I am the top Quora.com writer for investing and finance in the world, attracting over 433.4 million answer views.
On this article I will speak about some of my most popular Quora answers from the last few days.
If you are an expat or high-net-worth individual looking to invest, don’t hesitate to contact me or email (firstname.lastname@example.org).
I also did a video on the first question:
Is it better to invest monthly or annually?
Investing a lump sum in one time, usually beats “dollar cost averaging” which is a fancy way of saying monthly investing:
So historically, if you have $120,000 as a lump sum after a bonus or inheritance, it is usually better to put it in in one go, compared to putting in $10,000 for 12 months or $5,000 for 24 months.
There are many reasons for this.
The main ones are:
- Markets tend to rise long-term and even medium-term, despite the volatility
- Bigger amounts compound more quickly. If you put in $120,000 in one go, and the markets do 10% in the next 12 months, your account is worth $132,000. In comparison, if you put in $10,000 a month for 12 months, and the markets do 10%, your account won’t be worth $132,000. The dividends also compound
- If you have some bonds in your portfolio, and markets fall, you can still rebalance and take advantage of market falls. So you don’t need to keep money in cash to take advantage of market falls.
- Dollar cost averaging, therefore, will only beat lump sum investing during a prolonged period of market stagnation. 2000–2010 would be such an example. Markets fell from 2000–2002, and also hard in 2008–2009. So somebody who dollar cost averaged from January 2000 until December 2010, would have made a decent profit, whilst a person who put in a one-off lump sum on January 1 2000, would have broken even at best. Yet if you extended the graph to include 1998–2012, we would see that the lump sum investor would have won. If we extend the graph further to 1995-today, the lump sum investor would have ran rings around the monthly investor.
- If you are diversified, it is unlikely all markets will perform badly. If you take the previous example, markets didn’t perform well from 2000 until 2010. However, international markets, especially emerging markets, did well from 2000–2008. This was during a period where US and UK markets didn’t do well.
Let’s not forget though that most people need to dollar cost average.
Almost everybody either has a salary or a business, where there is regular money coming in.
So, apart from people who have a yearly bonus, often we have no choice but to dollar cost average.
The most rational thing is therefore to put in lump sums when you have them, but monthly invest with your salary.
That decreases risks a lot, because it allows people to invest at various intervals, whilst also putting in lump sums whenever they come in.
It also doesn’t make sense to “save up” all the monthly surpluses for one big yearly injection.
What determines success: luck or hard work?
Many of the things that increase our chances of luck, also increases our chances of becoming successful.
This quote says it is:
The same is true in all domains. Why has the more chance of getting lucky? The person who doesn’t give up for 10, 15 or 20 years, and who tries many different ideas?
Or the person who just gives up after working hard, on one idea, after a few years?
It is obvious. Playing the numbers game, over a long period of time, increases your chances of being successful in all domains.
So regardless of whether you want to get your dream job, partner, get rich or another objective, the numbers game helps.
And playing the numbers game is only one example of how you increase your chances of getting lucky by working hard in a very systemic way (smart+hard work). I could have given many other examples.
Beyond that, mentality also counts a lot. What we saw during this year was a great example of that.
In March and April, many businesses stopped advertising. A few took advantage of lower prices and the fact that most competitors were off the field.
Many people say that was “lucky” for those firms, but in reality it just required balls.
I have ran out of the number of people who had the cash to invest in March or April, but failed to reinvest into their company or individual investments.
They took a “wait and see” approach, mainly for emotional reasons, in the same way they did in 2008–2009.
As a final point, I would say that sustained success is harder with luck. The majority of lottery winners go bust eventually, but their win was purely based on luck.
I have also ran out of the number of business owners that “don’t fix the roof when the sun is shining”.
I man a guy in Japan who worked for Kodak during its heyday. He spent $10,000 on rent (in the mid 80s) when business was incredible.
He admitted that, quote, “I didn’t see the move to digital coming”. Kodak went into administration, and even before that, business was suffering.
He isn’t alone. Almost all the people i have met in Japan who were doing business during the Bubble years of the 1980s, have admitted that they mainly wasted the money on spending, divorce and some other things.
Many of the people who made a lot of money, weren’t self-aware and humble enough to realise that the success was partially to do with randomness and chance.
If they had realised that, they would have been more conservative, and reinvested more into their businesses and private investments, and keep an eye on new competitors on the block.
So taking advantage of good luck, by adding more wood to the wire when it is burning hot, is a key aspect of sustained success.
You see the same in sports. So many players have natural talent. Those with fanatical work ethic, like Ronaldo, add fuel to the fire with sustained work ethic.
Those that don’t, eventually fail once their bodies age. A great example is these two.
Both were on a par from ages 18–22, or maybe Rooney was better:
Now one of them has become one of the greatest sportsman ever, and is still in great shape, and one is shadow of his former self:
So one hot advantage of that fortune to have natural talent, by adding sustained work ethic . One didn’t. The end result is incredible, as it all compounds.
I have seen the same thing in business on several occasions. Sometimes you can have two people who got exactly the same fortune – for example they both got a buyout or went into “the right industry at the right time”.
