I often write answers on Quora, where I am the most viewed writer for investing, wealth and personal finance, with over 223 million views in the last few years.
On this article, I will use my answers to reader questions on Quora to answer the following three questions:
- Can international stock markets outperform America ones? If so, are we about to see such a period?
- Is it really true that stock market investing is confusing? If so, why is that, and how can people make it less confusing?
- How essential is personal finances to our lives? What problems can lack of money management skills result in?
- What tips do I have for somebody who is new to the investing world?
- How can somebody get rich in Canada? Is it any different to other countries around the world?
If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me, email (firstname.lastname@example.org) or use the WhatsApp function below.
International stocks have outperformed US ones during regular intervals.
In fact, last year, the South Korean stock market was the best performing market, apart from the Nasdaq.
Markets in Taiwan, China and some Nordic countries also outperform the New York Stock Exchange.
Historically, US Stock Markets have beaten almost all others long-term.
Yet despite that, international stock markets have long periods of over-performance as well:
The 2000 until 2006–2007 period was such an example. The Nasdaq was crashing.
The S&P500 and Dow Jones were struggling as well. Emerging markets were hot.
From 2009 until now, US Stock Markets have beaten most others, often by a wide margin.
That has resulted in many people speculating that markets like the UK, Japan and some emerging markets will do very well in the next ten years.
The main reason given is that valuations are low – the FTSEs p.e ratios are lower than the NYSE and it has a higher dividend.
The FTSE, like some other markets, is also considerably below its record highs set in 2018.
The Chinese stock, the Shanghai Composite, is even further away from its all-time height.
Nobody knows the future, especially in a digital world. If the world moves even more aggressive than expected to a digital future, then the Nasdaq could have a great decade, despite high valuations on paper.
Some diversification does make sense though, especially during a period where some markets look particularly undervalued.
It also depends on your nationality and investment time horizons.
If you are young enough, today’s valuations are irrelevant. So is the performance in the next ten years.
It doesn’t matter if you are 20, 30 or even 40 how well markets do in the next 5 or 10 years compared to if you are about to retire.
Likewise, if you are living in America, a strong argument could be made for keeping most of the assets in the local market, and the S&P500 is globally diversified in any case.
International investors need some diversification though, including to control currency risks.
There are three reasons which I can see:
- Many people find investing and finance boring. That results in not reading much about it.
- Personal finances isn’t taught well at the majority of schools. At best, usually people look at compound interest tables like this!
- The media and the countless views out there.
The first two points have always existed. The last point has always existed to some extent.
It has always paid to sensationalise. Making the public feel fear and other emotions has always kept “bums on seats” more than rational analysis.
Yet something has changed in recent decades. Social media has made the landscape more competitive.
Now even traditional media engages in “click bate” and hyper-sensationalism to get their voices heard.
What did the media say last year – in 2020?
Amongst other things they predicted that:
- It would take years for stocks to recover from coronavirus
- If there was a second lockdown stocks would crash
- Stocks would hit record highs (you see some of the advice is contradictory)
- Stocks would fall hard if the US Election result wasn’t known the day after the election.
- Stocks would rise if a vaccine is found
- Stocks would crash if Biden won (some media outlets) or if Trump one (some other media outlets)
In previous years the majority of the media predicted doom for stocks due to various factors, such as the US-China trade war, the long bull market and Trump getting elected in 2016 at a similar time to Brexit.
Some of the aforementioned predictions came true such as the vaccine one.
The majority did not. Countless studies have shown that the average investor can’t beat the market listening to the media, and in fact are more likely to do something silly like panic sell.
What is more, people don’t trust the media as much as before. In some senses, this is a positive thing.
Yet at the same time, some of the alternatives to traditional media can be even worse when it comes to sensationalising.
The actual basic principles of investing are pretty simple.
Things like the importance of being long-term, diversified, buying the whole market as opposed to individual stocks for the majority of people and reinvesting dividends.
Simple and easy aren’t always the same thing however. Human emotions ensure that is the case.
Anybody who is struggling with the basics of investing should start off with some good investment books which are worth reading.
Personal financial management is essential for almost everybody.
Lack of financial management is more likely to cause the following issues:
- Divorce and breakup. Relationship problems more generally including with friends. This is especially likely to happen when people lend money to friends.
- Depression and anxiety. Feelings of shame if finances spiral out of control
- Alcohol, drug and other addictions like gambling.
- Indirectly, more chances of health problems
- Needing to work until you drop – in other words reducing your choices to do what you want to do.
