In this blog I will list some of my top Quora answers for the last few days.
These questions included answers on:
- Why Covid hasn’t changed the long-term trends in the world as much as people assume. Are the current trends of people spending more time and money online, working from home and investing into assets really new? Or has the fast forward button been pressed in a world where we were moving into this direction in any case?
- Is it true that schools are very bad at teaching personal finance? If they are, what is the reason for this? How does this increase inequality between the haves and have nots?
- How can people earn $30,000 a month? What are the two-three “routes” for people to become high-income? Perhaps some of the options will surprise you!
- If somebody wins the lottery, does it make sense to take out an annuity, and therefore get a fixed income, or invest it as a lump sum?
If you want me to answer any questions on Quora or YouTube, don’t hesitate to contact me.
It might seem like an amazing statement but Covid hasn’t fundamentally changed the long-term trends in the world.
Look at these statistics ……internet usage on social media over time:
Bond and cash returns are so low, and that hasn’t changed. They have just gone even lower, meaning people are searching for yields in the stock markets and to a lessor extent real estate.
The number of people working from home…..you will see it doubled from 2008 until 2016 and it increased again before covid
What also hasn’t changed? Well trying to time the market didn’t work before Covid and that has been proved again this year.
The world is going to have less face-to-face interaction. Those people and businesses that are online will do better than those that aren’t.
That hasn’t changed. Now sure, the world has pressed the fast forward button on that.
Lockdown has “forced” even those few people that weren’t shopping online to do so.
It has made people realise that working from home can work well for many people.
Yet the world was going in that direction anyway. Some of my longer-term followers will know I have been speaking about these trends on Quora for a couple of years…..long before the virus and lockdown came into being.
I decided to stop meeting clients in person, and work from home, years ago.
What might change is this. Governments have spent a lot of money and debts are higher than ever.
That isn’t a big deal for those countries that have the debts issued in local currency.
I don’t expect countries to default apart from those that have taken out foreign currency debt.
What might happen, however, is that new taxes will be bought in.
Examples might include new wealth taxes and more countries following in the example of the US and bringing in taxes by citizenship.
In other words, even if you become an expat, you are taxes by your home country.
The political blame games might get bigger as inequality rises due to two trends that are happening in the world:
- Technology making it easier for richer people to make more money for lower cost. No longer is it the case that you need to set up an office in a foreign country and employ loads of people to get traction.
- Assets like stocks, and to a lessor extent real estate, doing well vs cash in the bank.
We have started to see that this year. Most major global stock markets have done well or relatively well, despite the huge crash in the middle.
Those with the ability to work from home have emerged intact compared to those that can’t.
People and businesses online have oftentimes earned more in 2020 than ever before, whilst businesses relying on face-to-face interaction have suffered.
This might lead to a political blame game. Some people will adapt and others will seek others (politicians, regulators etc) to “protect” them.
The bottom line is that for those that are investing in assets, and have a good online presence, less adaption is needed.
The plan is already successful. For others, the adaptation might be tough.
That isn’t always a bad thing though. I remember a number of years ago I completely changed many aspects of my business model.
Change can be tough at the time but hard choices can result in an easier life long-term.
Making no changes can be riskier long-term.
There are numerous ways to do this. There are two main “routes” though
- The conventional way
- Get a job. Work your way up the chain until you are an executive when you are middle aged or younger in some cases
- Or get a job in a well-paid industry like top consulting, legal or financial firms and get to a mid-level position in those firms. A partner at Bain, Mckinsey or other top firms will make about $1m but somebody at the mid level (manager) will make about 30k-35k a month.
- Jobs that require you to go to dangerous countries. For example, some jobs in oil&gas pay more if you sent to an oil field in Iraq as an example…..so whilst an engineer working for BP or Shell in Norway or Canada might make 15k-20k a month if they are established, they could make much more by going to a “hardship location” with the same company
2. Get paid on performance and not your time
- The first way is more competitive to get into.
- An alternative way is to get paid on performance and not your time
- This could mean starting your own business, getting paid on commission, affiliate marketing online, being a YouTuber etc.
- Ultimately you can’t scale your time as everybody only has 24 hours in a day.
- This is riskier for most people unless you have youth on your side or you do it as a side gig to begin with on top of your full-time job.
- People who use this technique often leverage other people’s time, or leverage technology.
