In the answers shared today I focused on:
- How can somebody living in Africa invest in US stock markets? Is DIY or using an advisor better?
- How can somebody build wealth from the age of 18?
- What are some of the biggest reasons why many wealthy Chinese people invest overseas?
- Why are stock markets increasing during moments of uncertainty like this?
If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me or use the WhatsApp function below.
How do I invest in the US stock market in Africa?
There are two main ways to invest in the US Stock Market from Africa.
You can either do it yourself (DIY) invest. For this, you need to find an online brokerage firm that will accept you based on your country of residence.
This is easy if you live in many of the more developed countries in Africa.
It isn’t as easy if you live in some of the poorer ones, or indeed you are an expat that wants to move from country to country.
In that case, the chances of a brokerage accepting, and keeping your account open if you do continuously move, is smaller.
One of my associates opened up a DIY account when he lived in South Africa.
He works for an NGO. When he moved to Ivory Coast and then onto Ethiopia, he was told that his account would be closed by his brokerage, as they didn’t support the countries in question.
Anyway, if you do find a DIY brokerage that can accept you, you need to fill out an online application form and give anti-money laundering documents like proof of address and ID.
Then the hardest part comes…..you need to trade the instruments you want.
This is where most people struggle long-term. The Vanguard group have done numerous studies where they compare how DIY investors do when investing in Vanguard ETFs and funds vs those that go into the funds via an advisor.
They have found that even where the same funds are used, advisors can add significantly to the client’s net returns:
One big reason for the above is emotions. As the chart below shows, the average investor trails the market by a considerable amount:
An estimated 35% of DIY investors panic sold during the 2020 market falls.
You only have to look at all the panicked questions on Quora to see that 35% might be even an understatement!
If you feel you can control your emotions long-term, which is something maybe 20% of people can do in reality, try DIY.
If not, find an advisor who can accept for the country in Africa you live in.
How do I start building wealth from the age of 18?
When I was 18 I started investing. I had a great run, beating the market easily, even though I know about 2% of what I do now.
Things went peer shaped three years later, which taught me an important lesson….don’t get too excited by short-term gains.
I was lucky that this happened during a period when I was young enough, as a student, not to have much.
The knowledge I gained after this experienced has helped me ever since.
Apart from that the main things are
1. Don’t get into debts. Some debts are OK, like student debts in Europe can sometimes be like a graduate tax. Yet avoid most forms of debts.
2. Start investing. Even if you only have small amounts now, it all compounds over time. The chart below from Acorns says it all:
3. Read a lot, especially outside your core major at university. Learn about skills like negotiation, personal finance, the keys of running a business, digital marketing etc.
4. Carefully consider whether university is the best option for you or not.
5. Travel and get many experiences whilst you can. It doesn’t need to cost much either.
6. Stay away from toxic people.
7. Play the long game. You can experiment with things now. If you need to pay the bills for a family of four in 20 years you can’t afford to play the long game in quite the same way. For example, if you start a YouTube channel or business now, you have years to build it up before trying to monetise it.
8. Learn to budget.
9. Use time effectively, and those long breaks from university if you do go down that route
10. Don’t spend your time caring about what other people think and getting sucked into peer pressure.
11. Try to have a stint abroad working, or at least as a student. It will be a great learning experience.
12. Build up skills which can help you earn a good income in the future, alongside learning how to manage money (investing, money management etc). Try to learn languages whilst you have the time too.
All of these things are directly and indirectly connected to your future wealth.
Why are wealthy Chinese transferring their wealth overseas? What are the reasons for that?
You might have read about this man recently – Jack Ma:
The party warned him that he isn’t more powerful than they are. Right now, he isn’t said to be in hiding, but they might move more aggressively against him.
They have made other statements of intent in recent years, including cracking down on Fan BingBing:
And Guo Wengui, who was once a mighty businessman, and is now an “exiled” billionaire:
Added to China’s unstable (note stable and volatility aren’t the same thing. More volatile systems tend to be more stable long-term) political system and history of social unrest, and plenty of wealthy Chinese people make the sensible decision not to put all their eggs in the China basket.
