I often write on Quora.com, where I am the most viewed writer on financial matters, with over 297.5 million views in recent years.
In the answers below I focused on the following topics and issues:
- Is it better to pay off a mortgage or invest? I look at the question from both a financial and non-financial standpoint.
- There were very few billionaires in the 1950s and 1960s. Now, there are many. What could explain this?
- If I could get a visa, would I relocate to the United States? I explain why the hassles associated with moving would dissuade me.
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Is it better to pay off a mortgage or invest?
It depends on the exact situation and circumstance. However, I would make the following points:
1. A house isn’t an investment
It is a home unless you manage to get lucky and downsize in retirement.
A rental property is an investment. Your primary residence usually isn’t.
Renting can be cheaper, and buying can also sometimes be cheaper.
The idea that renting is always dead money is silly and just wrong.
It depends on numerous factors such as how long you will stay in a destination and the rental yields.
Yes, it is usually cheaper to buy if you plan to stay put for decades, but not always.
There are many unbiased good renting vs buying calculators online.
2. Usually paying off a home early doesn’t make sense
The reasons are simple:
- Houses don’t appreciate as much as stocks do. The stocks:house price ratio is very clear:
- Therefore, the only way you can “win” from real estate is if you engage in leverage/debt and you focus on rental yield and not property appreciation. Or you just get lucky and find the next Singapore, London, or New York. That is unlikely though.
- You can’t have rental income from a primary residence unless you sub-let
- Therefore, you need to use leverage. Even then, you probably won’t beat the stock market, and as mentioned, a primary residence isn’t really an investment.
- Let’s look at it mathematically:
Imagine you own a property and it is worth $750,000 for example.
You have a mortgage of $150,000 let’s say, which means you have $600,000 worth of equity.
That is $600,000 of your money sitting dead inside your property not working for you.
That money could give you 5%, 6%, or 7% income, or be put in accumulation funds.
With mortgage rates at all-time lows then you could be getting at least 5% per year (or more) from this money. That is $30,000 every single year.
Or $300,000+ over a decade, and this is a very conservative example.
Usually, the S&P500, Nasdaq, and Dow do 10% per year adjusted for dividends over any 30 year period (1960–1990), (1990–2020)
3. Emotional well being
So, we have ascertained that paying off a mortgage probably doesn’t make sense financially.
Renting or using leverage is usually better, depending on many factors.
However, having no debt is better for our happiness. People say “money can’t buy happiness” and that is true in isolation, although it helps.
But get this. A wealthy person who has leveraged themselves is much less happy than a wealthy person who has no debt.
A middle-class person without debt is, on average, happier than somebody with debt.
Therefore, the strongest argument in favor of paying off your mortgage isn’t financial.
It is financial well-being. It might reduce your anxiety.
Why were there almost no billionaires until the 70s, and why are there now so many?
The main reasons, in no particular order, are:
- The global economy
Let’s look at a very simplified recent history:
- Over 100 years ago = the richest people like Ford, Carnegie, and Rockerfella were wealthier than the wealthy of today. Some had 300billion-400 billion adjusted for inflation
- Then, about a hundred years ago, World War One came, followed by a boom in the 1920s
- But then came the Great Depression and another world war. By 1945, most of the richest people saw their fortunes dwindle, adjusted for inflation.
- From 1945 until the mid-1970s, people from all backgrounds got wealthier, but the economy was different. Most of the world’s economy was closed. The USSR, China, and most of the “third world” (third mean in the Cold War context meaning they weren’t aligned to the US or USSR) had closed economies including India, Egypt, and many others.
- Then from the late 70s through to the early 1990s, economies opened up. China under Deng. The USSR under Gorbachev and then of course, many others turbocharged after the Wall of the Berlin Wall
- Then in the 1990s and 2000s, the developing countries got richer and technology became a bigger part of our lives. Now the top Instagram stars can charge a million or more for a mere, short, endorsement, because advertisers can get customers globally.
- However, inequality of income hasn’t risen everywhere as the chart below shows. Inequality of wealth has because assets always (long-term) rise more than cash in the bank. Since 2008 and 0% interest rates, the gap is merely bigger.
2. Inflation, age expectancy, and other factors
- A billion isn’t what it used to be. Having $1billion in 1945 was much more than $10billion today.
- In addition to that, people are living longer, and especially those with more means
- The last point is significant because wealth grows with age (compounding) unless somebody makes a mistake, whereas income doesn’t always grow.
- There are more people globally. For every million, or billion, people, there will always be a genius or somebody who is incredible at business.
- Look at somebody like Buffett. He made his first billion in his 50s (as per the chart below) and now has over $100billion. If he was around a hundred years ago, he would probably have been dead before he reached even $30billion:
As a final point, the only way I see a significant fall in the billionaire population is if there are trends that will affect us all negatively.
