I often write on Quora.com, where I am the most viewed writer on financial matters, with over 391.9 million views in recent years.
In the answers below I focused on the following topics and issues:
- Can millionaires live off interest?
- Is focus important for success?
- Is the future of Hong Kong grim?
- Are index funds a good investment?
- Is it possible for a young, middle class person to become wealthy?
- Why do people become unhappy after having wealth and they achieved what they want and deserve?
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Can millionaires live off interest?
I remember in the UK, during 2005-to 2007, I heard several people say they planned to do this “If they became rich”
Some seemed serious and were working out how much they could make.
You could make a real return on your money, even if it was unspectacular compared to some of the other options out there.
What is more, the British Pound was a stable currency and was even going up against the USD. There didn’t seem to be an immediate currency risk. Indeed the Pound hit 2:1 against the USD by 2007.
Things changed after the Global Financial Crisis of 2008-2009, however. After that, interest rates were increased to close to zero in most countries.
The majority of currencies, including the Pound, also fell against the USD, making imported goods and holidays a bit more expensive.
That process has carried on until this day, only now inflation is finally back. Even though interest rates have increased a bit, the average saver will now lose more money to inflation than at any time in decades.
If the current bank interest rates and inflation carry on for the next decade, people would lose well over half of their money to inflation.
Of course, times will change. Inflation will probably come back down, and interest rates will most likely rise a bit.
Nevertheless, I don’t see an easy route toward interest rates being 3%-4% above inflation, anytime soon.
So, no, you can’t live from bank interest rates. You can, however, live from:
- Dividends from a private business
- Real estate income from tenants
- Dividends from publicly listed companies (stocks).
- For that matter, just drawing down a stocks portfolio. On average, non-dividend paying stocks don’t underperform the market, they merely pay out less in dividends, which means the company’s capital value can go up further.
The point is, if you invest in productive assets paying cashflow in some cases, you will do fine long-term.
It is also safer than having your money in one currency, and one bank account. Just ask savers in Turkey, Argentina, and for that matter most developed countries since 2008.
This is why inflation is a silent, and steady, killer of savings. It might seem like you can live off the interest forever, but inflation will make that impossible.
Is focus important for success?
I once heard a story about Roger Federer. It was said that when he goes away, on tour, he doesn’t have to focus on:
- Booking plane tickets
- Finding a hotel
- The schedule of the tour
- Anything else not related to tennis, at least when he is playing.
His wife, who used to be a tennis player herself, and his staff, all do that for him.
This is just one of the factors that have contributed to his success. He went from being an unfocused, and even petulant teenager, to be calm and focused.
It is not surprising that Bill Gates, Warren Buffett, and several other top investors and businesspeople also list focus as being the most important ingredient of success.
Here is the reality
- Many people can work hard for a short period
- Some people can work for long periods
- Plenty of people can work smart
- A small number of people can work smart and hard for a long period
- Even fewer can work in a very hard, smart, and focused way for decades.
- Even fewer still can work in a very hard, smart, and focused way for decades + and take loads of calculated risks.
Being willing to do what others won’t do, especially if you keep it up for decades, is worth it. Most people won’t copy because there are no guarantees that taking such actions will result in success.
I see it in investing all the time. I am sure you know some people who have never had a super high income, or a great business idea, or a great IQ.
Merely by being above average in a few areas, and staying focused for decades, they have achieved success.
What’s the difference between a good engineer who has never invested and a much better than average engineer (but not world class) who started investing from their 20s?
In some cases, $10m in wealth over a lifetime, as 20% extra in salary + a focused investment strategy all compounds over decades.
I personally know some broke middle-aged teachers, and others who are multi-millioniare teachers, just because they were focused in one or two areas. The same is true for any middle-income profession I can think of.
It is a misconception that all multimillionaires are outlier successes who have special intelligence or abilities.
Is it true that the future of Hong Kong is dead?
Many are asking this question. For plenty of people, Hong Kong’s future is as fuzzy and unclear as the above flag is appearing on your screens.