Many get foreign passports as well. In Beijing and Shanghai and beyond, there are many Chinese returnees who used to live overseas, who are living in China on foreign passports.
As China doesn’t recognise joint passports, this makes them partially expats in the country of their birth.
It makes sense on many levels, as it is a way to diversify assets and risk.
Having eggs in many baskets, with some assets in China and some overseas, will ensure they are more likely to gain regardless of the future success of China.
In addition to that, you have another issue. Mainland China’s most prominent index, the Shanghai Composite, has performed very badly since 2016.
In fact, it has been one of the worst performing stock indexes in the world.
That doesn’t mean it will always be that way. It did very well in the 1990s and until 2006, and had a good year in 2020.
Yet it isn’t perceived in the same way as say the S&P500 or Dow Jones, which have always eventually hit fresh record highs after every crash.
Taken together with the fact that the Chinese real estate market which was once hot, isn’t firing on all cylinders anymore, makes overseas diversification a sensible move even for people who aren’t ultra rich.
In fairness this isn’t a Chinese only issue. Globally most people don’t like to put all their assets in one countries basket.
That is especially recognised in countries which have had recent troubles in the last two or three generations.
I am often asked why wealthy people lose their wealth. One of the biggest reasons is complacency.
I saw it with some private business owners operating in Egypt and Tunisia in 2011.
I have seen the same things in some Latin American countries including Venezuela and Argentina.
Often times when the going is good, many people don’t consider diversifying, which is a mistake.
Why does the stock market go up during times like this?
It is nothing new. Here is how the market performed during one year of the Spanish Flu:
The main reason the stock market can increase during periods of uncertainty is:
- Randomness. There doesn’t always need to be a grand reason why things happen. Sometimes markets can fall, and even crash, when everything is looking rosy. Likewise, markets have often historically risen during events like world wars, recessions, pandemics etc. This isn’t unprecedented. Markets had a good period from 1918 until 1920 despite the world war and Spanish Flu.
- Companies can still make plenty of money. The stock market isn’t the economy. It is the cream of the crop. The FTSE All Stars in the UK is the biggest thousand or so firms in the country. The Dow Jones is 30 of the top US firms. The S&P500 is 500 of the top US-listed firms, although many get plenty of revenue overseas. The likes of Zoom, Netflix, Amazon and the like can make money regardless of the economic situation. Even during the worst of the crisis when unemployment was approaching 25% in some countries, the biggest firms were making money.
- Interest rates are 0%. They is a loss to inflation. A 2%-3% loss to inflation every year equals a huge amount long-term. In this environment as well, currencies could rise or fall more quickly than usual.
- There is more education than ever before – More people are aware of facts like the stock markets might be uncertain short-term, but is a great long-term bet and nobody can time the markets. So, it is often better to just invest and forget.
- How the market is structured – 80%-90% of some stock market indexes are controlled by institutional investors such as banks, and a lot of the rest is owned by wealthier people. Now sure, there are more smaller accounts than big ones. 55% of the populations in some countries own stocks. But the majority of these accounts are 1k, 2k, 5k, 10k, 100k etc. In terms of money in the market as opposed to the quantity of accounts, institutional investors and wealthier people control 95% or so of many markets. Therefore, unemployment and GDP growth is even less likely to influence markets compared to the past.
- Other assets are looking riskier than before. Take real estate as an example. In a post-Covid world who will be the winners? Will it be the big cities like London and New York yet again? Or will the move to remote and home working result in an increase in property values in the regions? Nobody knows for sure. Either way, commercial and even residential real estate looks riskier than in the past. Holding say the entire indexes rather than individual stocks does mean that no matter who the winners and losers are, you are quite safe. In 20 years, for example, nobody knows if more AI or green related firms will be on the index. But if you hold the index long-term then you will, by definition, get access to the winners. This year was a good example of that. Tesla’s stock increased by 700%. A few stocks on the Nasdaq did 2000%! Yet some sectors, like the airlines, haven’t recovered from the crisis, like the banks didn’t from 2008. Yet people who held the indexes made between 10%-30% last year.
