I often write on Quora.com, where I am the most viewed writer on financial matters, with over 253.5 million views in recent years.
In the answers below I focused on the following topics:
- It is easier to be a millionaire now more than ever. Why aren’t there more millionaires out there? What was my response to this question?
- What financial mistakes will keep people poor regardless of income levels?
- Can you start a business with close to zero funding?
- Is now a good time to own post-Covid stocks?
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You are right. It is easier to become a millionaire than ever before, unlike what the media might imply.
Even if we factor in inflation and focus on $1m in purchasing power parity, it is easier than it was ten, twenty or thirty years ago because:
- People are living longer. That means there is more time to compound
- Inheritances are getting bigger. As many as half of people in the UK and some other countries expect to get $500,000 or Pound inheritances according to some surveys. The total number expecting something has also gone up as per the below. One of the main reasons for the bigger increases in inheritance is the move away from final salary to building up your own investment pots through defined contribution.
- The world is getting richer. The overall trend is like that anyway. The global population is also getting bigger. That means there are more global consumers
- There are more ways to reach those people now due to the internet. If you were a real estate agent in London in the 1960s, you could only target rich locals and a few others. By the 1970s and the oil money, Arab money came, and then Japanese in the 1980s. But, in the last ten years, people are willing to buy remotely, and even more so after Covid. That is one example of many I could give
- It is easier to change your residency and save taxes than before and more remote jobs and business opportunities.
- With interest rates being 0%, returns on assets like the stock market has been higher than historical times in the last decade.
- People are making more money adjusted for inflation. Not everybody. But the global picture is like that. Even in countries where that isn’t true, the fact that women have joined the workforce in ever-increasing numbers in recent decades, means household incomes have risen.
- It is easier to invest productively than ever before, and you can start out with smaller amounts of capital.
With all of these trends, it is unsurprising that the number of millionaires has skyrocketed.
Yet there should probably be more. The major reasons this isn’t the case is:
- Lack of planning. I know countless people who have made, or inherited, loads of money and are now broke. Bad spending habits is a major reason. Official figures released by Rolex and some other luxury goods companies confirms that many middle-income people are more likely to buy these products than high-income! In comparison, sensible middle-income people have a balanced. They enjoy their life but save and invest for decades, and often reach this milestone. We also have to remember that whilst it is easier to become a millionaire than ever before, it is also easier to overspend than ever before. Marketers and advertisers have got better, and we can pay with a touch of our button.
- Lack of patience. For some people investing for decades and having $3m at 55 sounds a bit boring. Then they get there and realise it isn’t!
- Lack of understanding about finance. So many people still save money rather than invest it. Many people do also have the wrong information like “investing is for the rich”, and don’t know basic facts like most millionaires are middle-income and middle-aged. 14% of the world’s millionaires are said to be teachers with another 40%-45% from other mid-income level professions.
- Lack of adapting to changing times. The aforementioned London property example is just one example. A local agent in London, focusing just on Brits , might be complaining about “the good old days”. An agent who has a good online strategy and has taken advantage of the changing trends like remote buying is probably having a record year. I see the same in my industry and people in my network. There are firms, and individuals, doing better than ever and others complaining that times are tough. In a changing world, people need to adapt. It is all about perspective really. It has became more difficult if you try some old-fashioned techniques, but there are many new ways to get wealthy as well.
Obviously there are others who get unlucky and can’t make it, but you are right to say the number of millionaires out there should be larger than before.
The biggest ones are:
- Spending more as you earn more (lifestyle inflation). People can’t live like they are students forever. Yet countless people do just increase how much they spend as they earn more. This is one of the biggest reasons why even some very high-income people are broke. Studies have shown as many as 20% of high-income people are broke (living paycheque to paycheque), and more in the upper-middle and middle. This is a major reason for that. There are two reasons why people tend to do this – bad habits have formed or they are trying to “act rich” and show the world they have made it. InstaGram probably wouldn’t exist if there weren’t so many people looking to show off!
- Getting into credit card debt. Now all debt is bad all of the time. Almost every successful business has used it. Yet credit card and consumer debt is very dangerous
- Spending loads of money on depreciating assets, like most cars, and not on assets which appreciate:
4. Not taking risk seriously. Things happen in life. Yet many people will still put close to 100% of their eggs in one basket like a company, a home or just one stock.