I was watching an interview on the BBC with a very wealthy expat who recently left Hong Kong – worth hundreds of millions and known in his niche globally.
He arrived in HK in 2010 – almost two decades after the handover from the UK. At first, he found HK one of the freest societies in the world.
Over time things have changed due to:
- Covid-19 and related lockdowns. There is also no light at the end of the tunnel, which makes traveling and using HK as a hub almost impossible. Zero Covid isn’t even working.
- The political situation in China
- A less district identity for Hong Kong
- A feeling that as 2047 edges closer, it will just become another district connected to Shenzhen.
So, he, like many, has left. He doesn’t want his kids to grow up in a place that seems much more insular, and less international.
He isn’t the only one. I have many clients who have said similar things.
A record number of people are leaving Hong Kong. I have noticed that those who can (the more highly paid, location-independent expats and locals) are more likely to leave.
People with fewer options and a more location-dependent existence in Hong Kong, for instance, those with local businesses, are more likely to stay. They merely look to offshore some of their assets.
It isn’t a good sign when the brightest and the best are leaving. It is usually a good sign when people who can live anywhere want to live locally.
There was once a time when loads of high-net-worth investors wanted to pay a fortune to get Hong Kong residency by investing locally or starting a company.
That doesn’t mean that Hong Kong will be poor anytime soon. That also doesn’t mean that there aren’t opportunities, as well as threats, in the city.
For one thing, as more Chinese firms delist from the New York Stock Exchange increases due to the political situation between China and the US, the Hong Kong stock exchange could gain from those moves.
There is already a new technology-heavy index in Hong Kong, similar to the Nasdaq in the US.
It is merely that the Hong Kong of the 1980s, 1990s, and even 2000s is dead. It is no longer the “safe”, stable, international, and unique global city it once was.
For many, it is now a risk, including for equity investors.
Are index funds considered a good investment?
Consider this. When there was a gold rush, many people searched for gold:
Who, as a group, made the most money during this period? The people selling the shovels! They were going to win regardless of whether 0.01% or 20% of people found gold.
The same thing is true for markets if you do it right. A great example is technology. Most people think it has been the big winner in the last thirty years.
That is true. However, most tech stocks went to zero, after the huge increases in the stock prices of unprofitable firms ended after 2000.
There were a few extreme winners, such as Apple, which meant that the general market has gone up enormously, despite most firms going to zero or struggling.
The people who won held the Nasdaq, MSCI World, the S&P500, and a few other major indexes. Now sure, they didn’t win as much as those who picked Apple and stocks like it.
The point is, as a group, they won. 100% of people who bought and held the indexes made money. Very few people outperformed them by trying to pick the extreme winners.
So, they are good investments, but only if they are used correctly.
What does used correctly mean?
1. Held long-term. Many people have been down over a year, or even 5–10 year time horizon, even though markets are usually up over a decade. Nobody has been down over a 30-year time horizon.
2. You reinvest the dividends.
3. The risk is managed by holding REITS and bond indexes – this will change according to your age and other factors.
Risk can further be managed by rebalancing once a year from the winners to the losers, and not only focusing on your local stock market.
International exposure is important, especially if you are living in a country without a good, stable, stock market.
All of the above seems obvious and “common sense”. The problem is, most people tend to want to put more in when the markets are doing well, and less in during falls.
We have seen that recently with Ukraine. Many people wanted to “wait and see” just like during the Covid-19 falls, and 2008.
They prefer to put in when things look more certain and stable. In other words, they buy high (or relatively high), and sometimes sell low, or at least don’t put in when markets are low.
That is one of the major reasons for these results:
In addition to that, people might, of course, want to diversify beyond indexes.
The point is, they are a good idea, but only if used correctly in the long-term, which most do-it-yourself (DIY) clients don’t.
Is it possible for a young, middle class person to become wealthy?
Imagine you met the person who helped build a suspension bridge like this:
Very few people would ask for shortcuts or the “top five tips” for success.
