I often write answers on Quora, where I am the most viewed writer for investing, wealth and personal finance, with over 230 million views in the last few years.
On the answers below, taken from my online Quora answers, I focus on a range of topics including:
- Is it possible to be rich with a low net worth?
- Why are technology stocks soaring? Are we seeing another bubble?
- Is it true that people pretend to be passionate about something when it is all about money?
- Would Steve Jobs have been wealthier than Jeff Bezos if he was alive today?
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Is it possible to be rich with a low net worth?
Not only is it possible, it is pretty normal. Most people think “rich people” are:
- High income
- Living the high life
- Showing off
- Dressed in suave clothes and driving nice cars.
Type the word into Google and this is one of the first images that comes up:
Yet net worth is about wealth. The dictionary definition of net worth is:
“The total wealth of an individual, company, or household, taking account of all financial assets and liabilities”.
So the keys are financial assets minus financial liabilities. It is perfectly possible, therefore, to have a super-high income and have a low net worth.
It is more than possible to have a high-income and a negative net worth.
There are two major reasons for this – bad spending habits and debt.
In terms of debt, if you owe the bank more than you have in the bank and brokerage accounts, then you are in debt.
Yet many people take out credit card, business and especially housing debt.
Whilst this can pay off long-term if you pay off the mortgage and other assets, it increases risks and does mean you have negative net worth in some situations for decades.
Unexpected events, like divorce and ill health, can also be one of the major causes of this issue, because people don’t tend to prepare for that.
At the same time, there are literally millions of middle-aged and middle-income wealthy people.
Teachers are estimated to constitute 14% of the world’s millionaires.
There is a simple reason for this. A middle, or slightly above income + good spending and investment habits = a high net worth if you do it for decades.
That is because getting wealthy from investing over five or even ten years is difficult.
Over decades it is pretty easy, even if you invest relatively small amounts, due to compounding.
A high, or even super high, income – four divorces and bad spending habits might = negative or low net worth.
Coronavirus and lockdown has exposed those that have seemed “rich” but were in reality living paycheque to paycheque as they just scaled their spending and debt as they earned more.
Why are technology stocks soaring? Are we seeing another tech bubble?
We have to remember that we are moving into a “fully” digital future.
We were even before the pandemic and lockdown. The lockdown just turbocharged this trend.
Look at how Zoom have soared:
In ten or twenty years, do you think we will be using more, or less, technology than today?
Nobody knows the future for sure, but the answer is obvious. Almost for sure we will be using more.
There will be over a billion more people, and an increasing number of them will be using technology.
People already alive will gradually use more, just as we have done before.
I do, however, see a brief period where people are excited to “meet people again” once Covid gets better.
It won’t last forever though, and people will soon realise why they were using more tech in 2019 and before the pandemic.
Your question, however, is about a bubble. What I have already said partly explains why tech is soaring.
Investors are seeing the long-term, and with the potential for restrictions to last for another year or two, tech seems like a relative safe heaven.
Yet valuations do looked stretched, especially for some individual stocks, and to a lessor extent for the Nasdaq as an index.
There is a counterargument to this though. That counterargument is that tech firms works in a different way to most traditional firms.
They focus on reinvesting income and playing the long-game. Look at Amazon.
They looked overvalued for years. Now, as of 2020, few consider Amazon to be particularly overvalued relative to other tech firms, as they make a tone of money.
The revenues and sales growth eventually resulted in more profitability, but in the early days that revenue was reinvested back into the business.
For me, I think if you hold the Nasdaq for twenty or thirty years, it will be a great investment.
It will be especially good if you hold it in conjunction with other investments and stay diversified.
It might be in the next year or two or five as well. Nobody can time the markets.
The mistake would be to focus on picking individual names for the majority of the portfolio.
In the 1990s many DIY investors got excited after they picked winning stocks.
Some even made loads of money for ten years, and then the party came to an end.
Many investors, including some youngsters, have had a great run with buying Tesla and other individual names in tech.
It is in that area where things are more likely to come crashing down.
We have seen that with the GameStop saga. The markets have gone up in the last few weeks, but some investors lost a tone of money after initially making loads, due to speculation.
The bottom line is if you are sensible (diversified and long-term and don’t panic if there is a crash) having an allocation to tech in a digital world only makes sense.
The issues come when people aren’t sensible. Part of being sensible is not caring about what happens in the next few years.
Look at the last twenty years. Imagine if you would have bought the Nasdaq at the worst possible moment in 2000, right at the heart of the bubble.
Now also imagine that you didn’t add one penny in the last twenty years.
You would have made about 300% if you reinvested dividends despite the Nasdaq falling by 75% in 2000–2002, 50% in 2008–2009 and over 30% in the crash of 2020.
