Are tech stocks a good investment in 2021?

In the answers shared today I focused on:

  1. Are tech stocks a good investment in 2021 given the great run they have had in recent years? What lessons can we learn from the last 20-30 years?
  2. What’s the best way of investing money in Uganda, or from Uganda? Is it really that much different to investing from other countries?
  3. Which stocks, stock markets and sectors have fully recovered from the coronavirus and which haven’t?
  4. What are some of the more aggressive techniques people can use to retire more quickly?

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me or use the WhatsApp function below.

Are tech stocks a good investment in 2021?

The Nasdaq was up over 40% in 2020. Some of the individual stocks increase by hundreds of percentage.

A few even did 1,000–2,000%. We are only ever going to use more technology in the future.

However, there are some risks

The main two are:

  1. Yourself
  • Even if you bought the Nasdaq at the peak in 1999–2000, you would have made a lot of money by buying and holding for 20 years. Yet how many people do you know who did that? I can count the number of people who did that on one hand.
  • The reason for the first point is simple. People are obsessed by recent performance (recency bias). The Nasdaq was stagnant from 2000 until around 2014. It has skyrocketed since then just like it did in the 1990s. Most people lost faith during those 14 years. Instead of seeing it as a buying opportunity, they panic sold.

2. Individual stocks

  • As mentioned previous, the Nasdaq more than recovered from the huge falls seen between 2000 and 2002. Yet many individual names didn’t. Some fell big and never recovered, whilst others completely went bust:
  • Like in the 1990s, there has been a recent trend of DIY investors buying individual names. Some of those names don’t even have high profits yet.

Therefore, you have to remember that if you buy and hold the Nasdaq for decades, you will almost for sure do well, but experience many bumps along the way.

That doesn’t mean that you should put 100% of your portfolio in tech-heavy indexes.

With individual stocks, you could always see a big fall or worse.

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me or use the WhatsApp function below.

What is the best way of investing money in Uganda?

I would more focus on what is the best way of investing money from Uganda rather than in the country.

The fundamentals of good investing cross borders.

Those fundamentals are:

  1. Invest long-term
  2. Be diversified. Having some money in US Markets, alongside some markets like emerging ones, often makes sense.
  3. Reinvest dividends from these investments.
  4. Make sure you know what you are doing or outsource it to somebody who is a professional in the area.
  5. If you are an expat living in Uganda, or are a local that plans to live overseas, it is essential to have a portable and cross-border solution. In other words, you can move your accounts if and when you move countries.
  6. You have a good risk-adjusted strategy. That gets me back to the fundamentals of your question. Just because somebody lives in country A, doesn’t mean they should invest in country A. In certain situations, this makes sense. If you are American and live in the US, it makes sense to mainly invest in US markets which are global anyway. If you live in a fast growing, developing country with a lot of potential political and social difficulties which can always come along, it makes sense to have some of your wealth outside the country.

In relation to the sixth point, we have seen election-related violence and unrest recently in Uganda and many other places:

What is also important to mention is GDP growth and stock market performance isn’t always linked.

Look at how badly China’s stock market has done since 2006 as an example of that.

All of this makes it essential to consider carefully how to invest in a safe and long-term way, regardless of which country you currently call home.

So, the bottom line is, I would never focus on investing all of the money locally.

Will investment stocks recover from the pandemic?

They already have. Not every stock. Not every stock market. But the entire stock market has globally and in many countries.

MSCI World which is a worldwide index, has hit numerous record highs recently.

It should therefore be no surprise that the Nasdaq, S&P500, Dow Jones, German Dax, Korean Kospi, Taiwanese Stock Exchange and many others have hit records too.

The best performing indexes have been tech-focused like the Nasdaq and some tech-focused indexes in Asia.

Even some stock markets that haven’t hit record highs, like the Japanese Nikkei and Shanghai Composite, are higher than they were 12 months ago and before the pandemic.

Which markets and sectors haven’t recovered?

  1. The UK FTSE
  2. Countless markets in Latin America like Brazil’s exchange
  3. European Markets as a whole are down about 3%-5%, despite the German Dax and some markets up for the year and hitting records. Having said that, you also have to focus on dividend reinvestment. If you factor that in, European markets are only down about 1%-3%. I am pretty sure they will make that up!
  4. Individual names and sectors are miles away from recovering. The airlines as an example, or tourism stocks. There is no certainty that they will ever recover. The big banks in the UK, US and Mainland Europe have never came close to recovering from 2008 to 2009. This is despite the overall markets hitting numerous record highs. I am not saying the same thing will happen this time, but some sectors won’t recover. It wouldn’t be surprising if the same thing happens this time. In other words, the overall indexes keep hitting record highs in the next 12–13 years, but one or two sectors never recover.