They both made loads of money at first. Fast forward 10, 20 or more years though, and often one has made it much bigger than the other.
Are people who denounce affluent people just envious of their wealth? Would these same people be saying the same things about income inequality if they themselves were wealthy?
There is certainly some hypocrisy. Many of the people who denounce the wealthy, want to be wealthy themselves.
Countless of the same people will criticise bigger firms, but still not support smaller firms, as they feel safer with bigger firms.
A simple example. I know several people who claim to “hate” Amazon and Bezos……yet they use Amazon despite the fact there are alternatives which are at a similar price point.
The reason? They feel safer with Amazon’s processes, and don’t want to give a start up, or even an established company, a chance.
So there is certainly an element of truth in your question. It reminds me of people who claim that “money doesn’t buy happiness”, if they have never had money.
I would take that advice from somebody very seriously if they have been both rich and poor themselves.
I wouldn’t take such advice very seriously from somebody who has never had money.
Perhaps in reality envy is one aspect of human nature, in the same way that greed is.
Human nature is a complex, and multi-faceted, thing. So there are people out there who would, undoubtedly, prefer everybody to get poorer if the richest get poorer fastest, rather than everybody to get a bit richer and the richest to get much richer.
You have seen that in places like India, China and South East Asia.
Some people complained about “skyrocketing inequality” when almost everybody was getting richer until relatively recently.
Few people admit it though. One exception recently was this gentleman who admitted in a studio that he would, quote, “prefer a poorer but more equal country”
I at least admire his audacity for saying something which most people wouldn’t in public.
In any case, I have never seen envy create good. I have never seen an envious person reach success long-term.
People who think in terms of abundance, and not scarcity, tend to have a much better chance of success.
Which type of investments have the highest returns? I am in my twenties and leaning towards investing in real estate. Can you suggest better options?
It depends on the type of investments. Let’s split them into three areas:
- Investing in yourself
- Investing into your own business
- Private investments
Let’s start with number 3 first. Long-term, the stock market has beaten other types of private investments:
That has included real estate as well. That doesn’t mean that the stock markets will beat gold, cash or real estate every year or decade.
Merely, the long-term trend is there. I have only seen truly professional real estate investors consistently beat the stock market.
Most amateurs don’t, especially in highly taxed countries like the UK.
In certain places, like the US, real estate is tax-efficient, but in many countries it isn’t.
Moreover, the bottom line is real estate is actually like running your own business, and is considered as such by many governments globally.
You have money coming in, and money going out. Most people spend a lot of time on things like AirBnb as well.
So even if you do beat stocks with real estate, it isn’t comparing apples with apples.
Let’s say you get 9% per year from a passive investment like the S&P500, and you have a rental property which is bringing in 9.5% net of costs and taxes.
That extra 0.5% isn’t worth it if you are spending hours a week on it.
That leads me to points 1 and 2. Investing in yourself, and your own business, can be incredibly profitable.
Remember though, you have to factor in:
- Time vs a passive investment
- A risk adjusted return
- Net vs gross returns when it comes to taxes and costs
Starting your own business is much riskier than buying and holding an index for 40 years.
Most people fail, often because they focus on what they are passionate about, and not what they have experience in.
Ideally you need to do all three. Invest in yourself so you can have more money to invest privately, and it also gives you more chances to start your own business.
If you invest more into yourself, you are more likely to earn more.
If you earn more, but don’t spend dramatically more money, you have a much bigger surplus to invest privately in.
Why does money earned feel better than money saved?
Often because of how people use the money earned. Many people think more money earned = more money to consume.
So the more money earned, for a certain type of person, equals more money spent on “things”.
This then leads to something called the “hedonistic treadmill”
Basically, whenever a good, or bad thing, happens we get a reaction.
A positive reaction if something bad happens, or a negative one if something bad happens.
Over time, however, we get back to a baseline level of happiness.
So eventually we recover even from deaths and terrible events, and also don’t get anymore happiness from incredible achievements.
So when it comes to purchases, people usually get a short-term boast.
Then it ends. Like a coffee drinker, or somebody who smokes, you need more and more :shots” to get the same effect.
It goes round and round in circles. So people earn more as they get older, and spend more.
People who are sustainably wealthy, in comparison, learn to deal with this.
It is far more productive to think “what can my money earn me”, than “what can my money buy me”.
One is connected to a short-term boast in happiness (consumption), and one leads to more security which actually reduces anxiety long-term.
That is one reason many wealthy people end up giving a lot of money to charity and investing money.
There comes a time when you realise that more consumption doesn’t make any difference to happiness.
So the irony is, people who have never had money (including some idealistic young people) assume that money will resolve all their issues.
You hear many teenagers boasting to their friends that they will buy a flash car “if they get rich”.
Then one day, if they do get rich, often they come to realise there are more productive ways to use the money.
One which definitely doesn’t give you the short-term boast that spending does, but is more sustainable.
Why does Goldman Sachs believe the bull run will continue?
They have cited the low cost of money and some other things for making these predictions.
I would take their predictions with a pinch of salt though. They have made many contradictory predictions.