Somebody who bought at the peak of 2000 and added money during the crash would have made much more than 300%.
The point is the long-term, sensible, investor doesn’t care that much about whether a bubble is forming or not, because he or she understands that timing the markets consistently is almost impossible.
If you buy markets, hold long-term, reinvest dividends and stay diversified for the long-term, you will make plenty of money.
Why do some people pretend they are working for passion when deep down it is all about money?
There are two issues here. Firstly, some people do generally work for a passion.
If you think back to your teenage years, or even in your early 20s, you were probably idealistic.
Most people are. Therefore, most people do work for passion, or partly based on passion, on day one.
Sometimes the two things can go hand in hand as well. Many vets started off loving animals when they were young.
Whenever I have taken my pets to the vets, I can see that the majority are generally happy with what they do.
Likewise, many sports stars started off kicking a can or a ball in the streets.
It is also true to say that it is difficult to get good at something if you hate what you do, or strongly dislike what you do.
It isn’t impossible though. Andre Agassi admitted he hated tennis in his book:
I also know plenty of people who don’t dislike their jobs or businesses, but dislike the products they are offering.
I know an alcohol executive who started out as a salesman. He….doesn’t like the taste of alcohol!
So your question does touch on an important issue. Why do the vast majority of people try to claim they are doing things purely for passion, when in reality, plenty of people aren’t, or at least passion is just one component of it?
I think the main reasons are
- There is pushback against those who are very honest, even though most people claim to like honestly. Another tennis star, Yevgeny Kafelnikov, admitted that he preferred golf to tennis, but he could make more money from tennis. People didn’t like it. Most people care about what others think…..especially when they are young. Eventually they don’t.
- There has been an increase in what I would call “business politically correct practices”, where people say things which they don’t believe
- In the 1980s, it was socially accepted to admit you just wanted to make money, in the UK, US and beyond. More recently, there has been some ant-money political trends, and being successful has been seen as something to hide. In some parts of the world, this isn’t the case at all. In many emerging and mid-income countries, being pragmatic is admired. China is a great example of that. When I lived in China, many people were honest that they weren’t passionate about a business, but saw a way to monetise by helping solve a problem, which therefore lead to more money being made as referrals came in.
So, I think your question is overly cynical, but it does hit on something which is partly true.
At the end of the day as well, there shouldn’t be anything wrong with just focusing on money.
If you went on holiday today, who would you prefer to deal with?
The world class hotel which was run by a person who is just in it for money, or the sub-par hotel where the owner is “passionate”?
The answer is obvious. I am not saying there is anything wrong with being passionate.
Many of my friends, clients and associates say I can be passionate.
But one negative can be that passionate people just focus on what THEY are passionate about, and not what the consumer is passionate about.
Listening to the market and you consumer is what is important, and giving them value.
Preaching to the world about your passions if that passion doesn’t resonate with what people are looking for isn’t a winning strategy.
The ironic thing, therefore, is being passionate about your consumers and delighting them because you know that if you make them happy you will get financial or other benefits, will likely lead to more customer satisfaction than focusing on what you (as the owner) wants.
Jeff Bezos is currently the richest person in the world? If Steve Jobs was alive, all things the same, would Jeff still hold the title?
Steve Jobs was worth a few billion when he died. One of the main reasons for this is that he didn’t own much of Apple.
In comparison, this man owns over 10% of Amazon:
Whilst that has gone down over time, as he has reinvested the money into other projects, it is still a lot.
We also have to remember that Apple’s stock has not beaten Amazon’s in the last decade.
Therefore, it is highly unlikely that Jobs would be as wealthy as Bezos, unless he went into other ventures and somehow caught up.
As a final point it has to be remembered that the “richest” isn’t always the same as the wealthiest.
Most of the wealthiest people in the world don’t own much land, property or cash as a proportion of their total wealth.
It is held in stocks which fluctuate over time. Bezos has been overtaken at numerous points in the last few months by Elon Musk.
Musk isn’t necessarily “earning” 750% more than a year ago, he is merely worth more.
So, a lot of these media reports speaking about a CEO “losing” money or “making more money in a day than their staff earn in a year” is misleading.
Often it is just paper wealth which fluctuates.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 230 million answers views on Quora.com and a widely sold book on Amazon.
On the article below I answered the following questions:
- Is it time to short the FANG stocks after the great run they have been on, and the headwinds coming, including new regulations and taxes? I explain why the growth prospects are still good, which makes shorting a losing game, but you shouldn’t put all your eggs in that basket.
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- What makes Silicon Valley so special compared to some other places?
- What do most people expect from investing? I speak about three groups of people; the realists, the overly cautious and over optimistic. I explain why realism is the key.
- What is the stock market in simple terms and can a 16-year-old invest in it?
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