I often write on Quora.com, where I am the most viewed writer on financial matters, with over 623.1 million views in recent years.
In the answers below I focused on the following topics and issues:
- Are index funds the safest investment?
- Which industry or sector will outperform others in the next 5 years?
- Would you prefer to be born British or American? I speak about the financial difficulties associated with being an American expat.
- Why should we use life insurance policies for estate planning?
- Will the euro replace the dollar as a universal/international currency in the future? If so, why not right now? And how long would it take for this to happen?
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Are index funds the safest investment?
It depends on what kind of index funds and how you use them.
Index funds or ETFs are just a collection of stocks in a particular stock market, or track the bond market.
So, the S&P500 is five hundred of the largest US stocks. The total international bond market index fund tracks the global bond markets.
Some index funds have government bonds and stocks in one fund.
Some index funds aren’t safe. Putting 100% of your wealth into a Zimbabwean index fund isn’t safe. Most single country index funds aren’t overly safe if you are putting most of your wealth there.
What is safe is investing into an index which is global in nature, like the S&P500 or FTSE 100, and reinvesting the dividends for the long-term.
MSCI World is a great example of a globally diversified index fund, as per this visual from the Visual Capitalist:
What is more, that 58% in the US isn’t really pure US investing.
Apple, Amazon and most other US firms are really just international these days, and many non-US firms such as Alibaba IPO in the US markets.
If you invest in something like this for the long-term, your chances of losing money are very small indeed.
In fact, it has never happened where a person has invested in it for 25–30 years and lost money.
Yet people have invested in it AND lost money. How can this be so if the index itself has made money?
Well, in the real world, people sell out during market crashes, and want to put in more during good periods.
Look at the below graph from the FT. It shows inflows versus outflows in the crazy year of Covid-hit 2020:
Now look at the graph below from Yahoo Finance, showing the performance of the stock market:
What do you notice? The biggest outflows were during the panic of February and March.
The biggest inflows were when the market had mainly recovered.
The market ended the year up 17% but few made 17%, even if they were invested in the same index.
So, the biggest risk in investing is often yourself.
Anyway, to answer your question, index funds are one of the safest investments if they are used in the right way, and in conjunction with other assets.
Which industry or sector will outperform others in the next 5 years?
If everybody knew that ahead of time, then everybody would do well in investing.
What we do know is that technology, long-term, is one sector of growth.
It is more volatile than the general stock market.
The Nasdaq fell 76% from its peak in 2000, but still beat other stock markets from 2000 until 2020.
Long-term, technology allows firms to do more with less, and therefore become more profitable.
We also know that smaller firms, long-term, outperform, as it is easier to grow more quickly.
Beyond that, as ironic as it might sound, watching US elections and how they market to the electorate makes sense.
The US elections are hyper competitive and well funded. Donors want to be at the cutting edge to beat the opposition.
Some of those donors work with big firms, or have their own companies, that are on the cutting edge.
In the 1930s, the sitting US President used the telephone.
In the 1960s, JFK used TV in the decade before it became big.
More recently, Obama’s team used Facebook in 2008 extensively. It sounds incredible now that Facebook and Twitter is full of middle aged people, but it was considered “just for kids” back then, and not for business.https://www.usnews.com/opinion/articles/2008/11/19/barack-obama-and-the-facebook-election
In the subsequent period, social media companies did very well indeed on the stock market and most firms use it for advertising.
In 2016, Trump’s team controversially used Cambridge Analytica. In the subsequent years data, data protection and analytics has became more vital. Data has even been called the new gold.
Like in 2016, analytics company stocks did very well in most cases.
So, in the next election, I would watch and see if any of the two major parties are using cutting edge technology.
It isn’t a guarantee about where business is going, but it is one indication.
Of course diversifying and having good asset allocation is always important.
Would you prefer to be born British or American?
I am British. I am not overly nationalistic, but I am glad I wasn’t born in the US.
