I often write answers on Quora, where I am the most viewed writer for investing, wealth and personal finance, with over 230 million views in the last few years.
On the answers below, taken from my online Quora answers, I focus on a range of topics including:
- Are REITS good investments in 2021?
- Is short selling illegal, immoral and/or unproductive? What does the GameStop story tell us?
- Would any government, such as the US government, want to crash the stock market? I explain why no government wants a stock market crash.
- Do big companies really evade taxes, or is that a myth?
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I wouldn’t focus on whether REITS are going to do well in 2021, or 2022.
I would more focus on whether buying REITS makes sense as a long-term play.
I do think REITS are a good investment if you hold them long-term.
Not all REITS, but globally diversified ones tend to do well over time.
We also have to remember that
- They look cheap. Covid, and especially lockdowns, has affected commercial real estate, as more people can work from home. REITS haven’t fully recovered from the stock market crash. They have just partly recovered.
- The dividend yield is strong. Take the iShares global REIT. The dividend has consistently been between 3%-5.5% per year.
- Many researchers have looked at historical correlations, they have found that having 10% REITS in a portfolio helps the portfolio to grow. One Vanguard study showed a portfolio with REITS has down 0.2% per year better than a pure stock and bond market portfolio. The reason is simple. Sometimes stocks beat REITS, and vice versa. This offers a rebalancing opportunity.
- For 0.1% per year cost, you can get access to a cheaper and in some countries more tax-efficient, way to own real estate. Less hassles too compared to direct real estate.
- Construction is one part of the economy that hasn’t been locked down in most countries.
- Some forms of real estate, like roadside retail, are growing fast as more people use cars (and online) for business meetings, and are avoiding public transport. It is commercial offices like these that have been most affected:
The main disadvantage compared to direct real estate is you can’t leverage.
You can’t use other people’s money to pay off your own mortgage.
That has became more difficult in most countries now anyway, and the heyday of the buy-to-let boom has long gone.
So anyway, if you buy and hold a sensible REITS index for 20–30 years, I am sure you won’t regret it.
I am not sure how they will perform in 2021 though. They look more uncertain (short-term) than stocks as there are many unknowns associated with Covid.
You would think that a return to “near normality” would help REITS, but these things are very hard to predict.
I don’t think there is anything morally wrong with short selling, or any speculation for that matter.
People should be able to do whatever they want with their money, unless they are breaking the law.
Yet people need to know the facts. Unless you are a professional investor, you are highly unlikely to beat the market by short selling stocks.
At least in the long-term. We have recently seen the GameStop story and how many younger investors lost money:
Of course this is a controversial story and became highly political, after the brokerage house RobinHood restricted trading.
The point is though, that these moves aren’t new. In 2008–2009, many governments banned, or restricted, short-selling for a while, until the situation cooled down.
What has changed is smaller investors now have a chance to short-sell.
Yet some things remain the same including
- Short-selling is risky. Government, and for that matter, brokerage, intervention is just one risk.
- It is often highly leveraged. Remember, short selling generally involves selling borrowed shares of a stock with the belief that the price will drop.
- Everybody has the same information these days. So , if it was so obvious that such and such a stock will fall, why wouldn’t Soros, Buffett and everybody else do it? For everybody shorting there is somebody else going long (buying it). Both people can’t win. It is a zero sum game. It isn’t like buying an ETF tracking the market. In that case, everybody wins if the market goes up. Trading by definition is more risky.
- One wrong move can undo years of hard work. I know a guy who did well with shorting for years. He had one awful six month period. So awful that it dragged down his performance below what he would have received from just tracking the stock market.
So, there is nothing, morally, with short-selling. It is merely a mistake to think most people will profit from it long-term.
I also think there could be more regulation going forward. It isn’t illegal to short sell, but it is illegal for financial institutions to all collude and say they will do it.
The Reddit issue exposed a loophole that might get closed down.
Of course not. Any government that hopes for a crash would be crazy.
Almost every government is either benign about the stock market, or wants it to increase.
An increasing stock market can give the incumbent a weapon to use.
We all saw how Trump weaponised the soaring stock markets, and many other political leaders have done the same over the decades, across numerous countries.
A crash, and instability, even though it doesn’t affect the long-term investor who doesn’t panic sell, is bad PR.
It gives political opponents the chance to say things like:
- Your retirement chances are destroyed and the government is to blame
- The government caused this crisis to begin with
- The economy is bad even though there is little or no correlation between rising, or falling, stocks and the economy.
