If Japan has been in stagnation for so long, how are they still the top 3 economy in the world?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 657.2 million views in recent years.

In the answers below I focused on the following topics and issues:

• If Japan has been in stagnation for so long, how are they still the top 3 economy in the world?
• What are some companies that started their business by solving their personal problems?
• How can I invest successfully with interest rates on the rise?
• What are some challenges faced by expats when it comes to personal finances in the U.S.?
• What are the advantages and disadvantages to working at a small company?

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If Japan has been in stagnation for so long, how are they still the top 3 economy in the world?

Because the stagnation was based on a large myth.

It never happened even though most educated people believe so.

This graph says it all from the American Enterprise Institute.

It is true that since 2010, the weakness of the Yen has changed this graph. US GDP per capita has marched ahead of Japan since then.

Yet you can see that Japan didn’t stagnant from 1980 until 2010, or even from 1990/1995 until 2010.

Even in the 2010s, Japan grew by an average of over 1% per year.

Not great, but not stagnation.

Remember, too, how compound growth works.

Simple example. US GDP was 10.25 trillion since 2000. The US hasn’t grown as well since compared to previous decades and centuries.

However, US GDP is now around 26–27 trillion.

So, the US has:

• Added 16 trillion since 2000, despite weaker growth. This means the absolute US GDP has increased more in twenty years than in the previous two centuries.
• It has therefore added almost as much as China’s GDP and about the same as the EU’s.
• It also means that China added about 18.8-19 trillion to GDP since 2000, and the US about 16 trillion, despite China growing much more rapidly.

What could explain these trends?

Simple. Even 2% per year average growth is massive when you start with a massive economy.

The same is true with Japan. If they only grow at 1%-2% per year, they will add a massive amount of GDP to the pie, as their slice of the pie is already enormous.

Cambodia is growing at up to 7% per year, but that isn’t as big a number as Japan growing at even 0.5% per annum.

While focusing on myths and Japan, here is another idea that the Japanese Nikkei is the only major stock market to have never recovered from its peak.

It is only valid if we don’t focus on dividends:

This graph was also made before the Nikkei surged to 33,000, where it sits today.

My comments on this myth were picked up by the media in 2020

What are some companies that started their business by solving their personal problems?

A man who started a tractor company had a Ferrari.

He liked it but found one aspect challenging to use.

So he spoke to Enzo Ferrari.

He wouldn’t listen to his suggestions about how to change the Ferrari in the future.

He allegedly responded that he should stick to tractors.

What was the man’s name?

Lamborghini

Ferruccio Lamborghini

It is now a multi-billion dollar company.

This doesn’t just affect big businesses, though.

I have met many people who started restaurants after they couldn’t find the kind of food, or experience, they wanted.

I started an expat-focused company after living the lifestyle myself.

It is easier to see problems if you face the same issues.

How can I invest successfully with interest rates on the rise?

Ultimately, interest rates have fluctuated for decades.

That hasn’t changed the following facts:

1. Long-term, the stock markets beat bonds, and bonds outperformed cash. Short-term, they are just more volatile – especially the stock markets.
2. Gold also doesn’t beat bonds and stock markets long-term. This graph, from Mustachianpost, illustrates the point:

3. There have been more cases of complete currency collapses and massive depreciation involving cash than other assets. So, cash isn’t less risky.

The above doesn’t mean people should invest 100% in the stock market forever. It does make sense to have a diversified portfolio, especially above age forty or fifty.

It just means that investors shouldn’t dramatically change their portfolios based on the short term.

That is especially the case because the long-term interest rate situation, whilst always uncertain, indicates that rates will fall.

Inflation is falling, we have ageing populations globally, and technology like AI will be deflationary.

What is true is that higher interest rates mean there are short-term opportunities and threats.

Bond yields are higher. You can now get 7%+ a year on some A-rated corporate bonds.

Real estate looks riskier than before, but some commercial REITs have fallen significantly in value.

What are some challenges faced by expats when it comes to personal finances in the U.S.?

The biggest are regulations.

FACTA, FBAR and other regulations.

Many investment providers won’t accept you if you are an American living outside the US.

If they do, you must be careful which assets to buy, as punitive taxes can be applied on the US side, due to PFIC rules.

On the other hand, if you move to the US and become an American resident, you are often an American-specified person.

In this situation, people look to rearrange their finances.

Beyond that, the major issues are

1. Finding providers who will accept expats who move around a lot. Some providers are portable. Others close down accounts. That can include banking, investing and insurance providers.
2. Getting compliant with a new tax regime and multi-jurisdiction taxes if you have income in many places
3. Passing down assets to kids and other beneficiaries. In some cases, trust makes sense.
4. Getting proper health and life insurance.
5. Whether to renounce US citizenship if you leave the US to negate the FATCA and FBAR issues.

For people living in the US, an SEC-regulated solution makes sense.

In comparison, non-US solutions can sometimes make sense for those leaving the US system, especially if you are renouncing citizenship.

What are the advantages and disadvantages to working at a small company?

This is an oil tanker.

Some large ships take 15 minutes to turn around.

This is a speed boat.

It can be turned around in seconds.

It can also move more quickly.

The same is true with companies. Smaller firms can grow more quickly, and be more agile and personal.

Some are riskier and likely to go bust, but others are established.

When you become a medium-sized company, you can still be nimble.

In comparison, most gigantic companies struggle with that.

They become bureaucratic.

What is more, with smaller companies, you are more likely to feel some ownership regarding success.

For example, if somebody was one of the first twenty Facebook employees, it must feel good to have been part of a journey.

When it comes to smaller companies, they also tend to perform better in terms of investment and ROI.

However, they have risks associated with investing in them, so you need to know what you are doing.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 668.8 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.