Not because I think the US is necessarily any worse, or better, than the UK.
Merely, I have lived overseas for over a decade, moving between different countries.
If you think that is easy as an American, ask this man:
You thought he is British right?
Maybe so, but he was born in the US, so laws such as FATCA and FBAR applied to him.
He “caved in” and paid the US tax authorities, the IRS, an “outrageous tax sum”.
He has since renounced like thousands of other American passport holders every year.
The numbers renouncing seems to hit a record high every year, due to the taxes, hassles and fewer investment choices associated with being an American overseas.
Countless of my American clients, friends and associates overseas have renounced for these reasons.
The point is, the US might be a great place to live if you are American and stay living in the country.
It isn’t so good to be a US passport holder and live internationally.
Why should we use life insurance policies for estate planning?
The vast majority of people don’t need to think about solutions like this, but three kinds of people probably do:
- Those who have assets in various jurisdictions (usually expats but also high-net-worth individuals)
- People who have a lot of illiquid assets such as property
- Those with complicated financial situations – again usually expats and high-net-worth individuals
Let’s take the UK as an example. The current inheritance tax threshold is £325,000, or £650,000 as a couple.
There are some caveats as per the information from Which below, but it doesn’t change the overall point:
If somebody dies with a property portfolio of even £2,000,000, never mind £10million+, the beneficiaries face a big tax.
Not everybody can pay, especially in a timely manner. Google “what if you can’t sell assets – inheritance tax” and you can see that many people ask this question.
Therefore, people should consider trusts, life insurance, gifts when living and any other tactics that are needed.
For UK expats vivir en el extranjero, using life insurance inside a trust can usually work well, and isn’t just for high-net-worth individuals.
Premiums are usually reasonable if you aren’t too old, sick or generally high risk.
What is more, it is a big misconception to suggest that expats living overseas usually avoid inheritance tax.
Changing your residency and tax residency is easy for most nationalities. Changing your domicile isn’t. So, you could have lived outside the UK (or for that matter most countries) for decades and still be liable for the 40% tax.
We also have to consider the speed in which you can get your assets to your loved ones.
In some countries, probate is relatively efficient. In others it can takes months or years, and some investment providers are slow in paying out.
I spoke to one gentleman recently who is dealing with an expat family client in the Middle East whose dad has died. One insurance/investment provider paid out in three days.
The rest haven’t after a year, due to complicated legal issues and probate.
Therefore, if you are worried about this issue, it is essential that you deal with an advisor or firm that knows which companies are efficient in paying beneficiaries.
That might be life insurance firms, or it could be trusts.
Basically, the devil is in the detail. It depends what you want to achieve, and your current situation.
What is more, we have to separate wealth accumulation from wealth protection.
At younger ages and lower net worths, the focus should mainly be on accumulation.
As you get older and/or wealthier, wealth protection and the ease of passing down assets should be just as important, and is worth paying for in many cases.
Will the euro replace the dollar as a universal/international currency in the future? If so, why not right now? And how long would it take for this to happen?
I have noticed a commonality between people who have been reacting to the news that the BRICS are possibly challenging USD dominance:A BRICS Currency Could Shake the Dollar’s Dominance
People who have read a lot, or been around long enough, know predictions like this have been made time and time.
As your question shows, there were many predictions about the Euro displacing the USD in the 2000s.
This article was in 2008:When the euro overtakes the dollar.
In the 1980s and even 1990s, many though Japan would have the biggest economy in the world, and the Yen would replace the USD:Will the yen replace the dollar?
In answer to your question, i think the best response is ‘never’.
Never say never, but I doubt the Euro will replace the USD, even though it has became much more important in terms of trade and reserves than any other country.
¿Le duele la indecisión financiera?
Adam es un autor reconocido internacionalmente en temas financieros, con más de 830 millones de respuestas en Quora, un libro muy vendido en Amazon y colaborador de Forbes.