For example, two more world wars, another Great Depression, global depopulation, deglobalization, and less use of technology.
Beware those offering simple solutions to complex problems.
Those politicians blaming “the rich” for every other person’s problems are just as dangerous as people who blame immigrants for everything.
Higher taxes can be part of a sensible discussion, regardless of whether they are good or bad.
But saying billionaires “shouldn’t exist” is silly, dangerous, and unworkable in a global economy.
It is idealism at best, and for that matter hypocritical, considering most people wouldn’t mind getting wealthy themselves.
A better way to deal with inequality would be to teach financial and business education properly, at a younger age.
If schools, colleges, and universities took these subjects as seriously as English, Maths, and Science, then inequality would fall within a generation or two, with higher GDP overall.
I will give you just one incredible statistic which shows the power of financial education.
In the last thirty years, the Forbes and Sunday Times (UK) Rich List has grown more slowly than the S&P500 and other major US stock markets.
In other words, if you would have invested in a very boring, vanilla, index fund or ETF in 1985, your wealth (in percentage) terms would have grown more quickly than the average person on the list.
That doesn’t mean you would have become a billionaire, but you would have grown wealthy slowly.
As Buffett mentioned before, $10,000 invested in the S&P500 in 1942 would now be worth $50million, and most of the wealthy people I know have just grown wealthy slowly.
14% of the world’s millionaires are said to be teachers, with over 50% in other middle-income jobs.
That won’t “eliminate” billionaires, but it does show the average person can become wealthy.
Would you come to the USA tomorrow if you were given a visa to legally live and work there?
I admire much about the US, but definitely no for the following reasons:
- I work for myself as a business owner and can work anywhere in the world, within reason. Living in the US would be more expensive from a tax and living cost standpoint
- It would also be more complicated from a business standpoint. Whilst it is legal to own overseas companies and live in the US, I would need to seek the advice of an accountant about whether I should restructure the business – in other words, have a local US entity for tax and reporting reasons.
- Most of the good things about the US can be acquired in some other countries or from spending a few months of the year in the country every so often. For example, the entrepreneurial spirit of places like Silicon Valley can be acquired virtually, as many tech workers who are leaving the area to work remotely are discovering.
- I personally, as somebody who is advising mainly expat clients, know what hassle rules like FBAR and FATCA are like for Americans living overseas. A record number of Americans living overseas are giving up US citizenship for this reason. Most expats who live in America and then leave, seek to reduce ties asap. The reason is simple. Once you have a Greencard, even if you move overseas, sometimes you can get caught up in the US “spiders map” of taxation complexity. The US has become overly regulated in this way, and most Americans living locally don’t know about these hassles.
I guess you could put all of the above under one heading – too many hassles and inconveniences for little upside benefit.
It is for the above reasons that the vast majority of business owners, retirees, and digital nomads don’t consider the US.
The US is best for people who are salaried employees who can get a significant pay rise to move.
People like tech, financial services, and oil&gas workers. I personally, within my own network, know about a dozen people who have moved to the US in the last two years.
Yet all of them have the following things in common:
- They all got a pay rise big enough to justify the move, costs, and hassles
- They often have an HR department backing the move which further reduces the hassles
HOWEVER, if I was 20 again and didn’t have the following factors to worry about, then I would certainly consider it.
Likewise, I would also consider it if the US Government became more laissez-faire about the rules on portfolios, investments, and taxation.
Ultimately, the latter point reminds me of the song lyrics for Hotel California.
If you become a US tax resident, you can check out any time you like / but you can never leave, unless you formally go through the second hassle of ceasing all US ties when you leave.
Double hassles then – on the way in and out.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 544.4 million answers views on Quora.com and a widely sold book on Amazon and a contributor on Forbes.
Adam is an internationally recognised author on financial matters, with over 297.5 million answers views on Quora.com and a widely sold book on Amazon
In the article below, taken directly from my online Quora answers, I spoke about the following issues and subjects:
- Robinhood did an IPO a few days ago. The stock soared. Could there be any reason for this?
- There was a regulatory crackdown in China recently, which could make life difficult for Chinese firms on US stock markets. This comes after the US regulators themselves made some changes last year. Should markets be worried?
- Is it true that expats living in Malaysia are taxed at 26%-28% of total income, or does it matter where the income is sourced from?
- Is the game rigged in favour of those who own capital? What can the normal, everyday, investor do about it?
- What is the best way for women to earn money online? Is it really different to men?
- How can companies, and individuals, in Lebanon deal with the present inflation issues.
To read more click on the link below.