can use AI to improve business operations. Invest in AI to make better decisions, build smarter products, or automate manual labor. If you’re an employee or a contractor, you can use AI to increase your own personal productivity. Invest in off-the-shelf productivity-enhancing tools that will automate the parts of your job that are monotonous, repetitious, or inefficient. And outside of work, we can use AI solutions make our lives more enjoyable. There are many AI products and services today that can simplify your life and eliminate chores that you don’t enjoy doing. However, you need to let economics drive these AI solutions. The benefit you receive from an AI solution must be greater than the cost to automate and maintain that solution. Otherwise, it’s not a worthwhile investment. Third, don’t depend solely on your labor for income. Your labor is going to become progressively less valuable as we automate more jobs. This includes manual labor, knowledge work, and even highly specialized labor. Instead, you need to begin putting your money into wealth-generating assets. These include investing in companies, selling your own products, or providing automated services. Your labor can only make you money while you’re working. So most people only make money roughly eight hours a day. However, wealth-generating assets can make you money twenty-four hours a day. So those that invest in wealth-generating assets are essentially making money even while they sleep. Fourth, invest in the economy as a whole. On balance, the AI revolution is ultimately going to lift the entire economy. You don’t need to outsmart the markets to make money in this new economy. You just need to invest in the economy as a whole. Now, it’s important that I note that I’m *not* a financial advisor, so I can’t offer you any specific financial advice. However, what I can do is tell you about my own personal investment strategy, so you can do your own research and come up with an investment strategy that works for you. First, I diversify my investments to reduce my overall risk. I do this using index funds with very low expense-ratios. For example, I use Vanguard’s Total Stock Index Fund and their World Stock Index Fund. Index funds spread your investments across the entire stock market to minimize your overall risk. Essentially, the entire global economy would have to collapse for me to lose all of my money. And if that happened, we’d likely have much bigger problems on our hands. Next, I buy low and hold all my investments. I don’t day-trade, speculate, short sell, or try “timing the market”. Instead, I invest regularly in my index funds, I put extra money in when the market is low, I keep all my investments long-term, and I rebalance once a year. Finally, I have a safety net during economic downturns. I have just enough in the bond market and semi-liquid assets to cover me during a recession, if I should happen to lose my income. And I progressively grow the size of this safety net as I get closer to retirement – during the years that I would likely need it most. It’s a ridiculously simple yet highly effective investment strategy endorsed by many of the top experts in the world. Fifth, invest early for compound growth. Exponential curves like the growth of GDP per capita in the USA start out slow and then explode quite rapidly. The sooner you invest in the AI economy, the better off you’ll be (exponentially). The next Googles, Amazons, and Microsofts are out there now or soon will be. However, you don’t need to find them yourself, your index fund will find them for you when the time is right. You just need to invest in the whole economy now so your investments will reap the reward of long-term exponential growth. To recap our third recommendation: invest in an AI-first economy. Invest in yourself first, invest in AI solutions to real-world problems, don’t depend solely on your labor for income, invest in the economy as a whole, and invest early for compound growth.