I often write on Quora.com, where I am the most viewed writer on financial matters, with over 252.5 million views in recent years.
In the answers below I focused on the following topics:
- Do you think it’s possible to be successful financially after 30 without saving much?
- Some people assume that you can make investing your job in your 20s. I explain why this is a silly idea for most people, even though investing from your salary is a great idea.
- Will Joe Biden’s tax plans have unexpected consequences?
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It depends if you want your financial life to be built on sand:
Let me give you a business comparison.
Two businesses both have $5m in revenue.
Business one has hundreds of thousands, or millions, in recurrent/residual revenue.
Company two has the same amount of revenue but always from targeting new clients.
Which business is more likely to go bust? It is obvious. Business one. Business two’s revenues can be taken away more easily if something like a pandemic happens.
Likewise, for individuals, if somebody is always dependent on fresh income coming in, it is very risky.
The following events could happen:
- Ill health means you can’t work any more
- An unexpected event results in the company or industry going under.
- You face indirect age discrimination as you get older even if it is unspoken
- Many other things as well such, such as divorce.
Relying on one primary income is risky. The easiest way to create a second income, as per the quote below, is from investing (not saving) some of that surplus money in a prudent way:
The thing is, it is possible to look like you are financially successful by spending 100% of what comes in.
Many people are shallow and believe the “Instagram hype”, so the irony is, you might “look” more successful in the eyes of some people by refusing to invest and save.
Yet taking such a route means you are always relying on fresh income, regardless of your salary/income level.
The only way it can realistically work is if you are paying into an excellent corporate pension automatically, and you live in a country where welfare is so good that you don’t need to worry about these unexpected events.
That is becoming less common.
Why work if I can make more money investing? If I can earn a seven-figure salary using a guaranteed trading strategy, is it worth it to get a finance job for the sake of having a career and the respect of my peers?
There are no guaranteed trading strategies long-term that make much more than the general market. If there were, everybody would do it.
You also have to remember two facts which might sound contradictory at first:
- It is almost impossible to earn more (medium-term) from investing than your day job in the early years/decades. That is assuming you don’t have a huge inheritance.
- It is very possible to earn more from investing than your day job long-term.
Let’s do some maths.
You have $10,000. Even if you double that for the first two years, you have $40,000, despite the fact that you have beaten the market.
That over-performance is unlikely to continue. Most people in developed countries can’t live from $10,000-$20,000 a year as well, so you wouldn’t be able to live, despite the great performance.
Now let’s talk long-term.
It was the hypothesis of this book (below) that owners of assets will get richer over time.
Historically wages have gone up 2% above inflation or so. Real estate, adjusted for costs, has often done 3%.
Stock markets inflation +5%. Some, like US markets, inflation +6.5%-7%.
That doesn’t mean that every year these results will be replicated, but the point is that wages don’t keep pace with assets long-term, despite the crashes in the middle.
That is one of the reasons why some people (not me) want to bring in a wealth tax, as the hypothesis is that rising wealth inequality is inevitable.
But the key thing is this compounds. Inflation +2% vs inflation +5% or 6%, doesn’t make much of a difference short-term.
It makes a huge difference long-term. If somebody gets a $40,000 a year job at graduation and gets (average) pay rises of inflation +2%, their final salary before retirement will be about $97,000 in today’s money.
In comparison, if they invest just one lump of $100,000 from an inheritance or bonus, and $300 a month, they will have $2.2m at retirement, assuming markets perform at historical averages.
Increase that to $1,000 a month and the results are $4.3m. Let’s say you are a high earner who can afford to put in 50k a year, the results become $15m.
Now wealth and income aren’t the same thing, but the point is that investing a Dollar, Euro or Pound today is typically worth much more income in the future.
So, it isn’t one or the other. You need a primary income from a business or job, and then invest on the side.
It will only become possible to live from an investment portfolio safely once it has accumulated to a decent sum.
I spoke to a friend of mine who makes about 80k a year. He has never been a big earner. He has just earned above-average pay cheques and invested for the long-term.
His accounts went up by 130k last year, but he only got to that position (where his investments are adding more to his net worth than the fresh money he is adding to his accounts) due to patience.
Sure you can take a huge risk, and it could pay off, but that is speculation.
