Can a dentist become a millionaire?

In this blog I will list some of my top Quora answers for the last few days, which focused on many interesting subjects.

In the answers shared today I focused on:

1. What are some of the biggest mistakes people make in investing? Are all of them obvious?
2. Can a dentist become a millionaire? Moreover, does somebody’s occupation really stop them from reaching this milestone, or are other factors at play?
3. Argentina has announced a new wealth tax which will hit expats harder than people living locally. Does the new tax in Argentina send a warning to expats living globally?

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.

Can a dentist become a millionaire?

Source: Quora

In most high-income, and even mid-income countries, people can become millionaires having a job.

Likewise, some people with super-high incomes can become broke.

If we look at the data we see that:

• An estimated 14% of millionaires in the UK and US are said to be teachers.
• Mid-level managers are the most likely people to become millionaires in many countries
• Over 50% of millionaires in many developed countries are middle-aged and middle-income – “get rich slowly” – with more than 60% if we include upper-middle earners like dentist.
• Over 30% of lottery winners and 70% of former professional sports stars are said to go bust eventually.

Of course, the fact that there are more teachers, accountants and mid-level managers than bankers, lawyers and business owners does account for one of the reasons why there are so many millionaires in these groups.

There are 3.5m teachers in the US and 506,000 in the UK, as an example.

This means that even if a small percentage of them makes the right decisions, they will outnumber a professional such as investment bankers, whose numbers are lower.

The key things to do are

1. Invest early to take account of compounding
2. Read at least the basics about investing or outsource to an advisor that has done such reading
3. Never time the stock market
4. Reinvest dividends
5. Be diversified but don’t over-do it. There is no reason to be in 100 asset classes.
6. Watch your spending habits just as much as your income and investing activities. That doesn’t mean being “cheap”, but it means being sensible.
7. Have specific goals to motivate yourself
8. Keep emotions in check whenever something big happens like a stock market crash, covid, 9/11 etc.
9. Make a distinction between a primary residence and rental properties. It is better to not keep a high percentage of your net worth in one property where you live in
10. Be willing to do what others won’t do.
11. Invest money, don’t save it. It is much more difficult to reach $1m getting 0.1% interest in the bank
12. Be careful with high-risk strategies like picking individual stocks, leverage positions etc, it keep it to 10% of a portfolio. ETFs and more diversified assets can give you great returns long-term, if you are diversified, and you don’t need to take big risks if you are long-term enough. An individual stock can go to 0, even a big name. The whole US S&P500 can’t unless we literally go into nuclear war and then everything will be worthless anyway and exchanges won’t exist.
13. Never try to impress other people with spending. Peer pressure indirectly results in people doing things like overspending and getting married at 30, and then divorcing. People that ignore peer pressure are more likely to get good results. Some of that pressure can come from colleagues. For example, dentists, doctors or bankers that try to compete with each other on the biggest house they have, even in a subconscious way.
14. Get into good habits early. It is much harder to change habits after 30 and especially 40 or 50, as compared to when somebody is just getting started.
15. Don’t just spend much more as you earn more. Most doctors, dentists and vets see a big increase in salaries in their 30s and 40s, yet most just expand their lifestyles. This is known as lifestyle inflation and is a big reason why some people don’t invest more in their 30s and 40s.  That doesn’t mean you can never spend more, but spending 100% of the new pay rise doesn’t make sense.

There are many others that I could have mentioned, but those are the basics.

What poor financial decisions do you see everyday people making?

Source: Quora

I have never met anybody who hasn’t made financial mistakes. I have made many, and so has everybody I have ever met.

Here are the biggest mistakes I have seen:

1. Trying to avoid all mistakes. The important thing is to learn from mistakes, not avoid all. The ironic thing is, if you play it safe, you are often indirectly losing out. Let me give you an example. How many people lose 30% of their entire life savings to scams in business or investing? Not a high percentage of people. Most people that have been scammed have lost hundreds or thousands. Yet I would estimate that at least 30% of the world’s population has lost money, gradually, though inflation. If your bank is paying you 0%, and inflation is 2%-3%, you could lose over 30% of your savings to inflation. That is why inflation is dubbed the silent killer of wealth.

2. The opposite end of the extreme – other people take too many risks and get involved in get rich quick schemes. This is less common than the first one though.

3. Not taking risks in business when you are young enough – if somebody is 40 with a mortgage and two kids, it makes sense to be cautious about starting a business or getting paid on results. If you are 22 and on the minimum wage, it makes a lot of sense to try out something new.

