I often write on Quora.com, where I am the most viewed writer on financial matters, with over 324.1 million views in recent years.
In the answers below I focused on the following topics and issues:
- Can non-Europeans buy UCITS funds?
- Is property always a good investment?
- I am a crypto sceptic, but what are the few things I like about it?
- How can somebody get 100% returns in real estate?
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Can non-Europeans buy UCITS funds?
Not only can they, it is the preferred structure for non-Europeans, assuming they aren’t American.
The reasons are
- The UCITS structure has many safeguards for investors, including liquidity requirements
- As many are domiciled in places like Ireland, international investors can avoid US withholding and death taxes, and still gain exposure to American markets.
- To follow up on the last point, if you are living in Dubai or Singapore, you would be liable for some taxes on the S&P500 domiciled in the US. You wouldn’t be liable for the S&P500 USD, Euro or GBP, domiciled in Ireland or another European country.
- The structure is more transparent and tries to avoid a black swan event ensuring the ETFs or fund goes to zero.
- Some investment platforms now ONLY except UCITS regulated funds.
I am not usually a huge fan of regulations, but UCITS has worked very well so far.
The majority of onshore and offshore platforms, regardless of where they are domiciled, tend to use the structure these days.
So, you don’t need to find a European-based brokerage to invest in UCITS funds.
The exception tends to be the United States. For Americans, regardless of where they live, and non-Americans living in the US, ETFs domiciled in New York make more sense.
Is property always a good investment?
You can’t lose with property. Countless people say that. Only it isn’t true.
Not only isn’t it true, but many people are losing without knowing it.
Let me give you a simple example – your primary residence. Many people will die in their homes.
Sure, some people will downsize, but plenty of people won’t. That means the value of the house is irrelevant provided it doesn’t go down consistently and you are in negative equity.
In most countries, a bigger house has large taxes and maintenance costs.
2% per year in maintenance costs and taxes is quite normal. Some years might be higher, of course, if something breaks.
If you are living in a $300,000 house, your costs might be $6,000 a year.
A $700,000 house could come to $14,000. That is an $8,000 difference.
Of course, it depends where you live. Some countries don’t have property taxes.
The point is, your primary residence can become more like a liability than an asset.
It takes money out of your pocket, for something which you might never sell.
Yet in this example above, most people would think they are getting richer if the 700k house is worth 735k next year.
It is irrelevant if the house will never be sold! It is more relevant if you are buying rental properties.
In that case, of course, it makes sense if your rental yields and capital appreciation is good because you have an exit strategy.
Beyond that, you can also lose if
- You buy at the right time. It is almost as difficult to time the property market as the stock market. If you buy at the “wrong time” it doesn’t really matter if you stay in the house forever. It matters if you want to upsize – for example, if you have more kids. Two or three people close to me bought in 2007–2008 in the UK, just before the bursting of the housing bubble. They sold about ten years later. One made about zero, which is a loss to inflation, and the other lost 2,000 Pounds to make the move (+inflation). Unlike places like London, smaller UK towns took more than a decade to recover from 2007–2008.
- The property you have purchased has hidden issues with it
- You can never sell the property. Let’s say you are a buy-to-let landlord, have made good profits on paper, but can’t exit
- The leverage has got out of hand. Of course, leverage works well with property, but it can get dangerous at certain levels
- If interest rates suddenly shoot up
- You make decent money on the property, but less than a passive investment that has fewer time hassles. Remember the S&P500 and Dow Jones have done 10% per year on average for a hundred years. Not every year or decade, but that is the long-running average. The Nasdaq has done about 12%. MSCI World about 8%. If you are making 6%-8% on the property after fees and taxes, it isn’t really worth the extra risks of not being able to sell, unless you are just trying to diversify your wealth
The lowest risk way of buying property is:
- Using it just as a home but not buying the biggest property you can possibly buy
- Having a REIT index in a portfolio
- Becoming a professional real estate investor. Easier said than done for most, but possible.
What do you like about Crypto?
Long-time followers know I am not a huge fan. My views are it is more of a speculation.
As the price just moves based on supply and demand, rather than P/E ratios, business earnings or a dividend, then it is hard to price.
It could be worth $1,000 or $100,000, based purely on supply and demand.
A stock would never go to such extremes, at least medium-term, because there are certain matrix we can look at.
What is more, originally crypto was supposed to be a currency.
Early advocates were talking about it replacing the USD. Few speak about that now.