If you type into Google “Goldman Sachs expects stocks to fall further”, or “Goldman Sachs expects markets to hit records”, you will be able to see many contradictory predictions.
Take this example:
In this article Goldman Sachs predicted that the S&P500 would be up 2% for 2020, in other words on December 31 it will be trading 2% higher than on January 1.
However, they expected the S&P500 to fall 18% from May until August.
What happened instead? The S&P500 went up about 12%-13%. So closer to +18% rather than -18%.
Now they are saying, contrary to their previous prediction, that they think stocks will hit a new record high by the end of the year – Goldman Says Stocks Will Hit New Record Highs Again By End Of 2020
So you will notice that this goes contrary to their previous prediction of only +2% for the year.
They might be proven right or wrong on one of these predictions, but it is impossible for them to be proved right on both.
And these are just two examples. I am sure I could have found 20 or 30 contradictory predictions made this year by Goldman and other financial organisations.
The media exists to sensationalise. Some financial institutions take advantage of that to always provide them with “new” news.
It would be boring to just say that nobody knows what will happen in the short-term, but time in the market beats timing the market. Boring but true.
Of course, statistically speaking their prediction will probably turn out to be correct.
Markets, after all, eventually hit record highs. The US Stock Markets, and some other markets, have been on a 200 year bull run ever since markets started.
The overall trend has always been good. They have just be interrupted by regular falls, including the 1930s, 2000–2010 and some other years.
The long-term investor just needs to ride out the good, and bad times, and get a good average return.
What’s the biggest financial advice can you give to young adults?
One of the biggest tips I would give is be willing to take risks when you can afford to do so.
Many people are unwilling, even petrified, to lose money when they are young.
However, this is the time to take calculated risks. When you are in your teens and 20s, you typically don’t have kids or a family to support.
If you are 21, therefore, you can do things that the typical 31 or 41 year can’t do as easily.
For example, you can play the numbers game, and focus on getting paid on performance online, or via a more traditional route like commission-only jobs.
If it doesn’t work out, you can get another one. If it doesn’t monetise big time for 6, 8 or even 10 years, that isn’t a big deal, because you have time on your side.
That is only one example I could give to illustrate the point I am trying to make.
Take many calculated risks whilst you are young, and you increase your chances of success later on.
- Spend less than you make, unless there is a very specific reason, like you are reinvesting back into a business that is taking off
- Invest from a young age to compound
- Don’t show off to other people with your behaviours, actions or spending.
- Focus on leverage when you can. If you leverage time through compounding, you have a much better chance of getting rich from investing. Start small for a long period of time, beats starting investing big at 55. Likewise, if you leverage technology and other people in business, you have a better chance of succeeding than if you only use your own time.
- Don’t give up too easily. Many people stop just as they are about to succeed. If something was meant to be easy, then everybody would do it. If something is hard, less people will be able to compete with you.
- Focus on implementing good ideas. Ideas alone are worthless.
- Read about productivity tips like 80/20, 64/4 and 50/1.
- If you have a 9–5 job, use the hours between 18:00-midnight wisely. Many people who end up as successful business people had a job before, and worked on implementing ideas during their spare time.
- Get rid of toxic people in your life. Control the voices, external and internal, trying to pull you down.
- Rely on yourself first and foremost. Sure, co-operate with others, and leverage others as mentioned. Just don’t depend on politicians, or any other external force, from improving your own life.
- Delay “boxing yourself in” by having big mortgages, marriage and kids.
- Don’t care about what most people think about you. You only need to impress a small percentage of people in life. Most people aren’t thinking about you anyway.
- Break norms – societal, business norms. You will only get normal results if you try ordinary things. Used in conjunction with number 12, and this can be a powerful tool. I will give you a simple example. I know a gentlemen who used LinkedIn for business 7 years ago. At that time, LinkedIn was only used as a CV resource for most people. So it wasn’t “socially acceptable” to use it for business, apart from for recruiters. So he would get a lot of abuse from people who were offended by his direct messages. However, he also generated over $200,000 a year from the method. Now “everybody” uses Linkedin for that purpose, or at least it is a norm to use it like that. What has happened? The angry messages from people complaining that “Linkedin shouldn’t be used in this manner” have reduced but………so has traction! There is a simple reason for this. There is now more competition as it became a norm.
- Once you achieve success, don’t be complacent. Most people think success will be sustained forever, when it seldom is. You see it in all domains. Business, sport and investing.
- Once you start achieving success, make your goals big enough to motivate yourself, otherwise why wouldn’t everybody just get complacent and “take it easy” once they become successful?
- Live overseas, or travel extensively, once in your life. Spend time with other people outside your industry. Read more after university, than during university. University is the start of the learning process, not the end. The more you learn, and experiment, the more chances you have. We can all get into bubbles and popping can be good. Simple example. Let’s say you are a young real estate agent who is struggling to make money. You decide to go to a convention overseas, which is full of high performers. You spend time with these people and realise they aren’t special people, with sky high IQs. That would be inspiring. I started to improve many years ago, once I realised that most of the “big hitters” I knew were only human and no better than me.