4. Debt/leverage – It is true that debt can help you grow your wealth more quickly. We see that in areas like property and private businesses. Yet eventually, leverage can cause issues as well. A great example of that was 2008–2009. I can remember it well. Some people I know, even one or two friends of mine, did very well in the 1990s and 2000s. They kept expanding. Then credit dried up after Lehman, government policies and taxes changed as well. Many went out of business as they often needed to sell existing properties to keep afloat

5. Not starting soon enough or thinking it is too late and giving up – It is important to start investing early due to compounding. Many people know that, but that doesn’t mean people should give up if they start late.

6. Picking the wrong person to marry – And for that matter picking the wrong friends. We can’t pick our family but we can decide who to marry and become friends with. Yes, people change, and there are some things we can’t control. Yet it makes sense to be careful in these areas, much more so than other parts of life.

7. Not being diverse. Diversification is boring but it works. Look at this year. The general stock and even bond market has done fine, but many businesses have gone under, including some that were making millions before. Many private business owners put 100% of their eggs in their company basket, and don’t even try to expand internationally. It is better to be proactive and not reactive as you never know what can happen. That isn’t to mention that a business depends on personal health more than other forms of investments.

8. Emotions. The first point, about being too conservative, is emotional. Many people prefer to “not lose” than to win, so a loss feels more painful than a gain is pleasurable. Yet emotions can also ruin finances if people panic sell when the markets crash. Simple example. Let’s say you have a $300,000 portfolio, which fell to about $160,000 during the crash of this year. If you would have sold out at that moment, you would have lost out on close to 200k, now markets have recovered. Eventually, the losses would be much more. For example, somebody who sold out during the panic of 1987 would have lost out big time. $100,000 invested during that crash would be worth over $3m today – and much more if dividends were reinvested. The Dow was at 1,700 in 1987. It is now at 30,000 and that isn’t including dividends, and factoring in that somebody could have added more money in the subsequent years.

9. Only focusing on income – and not spending habits and investment returns. Most people, regardless of their income, spend according to their means to a certain extent. Yet people who learn to live below their means, and invest the surplus properly, tend to get wealthy slowly even if they are on a middle income. People tend to overspend on cars and primary residencies/the family home.

The key thing isn’t never making mistakes. It is to learn from mistakes and ideally make them at a young enough age.

Will tax rates rise after the pandemic?

Source: Quora

I am not sure if you read the news yesterday or this morning coming from Argentina.

The Argentinian parliament has passed a measure to increase taxes on the wealthy.

Of course, it is being sold as a way to help the coronavirus fight.

Those with assets worth more than 200 million pesos ($2.5m) will have to pay.

Now what is interesting about these measures is:

1. It is on wealth and not income. Presumably there are some wealthy Argentinians who own several houses but are old and not high-income – “house poor”. Similar to some little old ladies living in London and NYC on small incomes. So, it will be interesting if everybody can even pay the tax and how it will be levied. If people need to sell assets to pay the tax, then it won’t work, unless the taxes will be levied as a yearly fee.
2. It isn’t on people who are super rich. Up to 0.8% of the population will need to pay. It isn’t a billionaire’s tax.
3. Most significantly of all, it will affect people living outside of the country more than those inside the country. The progressive rates inside the country will be up to 3.5% on wealth in Argentina but up to 5.25% on those living outside the country. That is despite the fact that some of those people never come back to the country, and already pay taxes in their country of residency. It is also despite the fact that Argentina isn’t like the US – like most countries it doesn’t charge expats taxes on income if they live outside of the country for more than a certain number of days a year. Therefore, this is an expat tax by stealth. Not on income but on wealth. The fact that the rate is higher is also significant and shows the way these things could go in the future. People living overseas who are distant and shown as “rich” by the media, are easy targets.
4. This comes after China and South Africa increases taxes on expats, or at least put in some new measures, and a Canadian politician suggested that Canada follow America’s system of worldwide taxation.

Now of course, there is a reasonable chance the measures will fail.

Many wealthier Argentinians might give up their citizenship’s and buy one through an investment scheme, which might lead to other taxes like a US style “exit tax” – in other words if you give up your citizenship you pay taxes.

In the future, I do expect more governments to try to tax wealth and expats like the US does.

That tends to hurt middle and upper-middle earners, as the wealthiest people can always find ways around it.

Further Reading

In this article I discuss:

1. What are the multiple reasons that people sell their stocks when the market crashes? 
2. Which investment strategies work out for most people long-term and which don’t?
3. Why do many night-clubs and entertainment businesses go bust? Perhaps there could be an interesting reason few consider when answering such a question. 
4. Can high-income people fall into poverty, and what does the coronavirus tell us about that?
5. Is saving money pointless, or is it just not as effective as investing the cash instead? Also, what mentality prevents people from savings or investing in the first place?

Read more below:

Why does “everyone” sell their stocks when the market crashes?