So, the bottom line isn’t that “stocks” have always recovered. It is that the entire market has, and the more diversified you are, the lower your risks become.

Even buying a market like the German Dax, which isn’t a particularly risky investmen, is riskier than say MSCI World, for this reason.

Where is it possible to be financially independent more quickly?

If there was an easy way to be able to retire tomorrow, then everybody would do it.

Even people who love their jobs or businesses want to be able to afford to retire tomorrow, if their health goes.

It is about having more options, and everybody wants to have that.

So, most of the quicker ways of becoming financially independent more quickly still require people to get out of their comfort zone.

There is a saying that nothing good ever comes out of your comfort zone and I think it is true:

Examples of more aggressive approaches include:

  1. Emigrating. If you are lucky enough to be able to live and work anywhere in the world, you can move for lower taxes, cheaper costs of living etc. Sometimes you can even earn more in the process, especially if you work for an MNC and are sent to a country which is considered “a hardship”. Alternatively, people can retire overseas or in a cheaper place in their home country. $500,000 isn’t enough to retire in London or New York in most situations, or even close. It is enough in countless countries around the world.
  2. Take calculated risks.  A lot of the people I know who have achieved financial independence (defined as the ability to retire tomorrow even if they don’t take that choice) took big, calculated risks, at a young age. For some that meant emigration. For others that meant getting paid more on performance and less on salary.
  3. Making sacrifices with spending – spending less and working harder for a few years, for a longer retirement. You can also try to leverage your income in your spare time. Many people can’t afford to take a big risk and start their own venture if they have kids and a mortgage. I have known some people that have done it in their spare time, built it up and then quit the day job.
  4. Invest money – don’t save it. You can’t realistically save your way to retirement with 0% interest rates.
  5. Avoid the key mistakes – things like going off the rails due to vices, mid life crisis and so on. These things can put people back a decade or more.
  6. Read a lot – also associate with many different kinds of people via mastermind groups. Get different perspectives and ideas that you can implement. Don’t get stuck in a rut.

Really, it is a numbers game. Anything that can help improve your net income, ability to save and invest and investment performance will all add up and compound over time.

I will give you a simple example. Let’s say somebody is earning $70,000 now in a country in developed Europe.

Due to taxes and cost of living, they are only investing 10% per year ($7,000). It is going into a savings account paying close to 0%.

Then they make two changes. They move to a low-tax and cost of living country, as they are a remote worker.

This means they can now afford to invest $24,000 a year and they invest rather than save money.

Over a 20–30 year period, those two small changes are likely to compound to the millions.

Those options aren’t available to everybody, but for most people, small changes can make a huge difference. 

I will give you another example. Studies have shown that investing one day after you are paid is much more effective than investing what is left over at the end of the month.

It can increase how much gets put away by up to three times, and people don’t even notice it.

What’s the simplest habit that you developed that made you save the most money?

The simplest habits are the ones that are easy and not time consuming to make, and don’t impact your standard of living.

Examples include:

  1. Working from home at least some of the week, or cutting your commute time. Of course, for some people, this does reduce standard of life. For others, it enhances it or is neutral. It saves money on commutes, lunches, work clothes etc.
  2. Thinking about things more carefully and not caring about what is normal. The pandemic and lockdowns has made many people realise that they don’t need to work in an office as per the first point. Yet I made that decision years ago. Too many people make assumptions though. For example, the idea that people don’t take online firms seriously is clearly ridiculous in 2020 and was in 2019, but even as recently as 2015 many people assumed that working from home would result in them being taken less seriously but the majority of clients. It hasn’t been the case for a decade or so, but people often assumed otherwise. The problem is, most people only make the change once it has become normalised.
  3. Investing at the start of the month and not what is left over at the end.

4. Learning to say no more often. Most overspending is linked to habits, peer-pressure or assumptions as per the above point. A great example of peer pressure would be a car. Most younger people think it is great to drive as soon as possible. It is pretty normal for some people to get their own car at 17, 18 or 19 in some countries. Yet the insurance costs a fortune at that age, so delaying driving is a good option for most people. Peer pressure often drives people to making alternative decisions.

5. Sometimes technology as well. If you love going to the movie theatre, going less often and buying a wide spread TV together with Netflix, will save you a lot of money. Again though, most people waited until that was considered “normal” before going down that route.

Further Reading

In the article below I discussed:

  1. What is my favourite stock strategy and why?
  2. How common are “rags to riches stories”, and how should we define riches anyway?
  3. Should people invest in one go, as a lump sum, or monthly invest?
  4. Do people really sacrifice their health for wealth?

Click below to read more;

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