People understand, when it comes to highly technical fields like engineering, that those skills can take a decade or more to master.
When it comes to business or investing, many people assume it will be easy, often due to misleading comments online.
In reality, the fundamentals of wealth-building are simple to understand, but not easy to implement.
Some of those basics are
- Learn a skill that people will pay for. Spend less than you earn and invest the surplus well.
- Invest for decades to take advantage of compounded investing returns.
- If you want a more aggressive route, take loads of calculated risks, especially when you are younger and have less to lose.
- However, be very careful about a limited number of risks like multiple divorces, lawsuits, etc. Ironically, “everybody” seems to worry about investing risks but few give these things a second thought as feelings are involved.
- Take advantage of any legal tax benefits
- Keep reading, adapting and improving yourself, and investing in your network.
- Be very persistent. You might need to fail many times if you start a private business.
- Everybody gets bad and good luck. Bounce back from the bad times, and really take advantage of good luck. Simple example. Imagine a person who got a lot of bad luck and then suddenly, 35-years ago, they received a 100k inheritance. If they had simply invested that in a boring index like the S&P500, they would now have about $3m adjusted for dividend reinvestment.
- As a follow-up to the last point, imagine you are carrying around two “scorecards” all your life. There are good opportunities and excellent ones. There are many good opportunities and limited excellent ones. Now imagine you had only 8 spaces left to mark this “excellent opportunities scorecard”. You would be very careful about how to use them.
So, the answer to your question is yes, but there are two main routes:
- The “boring” way that has worked for close to 100% of middle-income people who have tried it. Very from a young age productively and compound it. I am sure you know plenty of these “everyday millionaires” in your own life. The kind of people who bought appreciating assets in the 1970s, 1980s, and 1990s. These people tend to be wealthy but not high-income.
- The high-risk approach, which is starting your own business, ideally after getting experience in the domain.
Both routes are simple but not easy, and require hard and smart work, taking advantage of opportunities and luck, persistence and so on.
Of course, this is assuming that you won’t marry into wealth or get unexpected inheritance.
Why do people become unhappy after having wealth and they achieved what they want and deserve?
I was reading this book a few days ago.
The author is now one of the panelists on the UK version of Dragon’s Den, which Americans know as Shark Tank. He is also the youngest judge ever and is worth about $100m.
He gave a very interesting story about his life and IPO. He came from a poor family, and quit university after just one lecture.
He resorted to taking money from behind sofas to get by, and on one occasion, he felt jubilant that he found over thirteen pounds in one go. That money could feed him for days, and make him forget about his situation.
Just a few years later, he was in a five-star hotel when he got confirmation that his firm has successfully done an IPO on the stock market, valuing the company at 200 million.
Yet he wasn’t that happy. He had a feeling of anti-climax. He felt happier when he received the 13 Pounds.
Happiness only came his way when he went back to the places which reminded him of the tough times, and suddenly he felt gratitude.
There could be many reasons why the above story is quite common.
The biggest ones are:
- As per Maslow’s Hierarchy of Needs, material needs are important, but become less important above a certain point. You get declining marginal utility
- In today’s society, many people compare themselves to others. That means plenty of people felt special with this phone in 2000:
But would feel poor unless they had this phone today:
3. A survey from Michael Norton said that most people claim they would be happier if they only had double or triple what they have.
In other words, somebody with $100,000 in wealth and $80,000 in income, would typically claim that having 300k in wealth and 160k in income would make them much happier. Somebody with $2m would claim they want to have $4m in wealth. The same was true even for some billionaires.
So, people change their goals as they compare themselves to others in their social circle, which changes as they acquire wealth.
To be clear though, there is actually a connection between money and happiness, at least up to a point.
Whilst money can’t automatically buy you happiness, it does give you more security, less anxiety, more options, etc.
It is merely that money, and wealth, bring declining marginal utility, and unwise people use it in the wrong way.
Grateful wealthy people, who focus on experiences and giving back, tend to be happier than those searching for the next big car.
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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