No I don’t, but I won’t comment on this from a US political or tax angle, nor the moves to make the domestic corporation tax 28% from 21%.
What the US wants to do domestically is up to them. The bigger move, which is part of this corporation tax hike, is the plans to start a global minimum tax, which will have global ramifications.
If it comes in at the OECD level, countries would be able to “top up” the taxes of firms that go offshore.
For example, let’s say the minimum tax is eventually agreed at 15% after some compromises.
That would mean that if a firm goes to Ireland (12% rate), the home country could apply a 3% rate.
The UAE (0%) rate would result in a 15% top up.
What is concerning about this proposal, which isn’t Biden-specific by the way as the EU supports it, and it has been in the pipeline for about two years at the OECD level, is:
- It is authoritarian. Alongside measures like vaccine passports. it seems the post-Covid world could be used as an excuse to expand the power of the state
- It is the big blocs (the US, EU etc) trying to stop smaller countries from retaining a competitive advantage. The major advantage that smaller countries have is the ability to lower tax rates. If a country doesn’t have commodities and natural resources, nor a big population like China or India, it isn’t easy to compete. Would Singapore or the Republic of Ireland have developed if this was bought in in the 1970s or 1980s? I doubt it. They both have small populations and few resources. This could affect smaller, poorer, countries who are trying to develop and follow that model
- The naive will say it will only start on “the 1%” like the income tax was originally sold. It will soon be on everybody, just like wealth and digital taxes if they come in. When the federal income tax was bought in, only about 3% paid it and the rates were 1%-6%. That soon became 90% on the higher band. It has since fallen, but the rate is much higher than those original “temporary” rates.
- Every country wants to attract capital in. It is hypocritical to complain, therefore, about money leaving, considering all the incentives almost every country has bought in to attract capital in.
- It should be each country’s decisions what to do with tax. A global minimum tax is de-facto interference in sovereign countries affairs.
The point is, it is on the wealthy and MNCs today. Eventually it will affect more people as it will be easy to move the goalposts if this is bought in on the basis that it is only going to affect larger companies.
What starts as a minimum corporation tax, or for that matter digital tax, on trillion-dollar companies in 2021, could affect every business by 2030.
The Foreign Account Tax Compliance Act (FATCA), was originally sold on the basis that it was “going after the MNCs”.
What has happened since is that the MNCs hire lawyers and compliance people, and the average American expat living overseas has suffered.
That is one reason why a record number of American expats renounce their citizenship every year.
Wouldn’t be surprising if something similar happens here – unexpected consequences as people prepare to find ways to avoid it.
Doing it is easy.
All you need to do is find a DIY broker, or advisory firm, that can accept for Australia.
Unlike some poorer countries, or countries with a reputation for money laundering, many providers accept for Australia.
The only people who find it difficult to get what they are looking for is people in specific nieces like politically exposed persons (PEPs), expats who are going to move from country to country etc.
For most investors, there are hundreds of options out there, including Interactive Brokers and local Australian brokers, and a Google search will reveal that.
All you need to provide is:
- Proof of ID
- Proof of address
- An application form
- Obviously the funds once the account is approved.
- If you want to invest in individual American stocks, your broker will ask you to fill out a W8-Ben form, but they will guide you here.
Some providers even allow you to automate the process via direct debits.
What is much more difficult than getting in is doing it efficiently for the long-term.
For that, you either need to know what you are doing (technically and emotionally), or outsource it to an advisory firm.
Many people invest based on emotion, often for reason like they “like” a specific company.
Others claim they are committed to investing but panic as soon as they experience their first stock market crash.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 252.5 million answers views on Quora.com and a widely sold book on Amazon
In the answer below, taken from my online Quora.com answers, I spoke about the following issues and topics:
- What are the advantages and disadvantages of investing in small-cap stocks? Many people assume that small caps stocks have outperformed but is that the reality?
- Is becoming a millionaire in three years realistic? If not, how can somebody become a millionaire in a decade or more?
- What is the best way to approach risk when it comes to investing? Should volatility be considered a good way to measure risk? How can we reduce risks when investing?
- What is the best way to invest 15,000, and what factors should influence how we invest – age, what we want to achieve or something else?
To read more click on the link below.