The difference between the two routes is simple. With the first option, very few people get accepted or make it.
Only 1/200 or even 1/1000 people get into Goldman Sachs Bain & Company or other top firms that pay extremely well if you last for 5 years+.
With the second option, almost anybody can at least try it, yet at leats 80% of people will fail.
Another 5%-10% will just do OK and live comfortably. 5%-10% of people will make a lot of money, long-term, if they stick at it.
There is a third way and that is if you have private wealth. There are some people who make 30k a month from investing.
Yet apart from people that have inherited the money, most started out in one of the two “routes” mentioned above, and invested for decades to get to that position.
The main commonality is that people who become either very wealthy and/or high income, tend to be willing to do things that other people aren’t willing to do.
That could be taking a risk by getting paid on performance, or taking a “hardship” location job.
The second commonality would be the ability to use leverage – leveraging money where applicable, other people and resources like technology.
Statistically speaking investing a lump sum will do better than an annuity long-term.
There is a simple reason for this. Annuities, to quote an online dictionary, are “a fixed sum of money paid to someone each year, typically for the rest of their life”.
There is no such thing as a free lunch. Therefore, if a financial institution is willing to pay you a fixed sum for your pot of money, it means they need to have a good chance (statistically speaking) of making money on that guarantee.
Paying a guarantee for life can be much riskier than charging ongoing fees for obvious reasons.
All of that means that an insurance company or other financial institution will offer you less than what markets have historically given, and indeed less than what they are expected to yield in the future.
Numerous studies that have compared taking an annuity to drawdown and investing the money wisely, have found that annuities usually lose long-term.
Of course it depends on your situation. Getting a fixed sum of money also makes people feel safe.
It also reduces your downside risk. If the markets do badly over a period of time, an annuity might “win” vs investing the lump sum.
Your chances of gaining through an annuity though are slim vs sensible lump sum investing.
It reminds me, in some ways at least, of lump sum investing vs dollar cost averaging (monthly investing).
Statistically speaking investing a lump sum in one go has at least a 60% chance of beating a monthly investment:
There is a simple reason for that. Markets usually go up long-term despite the volatility.
So, the rational thing to do is invest any lump sums you have asap.
That means literally today, and add regular chucks of money later on.
Yet many people feel safer by investing money on a gradual basis.
In any case, it is best to do the maths on these things, but I would pick the lump sum.
It would be great if this subject was taught better at school, so I agree with your sentiments.
However, I don’t think there is a conspiracy. Some people think that schools don’t teach personal finance well to gives the kids of “the rich” an added advantage, but I don’t buy it.
Many things aren’t taught well at school. Remember those cooking lessons:
Or sub-par language lessons in most native English speaking countries?
Or perhaps business studies which is often purely theoretical. The point is, many things are taught badly at school.
Personal finance is often some basic lessons which speak about budgeting or compound interest calculators.
It could be done better of course, but I doubt there is much of an incentive for schools to teach it well.
Mostly there aren’t tests on the subject and even if those existed, “:teaching to the test” is normal in most countries.
That is why this subject is often left to parents, individuals to work out for themselves and the private sector.
What is undoubtedly true is that those that leave the basics early have better life chances.
People who don’t learn the basics, and get into bad habits, can often be broke even if they earn high salaries in later life.
One of the biggest reasons for this is schools and universities assume that the average earnings of students after they graduate is more valuable than the average net worth.
Most individuals assume the same thing and focus on the “top line” and not the “bottom line”.
Ultimately being in debt and earning well isn’t the ideal situation in reality.
Often times wealthier people have access to better education and advice, and this gets passed onto kids.
That increases inequality.
Tech stocks fell after the vaccine was announced. Many people think we will see a “great rotation” whereby firms in the airline, shopping and face-to-face economy do better than tech firms.
In this article I discuss why people shouldn’t look into these issues too much and follow short-term valuations.
I also discuss other stories that have made the news recently. They include:
- Trump banning certain investments that could help the Chinese military. Will Jose Biden be more, or less, hawkish on China, and will that affect stocks?
- Why the Gulf is becoming a less welcoming place for expats.
- Why London has retained its allure for many wealthy expats from around the world.
- The fact that the US Federal Reserve has warned of potential economic headwinds in the future months, as the pandemic continues to rage.