Do all middle-class/wealthy people have investments? Is it possible to maintain this class bracket without investments?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 415.7 million views in recent years.

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

• Do all middle-class/wealthy people have investments? Is it possible to maintain this class bracket without investments?
• Is it necessary to move to the big city to become a successful investor?
• What are the real reasons of developed countries’ people moving to developing countries?

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Do all middle-class/wealthy people have investments? Is it possible to maintain this class bracket without investments?

The vast majority of wealthy, and middle-class people, have investments. They are held directly, through owning a business or investing in assets, or indirectly.

By indirectly I mean plenty of people don’t think of their workplace pension as being an investment when it usually is.

In reality, it isn’t easy to maintain a certain level of wealth without investing. Investing is the process whereby you try to multiple money you don’t need for today.

If you don’t invest, you have two choices:

1. Spend 100% of whatever comes in.
2. Leave the money in cash

With the first option, which some people do pick, even those who are high-income, you will never be wealthy or even comfortable. You are only one paycheque away from trouble.

With the second option, you face the following difficulties:

• You will lose out to inflation. Compounded over time, this is huge. People have lost 30%-50%+ since 2007-2008, due to inflation eroding savings. We are seeing this issue get worse at the moment, with high inflation. The example below shows how even losing 2% per year to inflation can be a big issue over a ten-year horizon:

• You are indirectly investing in the currency. If the currency goes down, the cost of imports goes up, meaning that the first problem gets worse. Again, look at the issue we are facing now. Inflation is a global issue, but the countries suffering the most, often have the weakest currencies
• You are putting all your eggs in one basket. If the currency collapses, your retirement is dead.
• You are actually taking a bigger risk staying in cash. Cash is safer than investing in stocks if you plan to invest for a day, a week, a month or even 2–3 years. It isn’t safer if you stay invested long-term in the entire market.

Remember, many people have lost money in cash. Nobody has lost money IF they invest in 3–4 indexes and just buy and hold for decades, reinvesting dividend income in the process.

Possibly the only way this is possible is if somebody is very high-income and quite frugal. That way, even if savings get eroded by inflation, they will still stay wealthier than most people – because they are always adding to the pot.

I have never seen somebody get wealthy from saving though. Almost everybody gets there by inheritance, starting a business or investing privately.

Is it necessary to move to the big city to become a successful investor?

It depends on what type of investor you want to become.

People start online businesses, all around the world. Hence why many people change their residency to a low tax and cost of living country once they succeed.

This is especially becoming the case in this digital world we live in. This excellent graphic from Visual Capitalist, shows that millionaires are always moving:

Where you are based is also irrelevant for:

• Stock market investing. You can do this almost anywhere. You don’t need to be in London or New York to invest in Apple or any index for that matter.
• Any publicly-listed asset, including bonds and REITs
• Real estate. Some of the properties with the best ROI are in unfashionable areas. It is much more difficult to make decent rental yields in larger cities these days, and the capital values are riskier because of the trend I am speaking about – work from home. In the UK in the last year, London has been one of the few areas in the country where prices have risen below inflation. A key reason is that many people want to do the opposite. In other words, sell out, and buy more in the outskirts.

We live in an increasingly digital, online and remote world. Your location is fast becoming less relevant, just as the old “deal” that you need to work in expensive cities to earn more is breaking down slowly.

The days when only multinationals could have clients in tens, or even over a hundred countries, are long gone. Now average businesses can do the same.

Perhaps one of the few exceptions is private investments. This includes angel and private equity investing, which are favoured by some high-net-worth investors.

You can do this remotely, but having the ability to network with founders is important in this situation. You might get opportunities you can’t get access to remotely. That is why some investors move to areas like Silicon Valley.

I saw several similar examples when I briefly lived in South East Asia many years ago. In frontier markets, you do get access to opportunities on the ground.

This was explained in this presentation/video, where I interviewed a fund manager on the Vietnamese stock market:

However, this goes to show you, that sometimes being on the ground in less developing places, has its advantages.

What are the real reasons of developed countries’ people moving to developing countries?

Who made the most money immigrating to America?

Those who came recently, now the US has a GDP per capita of $70,000, or those who came when it was developing?

Who made the most money in the UK? Those who came recently, or those who came when it was nothing?

More recently, who made more money in the UAE? Those who came to Dubai when it looked like this in 1990:

Or this in 2022?

The fact is, big fortunes are often made when countries, and industries, are developing and during depressions.

Some of the big money in the City of London was made during the “Big Bang” of the 1980s when there was deregulation.

A lot of the biggest fortunes were made on Internet and IT during the late 90s, even though the industry is now bigger.

Likewise, some of the biggest money in China was made in the 1990s and 2000s……but by people who got in during the 1980s and the opening up period.

I remember speaking to one of my ex-classmates in university. She used to get asked the same question a lot. “I know China has over a billion people, but how is it possible that so many Chinese students come to the UK when China was so poor when you were young”?

Her response was always the same – “most of the parents of these students, unless they are connected to the government, got in during a period when they were the first to market or one of the first”.

If you were the first (or one of the first) to set up language schools, hotels and other businesses in the 1980s, you had advantages when the money started flowing in.

Having lived all around the world, I have noticed two big commonalities:

1. Those who have more experience are more likely to successfully running their own business – in any industry.
2. However, if you don’t have much experience, you have more chances in a new industry (globally) or a developing country as an entrepreneur.

It is a bit like real estate. The people who made the big money from London property bought in the 1950s, 1960s or 1970s, not in the 2000s when “everybody else” was speaking about it.

It is that old adage that the time to sell a stock is when “everybody” is speaking about it at the dinner party.

The time to get into opportunities is often before others are speaking about it. Or when others are afraid like during the Great Depression and 2008, when a lot of fortunes were made.

The issue is, there is big risks, if you put all your eggs in one basket. Many countries have been predicted to be “the next Singapore or UAE”, and ended up with a revolution or worse.

So, even entrepreneurs targeting developing markets shouldn’t put all hope in one country.