More talk about it being an alternative asset class rather than a currency to be used for trading.
However, the question is what do I like about crypto.
There are two things. Firstly, it is disrupting the banks a bit.
The large banks are very cynical organisations for the most part.
If somebody wants to send money to an investment company, or crypto for that matter, they often block the transaction, and call the customer for “security”.
In reality, they just want to keep the money themselves. One or two days after the call from the “security department”, the marketing and sales department will often come with a new offer!
If crypto can help people avoid a lot of the traditional banks then that is a good thing.
However, in reality, there are better ways of avoiding them. Revolut, Wise and many challenger banks are doing that.
Second, it is positive to see that many young people didn’t care about the unregulated nature of bitcoin.
The regulators, politicians and many “serious people” warned the public they could lose everything in this asset class.
It isn’t regulated and not part of any compensation schemes. Many thought that would be enough to convince people not to invest in it.
It wasn’t. That is reassuring, because regulation:
- Often creates moral hazards
- Can push up the cost of products and services for consumers
- Can lower returns due to the aforementioned reasons. In many countries, pensions are the most regulated products. Sometimes, they have also been some of the worst performing products too, as the regulation indirectly pushes up the cost.
- Is usually there to protect the company, and not consumer, even though people assume the opposite. IT just gives people a false sense of security.
So, it has had a good effect on some people’s way of thinking.
That doesn’t mean people should put a big percentage of their net worth in it.
I own zero, but I do see the two positives above.
How can one get 100% returns in real estate?
Firstly, it depends on the time frame. We have to remember that doubling is only a 7.2% return over ten years.
It is also
- 5.9% annualized returns over 12 years
- 4.7% annualized returns over 15 years
- 4.2% annualized returns over 17 years
- 3.5% annualized returns over 20 years
So, it isn’t a super high return. The average return of some stock indexes is much higher.
The average return of the best-performing real estate markets is also much higher, but there is a difference.
Namely, the entire stock market, as represented by something like the Total Stock Market Exchange or Total International Stock Market Exchange, has done much better than the total real estate market.
It is a fantasy for most non-professional real estate investors to think they can pick the next hot location.
Therefore, the main tried and tested way I have seen people do well with real estate is to focus on yield and leverage.
If you buy a property in an unfashionable part of the US or UK with great rental yields, you don’t need to care about capital value appreciation.
Likewise, if you can use leverage sensibly to add to this good rental yield, you aren’t just focused on selling the same property to somebody else for more than you bought it at, which is a form of speculation.
The example below shows how leverage can be used:
Another option is REITS and indirect forms of real estate investments.
You can’t use other people’s money to pay your mortgage in this case, but you have:
- Fewer hassles, including things that might cost you a lot of time
- Much lower costs – you can buy a REITS ETF for 0.1% per year
- Lower risk. A diversified REITs index tracking the entire world is less risky than one or two properties that might catch fire or have any number of problems
The performance can beat direct real estate as well. In some time periods, they have even beaten the S&P500:
So, I would factor in how much your time is worth, the risk vs reward, and some other things.
Either way, you will double your money eventually with either option.
In the next stock market crash, which index will lose more of its value: the S&P500 or Nasdaq?
In 2000, the Nasdaq lost about 75%, versus 50% for the S&P500 and Dow Jones.
That was a very different time though. Technology wasn’t a part of our everyday lives like today.
In 2008–2009, all three indexes lost about the same – 50%.
During Covid-19, the Nasdaq lost less, and recovered more, because the pandemic helped tech firms.
Next time, it is impossible to say which index will fall the most.
It depends on the reasons for the fall. If it is a “normal” correction, then I suspect most of the indexes will fall at a similar rate, and maybe recover similarly as well.
If it is a tech-based sell-off, then of course the Nasdaq will fall more.
If there is something like another pandemic, which more importantly results in more lockdowns, then the Nasdaq will probably do better.
That is unless, of course, people learn their lessons from this pandemic and don’t panic. Very doubtful.
In all cases, it doesn’t matter too much. The Nasdaq has had three massive falls in just over twenty years, as have the other stock market indexes.
That hasn’t affected the long-term trajectory. What is more, the recovery time isn’t always correlated with how severe the initial fall is.
This chart shows that point:
2020–2021 is a great example of that. The quickest falls ever.
A very quick recovery:
Even if the recovery was slower, there is no need to fear that.
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Adam is an internationally recognised author on financial matters, with over 324.1 million answers views on Quora.com and a widely sold book on Amazon
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