Is it true that you can double your net worth every 7 years at 10%? What about taxes?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 339.6 million views in recent years.

In the answers below I focused on the following topics and issues:

• Can you double your net worth every ten years if you achieve 10% annual returns?
• What is social capital? Is it useful?
• Do most expats in China want to stay long-term?

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Source for all answers – Adam Fayed’s Quora page.

Is it true that you can double your net worth every 7 years at 10%? What about taxes?

Yes – it is called the rule of 72:

It can also be adjusted for different amounts such as 12%, or indeed a lower amount like 7% per year.

Some points to make though

1. Whilst some markets, like the Dow Jones or S&P500, have averaged 10% per year, that doesn’t mean that they will do 10% every single year or decade. Some time periods are significantly better, whilst others are worse.
2. Doubling your net worth would happen if you don’t add money to your account. In other words, if you stay with a balance of $100,000 and get 10% a year, your account should be worth about $200,000 in seven years. Most people will add money to the account, in which case you will more than double your net worth.
3. For example, if you start with $100,000 + add $1,000 a month for seven years, the ending balance after seven years is $320,000.
4. In much the same way, any withdrawals will lower the end return, including withdrawing dividends.
5. I wouldn’t expect your net worth to double in two, five, or even ten years, even if it probably will. The reason is simple. Many people lose faith in markets during a bad period. However, if markets have a stagnant period, that is an opportunity to buy cheaper for longer, even if it will take you longer to double your money.
6. The key to investing isn’t doubling your money once, but doubling it numerous times, hence why compounding is so important. 30x your money slowly is easier than 2x your money quickly.

As for taxes, that depends on several factors, such as where you live, if you use dividend funds, etc.

In general, bigger taxes are paid on capital gains, and not unrealized capital gains.

In which case, that is only another reason to be long-term and not sell out quickly.

What is social capital, and why is it a useful concept?

Social capital is why people do networking.

Think about something for a second. If you want an electrician or plumber, what would you do?

You would maybe ask a friend, or a friend of a friend if you happen to have somebody like that in your network.

Or perhaps you would put out a post on Facebook asking for recommendations.

People who get a lot of recommendations have a lot of social capital, as do those who:

• Went to good schools
• Attended excellent universities
• Are part of certain alumni like Mckenzie

However, it is a big mistake to think things like “your network is more important than your net worth”.

I know many well-networked people who have struggled to find new jobs, even if they know thousands of people.

What is more, digital capital has become more important than traditional social capital.

Now sure, you could argue it is a form of social capital as in the case of social media, the clue is in the name.

The point is, digital capital is scalable. Word travels faster online, and you can reach all corners of the world.

Therefore, social capital is important, but not as important as digital or financial capital in the 21st century.

At least not for the vast majority of cases. One of the biggest reasons for this is that the vast majority of networking events are useless…..1%-2% have all the benefits as per a study Harvard did:

So, it is easy to waste a lot of time, with limited benefits. With financial capital, you also have more control over it.

Why do more than 50% of Western expats who have lived in China want to stay there for a longer term?

They don’t.

Not in general anyway. Expat satisfaction is fairly low, or average at best.

The above study from InterNations is a bit less pessimistic than the average study, but it shows China in “mid-table”.

InterNations only does events in the bigger cities like Shanghai, Beijing, Shenzhen, and occasionally elsewhere.

In those cities, expat satisfaction is, on above, higher than second, third, or fourth-tier cities, but still not super high.

When I lived in China, hardly anybody wanted to stay long-term, unless:

• They were married to a local
• They had a local business and therefore were there just for money
• The pay was so good, for executives, that they wanted to stretch out the term to 8–10 years, but certainly not 20 years. This was seldom the case though because taxes are high in China and better packages exist in places like Singapore – at least in some industries.
• They were fresh of the boat, and in the honeymoon phase. It is certainly true that many newer expats are very happy.

Exceptions exist, but I have witnessed higher expat satisfaction rates in the other countries I have lived in.

What is more, there have been crackdowns on the education and technology industries, which are two large expat employees, since I lived in China, so satisfaction has probably decreased further.

The internet is restricted, there is a lack of freedom, and many other issues. That means China, these days at least, tends to attract more students and short-term expats.

Hong Kong used to be a great place to live outside of Mainland China, but times have changed.

Further Reading 

In the answers below, taken from my online Quora answers, I spoke about the following issues and questions:

• Is sacrificing your 20s for your career worth it, or is it a false tradeoff? 
• Which stock sectors will do well in 2022?
• Why has the Turkish Lira lost so much value?

To read more, click on the link below: