On this article I will cover some of the latest content from the adamfayed.com forum.
I will be delighted to hear your comments and contributors on the forum as it grows over time.
Could markets in Europe and Asia outperform the US this year?
US and international markets go through different stages. On some occasions, like in the last 12-13 years, US Markets outperform. During 2000-2010, many international markets outperformed.
There will, for sure, be a period where international markets outperform. In fact, just last year, South Korean, Taiwanese, Chinese and some Nordic stock markets outperformed.
It therefore makes sense to be diversified in both types of assets.
With bonds paying so little has the game changed?
I don’t think it has changed that much because stocks have always beaten bonds long-term. You are quite right in saying that as cash and bonds now pay so little, it might make sense to have more in markets.
Yet some of the following fundamentals remain the same:
1. Stocks are likely to beat bonds long-term
2. Bonds will beat stocks during some periods of time, like a market crash. As a result of this, bonds can be a good rebalancing tool during a stock market crash or correction.
3. Once you have accumulated enough, it does make sense to have bonds, and a more diversified portfolio. In your 20s and 30s, an aggressive portfolio makes much more sense.
4. Nobody can know for sure when bonds will pay more.
5. Just because an asset class like bonds aren’t performing well now, doesn’t mean it will always be like that.
6. Bonds still pay more than cash, especially when you factor in the dividend yield. Mixed bond funds, which include corporate and government bonds, pay much more than cash.
7. Bonds, in general, are less risky than cash.
So, I wouldn’t completely neglect bonds.
Is insurance a waste of money for most people as it is dead money essentially?
Let’s say you aren’t wealthy, but you would like to make sure your family are OK if you die. A premium for even $1m worth of life insurance isn’t expensive if you get it at a young age.
If you die, which might only be a small chance but it is there, your family will end up with maybe even more money than through an investment.
That isn’t the case if you get the insurance when you are older, as your risks are older, but you get my point.
The same thing is true of health insurance. If you are based in a country without universal healthcare, medical costs can be hundreds of thousands of pounds or USD.
I know some people who have been bankrupted by this cost. Even some wealthy people aren’t that liquid.
Therefore, insurance is a small cost to pay for a bit of security in the event of unexpected issues.
I don’t think it makes sense to spend a high amount of money on insurance but 1%-5% of your income? It is worth considering.
In addition to the above point, you can get 1million pounds worth of life insurance for 30 pounds a month in the UK. And that is a fixed rate over 20 years.
So, if you die, your beneficiaries get 1million, and you have paid a maximum of 7,200. More likely than not you have paid less.
Now of course, there is a small chance you will die, and nobody would want to die earlier than expected.
Yet it does show the mathematical logic behind protection.
Markets have always came back up, so why do people panic sell?
There are a range of reasons. Firstly, it is easy to forget how panicked people are after the event .
Remember how scared people were when Lehman collapsed or 9/11 happened? Few people do now.
But every time there is a major event, be it in the stock market or politically, there are always many “very serious looking people” who suggest that “this time is different”.
The media makes more money out of fear than hope, so they peddle simple and fear-mongering narratives. The attached quote says it all.
That means there are often two kinds of people who panic during crashes:
1. Those who know that markets have always recovered previously, yet they think this time will be different, and forget that this is what is always said after every crash.
2. Those who don’t know that markets have always recovered previously.
Beyond that the following reasons can contribute to it
1.Peer-pressure, or influence from a community. If everybody else online, and in your friendship network is selling, then shouldn’t you as well?
2. A certain percentage of people aren’t panic selling but need the money due to losing their job
3. Some people don’t panic sell on the day, but wait until markets rise so they break even, and then they sell! This is due to wanting to avoid a direct loss. Yet long-term, this is also a destructive behaviour.
4. Lack of patience. If markets don’t recover for years, such as in 2000 or 2008, even some people who didn’t panic sell originally do so.
The bottom line is that the emotion of fear is probably the strongest human emotion of all. It is much bigger than greed, love, envy or other emotions.
When people panic, emotions aren’t rational.
Are pensions the best way to invest in this day and age?
My comments on this question are:
1. In some countries, pensions are tax-efficient. Sometimes, they are the most tax-efficient option out there. Moreover, it is often the case an employer will pay in $1, Euro or Pound for every contribution you make, or at least put in something.
2. Yet many pensions are very inflexible. Sometimes people can’t take any money out until 55, 60, 65 or even 68.
3. You also face many risks with “traditional company pensions”, such as the company will go under (therefore doubling your risk of you losing your job and pension), and the tax rules will change in retrospect, as they have done in the UK and other countries.