Watch how many incumbent governments lost in the wake of the 2008–2009.
For anybody who has read about this, it is silly. Governments can’t usually be blamed for soaring stock marries, or a crash, and things come back after a crash anyway.
The 2020 crash didn’t affect anybody who waited it out. The 2008–2009 crash also didn’t, even though the recovery took longer.
Most big companies don’t “evade” taxes. Evasion is illegal. This is a myth from certain sectors of the media.
Most use accountants, lawyers and consultants to legally avoid, and reduce, taxes.
Some techniques are simple enough, like moving a HQ to a low-tax country, in much the same way many expats are attracted to Saudi Arabia, the UAE and other low-tax countries.
Other techniques are more complicated, like profit shifting, and the “dutch sandwich”.
However, this always changes, as there is a pattern:
- Companies find new ways to reduce taxes just as any rational individual would
- Loopholes and for that matter non-loopholes are closed down
- Companies find new ways to reduce taxes just as any rational individual would, but now need to find new ways.
- Loopholes and for that matter non-loopholes are closed down and the process starts all over again.
Do you know what the hypocrisy is though? Almost every government in the world have schemes for people, and especially MNCs, with capital.
These schemes often offer 0% tax for a certain period of time. Even some relatively high-tax countries like China offer things like that.
I personally know some people who were offered such incentives, which often go beyond tax as well.
So, often governments complain about the effects of their own policies.
You can’t have your cake and eat it! It is true that MNCs have access to more opportunities than smaller business owners, but governments have created these very conditions.
It reminds me of countries who want loads of foreign direct investment, but don’t want the workers (expats) that often come with that, because most companies want to move expats over to new projects in the early years.
First of all decide:
- How much you want to invest
- What you want to achieve
- Do you want to do it yourself (DIY) or have an advisor
- Sometimes where you are based
- Sometimes your nationality
Points 1,2, 3, and 5 in particular will reduce your choices, as some brokers have minimums, some only specialise in DIY or advisor-lead advice, some can only accept for some locations etc.
If you want to invest by yourself, and you don’t plan to become an expat and move around, it is fine to use some of the larger DIY platforms.
That is unless you have complicated financial planning needs, like you are high-net-wealth or indeed plan to retire overseas or become an expat as mentioned.
If you want an advisor it is better to find one focused on your needs.
Like an expat-specialised advisor if you are an expat, or one who specialises in doctors, dentists or is industry-specific.
Online reviews aren’t perfect but they are a better way than most in selecting institutions, as are recommendations from friends and people you have trust in, either because you have read their content online or know them personally.
This is a big issue and one reason why many DIY investors end up panic selling.
It depends on your character really and what stage you are at. If you are completely new to investing, you might naturally stop doing this.
If you have been doing this for years, it might be worth just looking at some historical graphs to realise that fluctuations are normal in the stock market, and that markets tend to go higher long-term.
Also, get hid of the apps (if applicable) from your phone to make it more inconvenient to need to login by laptop.
It is difficult to say. In some ways, yes, because this shows a trend which has been going on for ages……the distrust of traditional authority.
These days, people care more about the whole communities opinions than a few “traditional experts”.
We saw similar trends when investors didn’t care about the FCA’s warnings about Bitcoin as I explained below:
Having said that, I do think financial institutions and even maybe regulators will make it more difficult to do this kind of thing again.
If financial professionals try to manipulate the price of an asset that is illegal.
There is a loophole that can allow it to happen online via Reddit, Quora and other websites.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 231.2 million answers views on Quora.com and a widely sold book on Amazon
In the article below, taken from my online Quora answers, I spoke about:
- I was asked “what is your biggest financial mistake and at what age did you make it?”. How did I respond to this question? I give an example of another person I know to illustrate a common mistake that I have made, and so have many others.
- What do people get completely wrong about investing in the stock market? I give a few examples including the idea that stocks markets are risky, Japanese equities have been a terrible investment and you need to be super smart to be a good investor.
- What are the advantages of keeping cash over investing in the stock market, considering it carries so much inflation and devaluation risk? Can I even think of one?
- Is it possible to earn 30% in a day in stocks? Some people are under the impression that this is possible on a sustained basis, but is it really true? If it is true, why isn’t Soros, Buffett and others getting on the gravy train?
To read more click below