In many ways then, doing nothing, and just keeping money in cash, can be much more uncertain than just being a long-term investor.
In the answers below I focused on:
- How can somebody accumulate the first million? What are the top two or three strategies for doing so?
- What are some lessor known strategies for building up wealth? Why is implementation so important in the digital age where everything is available online?
- Why do people who make $100,000 a year feel poor in some situations? Is it only that they are living in high-cost-of-living countries, or are there other considerations at play?
Here is a preview of one of the answers:
We live in a world of open information now, due to the internet. There are fewer “secrets” than a few decades ago:
So, the money is in the implementation. Many people know strategies, but few execute.
I will give you a health analogy. Almost everybody, and not just doctors, now understand the basics about good health.
Exercise, health food and avoiding some vices. Many know more than the basics.
Yet we aren’t healthier than previous generations as execution has become more difficult due to advertising and other factors influencing our choices.
The same is true in financial and wealth, but to a lessor extent. More people than ever know some basics about wealth creation, like the importance of investing early due to compounded returns, but few implement, even if they can afford to.
In any case, there are some strategies, tactics and knowledge which few are aware of
- Changing your residency to reduce cost of living and taxes. Most people are aware that some countries like Monaco and the UAE are tax-free on most forms of income, unless you are American or from countries that tax you based on citizenship (Eritrea and North Korea as well as the US). What fewer people are aware of is that there are over fifty countries that don’t tax on residency, but on a territorial basis. In other words, locally-sourced income is taxed, but most forms of overseas income aren’t. Examples include Singapore, Malaysia, Thailand and some countries (like South Korea and Japan) don’t tax overseas income for foreign residents in the first 4–5 years, and then they start taxing it. Of course though, there are caveats to this. If you are a business owner, you can’t live in Thailand and pay 0% tax on company and personal income tax, unless you also offshore your business to a jurisdiction which doesn’t charge business taxes. It is also better to seek advice. Yet the basic point is valid. If you work for a UAE or Cayman Island employer, and live in say Malaysia or Thailand, and don’t actually bring the money into the country, you can legally pay 0% income tax. A lot of these territorial countries are cheaper than places like Monaco which are ridiculously expensive
- Linked to the last point, it is possible to buy residencies if you are a retiree or working age person. Take the aforementioned example of Malaysia. They had a program called MM2H, which was recently cancelled. In return for putting between $50,000-$100,000 in a local bank account, you could get residency. Some retirees, digital nomads and online business owners used this scheme to get residency to reduce taxes and cost of living. That is one example I could have given of many. Since the pandemic, some countries have closed down their programs, but others have opened some up. Take Bermuda as one example of many I could have used – Bermuda Welcomes New Residents – Coronavirus (COVID-19) – Bermuda. Some other countries allow residency by real estate investment. Thailand has recently tried to stimulate the falling housing market by bringing in a new scheme.
If you reduce your taxes legally, and also cost of living, it will make a massive difference if you are young or relatively young.
That is because your surplus to invest will skyrocket. Simple example. Let’s say you are a high-income business owner in Australia or the UK. I could have used other countries as examples of course.
If you are earning $500,000 or currency equivalent, $200,000 would go on taxes, if not more, especially if you include indirect taxes.
Now let’s say you spend another $150,000, as you are stressed due to long hours and so on.
Now, if you moved to a lower tax and cost of living country, you would say up to 200k on taxes every year, and reduce your spending to live the same lifestyle in some cases as well.
I personally, in my own network, know plenty of location-independent business owners and digital nomads who have done this.
This has included people earning very little, through to mid-income and high-income people.
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