4. Most traditional pensions also don’t work well for traditional expats who are moving around from country to country.
So, I am not anti-pension, but it needs to make sense.
I would be interested in anybody else’s experience here.
sometimes, overspending compared to local standards. There are ways to save and invest more, but it’s not easy to give up their ‘original’ lifestyle. Here I assume someone who moved from a more developed country to an underdeveloped country where they have to spend more to buy imported items. It is a great opportunity to invest more if you are living in a lost-cost-of-living country, unless your salary is also at the local level.
That’s very true – imported goods can cost a lot as an expat outside of Europe and North America. There is also a pretty big difference between what locals expect to pay and expats as well, especially in some of the poorer countries.
I have thought about the index hugging, though it makes me nervous since I am completely new to this. I will research more, however.
I know Schwab has a robo-advisor feature, though whether or not it is available to international customers is an answer I haven’t been able to find. They have a $25k minimum for international. Also, they do not accept Norway residents (had this confirmed by them earlier today). As far as I can tell, it looks like they may only accept residents of countries in the drop-down list they provide. I saw somewhere this number has been shrinking as well.
Another I found is Dunhill Financial who say they have partnered with some platform called Praemium to offer expat services with compliant reporting. I am not sure if it involves robo-advising since the information is a little sparse and Praemium’s information is confusing (I believe they are just the platform, an intermediary of sorts). Dunhill is $25k minimum as well. I found an old 2016 press release saying Cross Border Planning, a company from Belgium, was releasing a robo-advisor called OmniWealth for expats, but that is almost all I could find. What brought me to Dunhill was that there was another later article saying Dunhill merged with Cross Border Planning (perhaps absorbing the OmniWealth, which used to be OmniWealth.eu which does not exist anymore). That was down a bit of a rabbit hole.
There’s a number of robo-advisors in Norway, but that’s pretty likely to be only for non-US persons. One company, NordNet, states clearly they do not accept US-connected people. This is probably pretty similar across most countries. I’d have to check if the larger banks accept us for investing (and if it is compliant), or if they only accept for bank/savings accounts.
Basically, it looks like practically nothing is available to us. Not locally, not US-based. The only thing available is either Interactive Brokers or going through an expat-friendly financial advisor.
I am a little surprised this does not exist considering there is around 4.8 million Americans living abroad. Perhaps “niche” compared to 330 million, but 4.8 million is the size of Ireland.
Yes index hugging can work. Schwab are a funny one in that they have been inconsistent. I have heard that they have sometimes refused US expats living in certain countries, whereby IB are more consistent.
I do think the space will change. I will soon be able to offer US services, but the minimums will probably be at least $100,000 for obvious reasons.
There is certainly a niche for offering American expats investment options from 20, 30, 40 or 50,000 USD. The key will be using technology though.
This thread will speak about worldwide taxation. Currently only the USA, Eritrea and North Korea tax citizens based on citizenship and not residency. In other words, US expats can still pay taxes if they live abroad.
As mentioned on this website before, China and South Africa are now going down that route as well. In the post-pandemic world, where governments need revenue.
Therefore I expect the following tax increases:
– Expat taxes . Countries taxing expats on worldwide income. I expect many Western countries to do this at least for high-earning expats.
– Corporation taxes including potential “minimum taxation levels” agreed at the OECD level. In other words, if the minimum tax is 10%, and a country applies a 5% rate, governments could levy another 5% tax on their citizens and businesses sending money there. It will be done on the basis of “harming the multi-nationals firms” like Amazon, but will harm the middle-class more.
– Digital taxes. Just like the last point, it will be sold on the basis that it will only harm the big boys and it will “only” be 1% – before it isn’t. Perhaps on day one it will only affect firms with big turnover but that will change.
Of course, as a result of this, there will be a huge demand for the following services:
– Second residency and passport services. More people will give up their passports if taxes rise and worldwide taxation is brought in.
– Accountants and lawyers who specialise in reducing tax burdens legally will have a filed
Then there will be an outcry about “why are all of these people giving up their citizenships”, and subsequent crackdowns such as exit taxes for those who take such actions.
The point is, people do need to prepare for changes to come.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 232.5 million answers views on Quora.com and a widely sold book on Amazon
The article below addresses the following questions:
- Should you buy index funds at all-time highs? I go over the history of markets and explain why nobody can time the markets.
- What are some techniques for managing business and financial risk? In particular, I focus on how to manage unexpected risks from black swan events.
- What causes stocks to rise and fall by 10% in a day? Is it pure speculation or something else like the P/E ratios and valuations?
- Are the richest people all white? Statistics show otherwise in the UK and US at least.
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