- Over time, it will reduce earning capacity as well, due to the lack of focus
- Business owners can lose their businesses and homes due to this issue if one thing leads to another.
Often the issues are interlinked. An addiction leads to spending more, which leads to problems like divorce.
That therefore leads to more spending (lawyers bills and so on), stress and more addiction.
What is more is that it can affect anybody regardless of income. Some of the celebrities below went broke apparently:
It is a bit like running a business, even though we can’t exactly compare running personal finances to business finances.
The point is increasing personal income, or a business income, sounds more exciting than focusing on the bottom line.
That is one reason why so many people neglect managing money compared to making money.
Both are equally important. In fact, above a certain level, managing money is more important.
The biggest tip I would anybody in this situation is to read as much as possible.
If you don’t have time to read, outsource it to somebody who has done this.
Then execute by investing one day after you are paid by direct debit.
Numerous studies have shown that somebody who invests one day after they are paid, can invest up to three times more than somebody who invests what is left over at the end of the month.
That means that if you are investing by yourself, try to find a provider that accepts standing orders or direct debits on card, as opposed to one where you need to send by bank transfer.
The path of least resistance means that you are more likely to do something long-term if you make it automatic.
Apart from the following tips are also useful
- Don’t check your valuations often. Also don’t read the media too much. Both actions are more likely to ensure you buy high and sell low by panic selling and other adding when everything is going well. Try to automate it and then forget about it
- Be diversified. Own at least 3–4 indexes, including a bond index.
- Rebalance annual. This can sometimes be automated now.
- Increase your bond allocations as you age. This should be obvious after reading some investing books.
- Never speculate or get seduced by the next big thing or fad. Now sure, sometimes it works out. Normally it doesn’t though.
- Reinvest dividends. They are key for total returns. Again this can be automated or you can buy a accumulation fund as opposed to an income fund.
- Never worry if markets are falling. If your groceries were on special offer, you would buy them. Investors rarely do the same. People tend to come in at the top and sell at the bottom, and not wait for the rebound. Investing monthly for decades will ensure your average return is fine, even if some years are bad.
- If you really can’t resist speculating, have 5% or 10% of your fund linked to speculative investments and don’t go above that.
- Diversification is important but don’t over-diversify. You don’t need a commodities index as an example. Likewise, you don’t need to hold a significant amount of money in cash either.
- Don’t chase past performance. Most people lost trust in the Nasdaq in 2000–2002. It has been the best performing index since then. Just because an investment has had a bad few years, or even decade, doesn’t mean it will always be like that. The NYSE was stagnant for 17 years until 1982 as well.
- Invest for the long-term. It is 10x easier to get rich, or at least wealthy, from investing, if you do it long-term, than trying to do it quickly.
As a final thought, learn from the mistakes of others even more than your own mistakes.
It is much cheaper!
The fundamentals of building up wealth, or indeed income, are the same globally, with a few caveats.
Let’s start with income. People need to have skills that other people will pay for – either an employer or customers if you run your own business.
Being highly-skilled isn’t the only factor here. Supply and demand is at play.
Plastic surgeons in LA in the 1980s made up to 3x more than average doctors.
That is no longer the case. Why? Briefly the demands skyrocketed and not enough people were training for this specialism.
That soon changed. More younger doctors in medical school wanted to become plastic surgeons after they heard about the high salaries on offer.
That, in turn, resulted in salaries declining over time, even though the work itself was just as difficult.
The most tried and tested ways to become high, or at least higher income, is to invest in yourself.
Improve any skills that people will pay for, such as hard skills or soft skills such as marketing, sales or people management money.
Take calculated risks if you are a business owner. Work hard and smart.
Read a lot. Learn from other people’s successes and failures. Be persistent if you don’t succeed straight away.
Leverage the fact we are now in a global and online economy. The fact you live in Canada is no more relevant than Croatia if you understand this point.
If you do all of those things, you increase your likelihood of being high-income.
But wealth isn’t the same thing.
I personally know some high-income people who aren’t wealthy and some wealthy people who aren’t high-income.
To increase your chances of being wealthy, it is important to:
- Invest rather than save
- Live below your means
- Invest for a long period of time due to compounding
- Ideally have at least a middle income so a surplus can be created to invest.
It is a tried and tested formula. It just takes a lot of patience.
In the answers below, I answer the following questions:
- How can somebody invest in the US stock market from Kenya and do it productively?
- What makes a good stock investor? Emotional control or technical knowledge?
- If somebody is worth millions in their 30s, can they really become a billionaire before they die? What is the likelihood?
- How can the stock market grow more quickly than GDP?
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