5. Not being liquid enough. If all your assets are in a home Andorras business, it is riskier than if you have assets in the stock markets through ETFs or other vehicles.
6. Spending too much time with toxic people and not enough time with more positive people
7. Not engaging in lifelong learning.
8. Saving rather than investing. This is especially risky in countries where the exchange rate and inflation risks are huge. Plenty of people have been wiped out by this in the past.
Ultimately, wealth and income isn’t the same. Cashflow is also kind, as is potential liquidity for a portion of your assets in an emergency.
Therefore, if somebody is worth $5m on paper, but it is all tied up in illiquid assets, that isn’t the same as having $5m in a liquid ETF portfolio.
Likewise, if somebody is making $500,000 a year but is spending $500,000 each year, that isn’t the same thing as earning $70,000 and spending $50,000.
In fact, it makes that person poor in many ways, even though general society would think they are rich as they are earning 500k.
Yet in reality they are just living paycheque to paycheque. Any unexpected event, like ill health, could put them on the breadline.
Sure you can, especially in the modern world of the internet. There are hundreds of ways to make money online.
Some, such as being an affiliate, cost zero dollars. Technically speaking, you might say that is being self-employed and not starting your own business.
If you want to start your own business with the least possible hassle, avoid manufacturing and high-capital intensive industries.
Get a job in the service industry first, ideally something you are likely to be good at and isn’t very capital intensive.
Get good at it for five or ten years. Then start your own business with all those contacts, experiences and so on.
Of course, it depends on the exact business you are in, the NDA you signed with your previous company and many other things, but the general “rule” still holds.
I started my business with hundreds of dollars and had decent revenues baked in on month one.
Why? I had clients. I had an agreement with my previous employer, and so they could leave with me.
That isn’t going to be the case with every person or industry, but with the work from home trend, more people have realized that they can start small with a home office:
So, get experience in the domain first. Build up organically. Learn how to generate revenues without needing fancy offices and very expensive marketing.
Start small. Then build from there. Of course, you can focus on using other people’s capital.
Yet if you have never built up something organically from zero, you aren’t as likely to use it wisely.
It depends what you mean by post-Covid era stocks.
Ultimately, there have been three types of companies during Covid-19
- Those who have benefitted. Zoom, Amazon and many tech firms would be an example here. The Nasdaq was up 45% last year with some individual firms up by more.
- Those who have lost. The airlines for example, or hospitality.
- Those who have been neutral. Consumer stables like Coca Cola and similar firms haven’t really been affected positively or negatively. Revenues are similar compared to before. Stock prices are stagnant or up/down by 10% or so.
For the first group of companies, some would say they are overvalued.
For the last second group of companies, many would say they are undervalued.
The problem is, there are many unknown variables.
Remember some of these facts
- The banks never recovered from 2008–2009 despite looking very undervalued for years.
- We were moving into a technology-focused world long before Covid came along. Therefore, it isn’t obvious if the first group of companies are overvalued.
- Amazon looked overvalued for years, but they were just reinvesting their income over time. Many people would argue that with technology firms revenue and sales growth is more important than traditional P/E ratios .
- Trends before the pandemic, such as healthy living and technology, are likely to continue. The fast forward button has just been pressed.
- It is true that the pandemic seems over or close to over in some developed countries. One scientist in the UK recently announced that it is now “endemic” and not an epidemic. Regardless of the reality, new variants and securing agreements on travel, could be one of the keys for the travel industry to recover. It is very uncertain now.
- Sometimes growth stocks beat value, and vice versa.
- Nobody can time the stock markets, or predict every variable.
- Interest rates are at 0% so leaving money in the bank is just a lose to inflation anyway.
Therefore, as a result of all of these facts, I would own a combination of different markets, industries etc.
I wouldn’t put all your eggs in technology, nor would I neglect it.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 253.5 million answers views on Quora.com and a widely sold book on Amazon
In the article below I spoke about:
- What is the first step of becoming a millionaire? Great ideas? A good network? Or something else?
- Would I rather be a billionaire in a place like Myanmar or a poor person in a developed country like Japan? Even though this is only a theoretical question, I look at it from a logical perspective.
- Is Shanghai still poor compared to Tokyo or Seoul? I speak about reality vs the general opinion which seems to be out there.
- Does having a high-net-worth make securing business funding more likely? I mention how things have changed in this new business era, where starting your own business is cool, and there is loads of venture capital money out there willing to throw money at some founder
To read more click below