MY TOP 20 QUORA ANSWERS: PART 3

After revealing my top 10 answers on Quora, and those in places 11-15, this article will finish by speaking about the answers in 16th-20th place:

16. With the stock market down due to the COVID-19 coronavirus, is it a good time to buy or sell your stocks?

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There is an excellent show called “Trust me, I’m a Doctor” on the BBC:

Why do I find the show fascinating? It shows what seems like “common sense” isn’t always true.

It also illustrates that many widely held beliefs are false. I will give you an example.

Frozen vegetables has less nutrients than fresh vegetables right?

Wrong! I was wrong and most people assume incorrectly that fresh vegetables not only taste better, but are healthier too.

The tests done on the show, by academics, found that if you freeze your fresh vegetables one day after you buy them, they retain the vitamins according to various tests they did.

If you keep them in the fridge, they lose some of their “goodness” on a daily basis.

Now what does this have to do with investing? I am not implying that investing is a “hard science” like medicine or biology.

However, we can look at how markets have performed in the past.

We can’t automatically say “just because they have performed in this way in the past, they will in future”, but we can now look at more than 200 years of data.

What does the data say, from countless academic studies? There is little or no correlation between things like:

  • Stock markets and recessions
  • Stock markets and impeachments
  • Stock markets and wars
  • Stock markets and trade disputes
  • Stock markets and most other events

Stock markets can go up, or down, on all of these events. So the markets can’t be predicted.

If that wasn’t the case, we would all be able to time the market and I have yet to meet one person that can do that long-term.

Always remember, what seems like “common sense” isn’t always true, across numerous domains and disciplines.

In investing, it is always good to buy every month, regardless of whether markets are up or down.

The time to buy and hold is always now, as you never know how markets will perform short-term.

17. If a recession is coming in 2021, what should I do with my investments?

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The following expressions will save you a fortune and reduce your anxiety long-term.

I will paraphrase:

  • Wall Street has predicted 20 of the last 3 recessions and crashes
  • Put 1,000 economists in the room and you will get 1,000 different answers
  • Market timing doesn’t work. Stay the course

This quote sums it up:

Just:

  1. Invest every month, regardless of whether markets are going up or down, into stock and bond indexes
  2. Raise your bond indexes as you age
  3. Reinvest your dividends
  4. Never get too excited when markets rise or too depressed when they fall
  5. Take the financial media with a pinch of salt or switch It off entirely

Just look at Trump and Brexit. “Everybody” was so worried in 2016.

Look at China and the trade war in 2018–2019. All the while markets quietly hit new record highs, as they always do long-term.

Fear is profitable for the media but not the average investor.

18. What are good investment options available for the NRIs?

760,000 views

Imagine this. In 2002, China looked like how it did on the picture above.

Many expats, whether British, Americans or Indians, thought this growth would translate into better stock market performance.

So many people rushed into Chinese, as well as Indian and other emerging markets.

In the last 10 years especially, US markets have beaten pretty much all emerging markets.

This should be a lesson to not assume that investing in fast growing economies, will always lead to better investment returns, if you invest in the stock market of those places.

The point being, most expats should be focused on having a globally diversified portfolio, regardless of their nationality.

In other words, 90% in global markets (say MCSI World, S&P500, 10% in emerging markets) and 10% in bonds if you are young, as an example, and more bonds if you are older.

The reasons are numerous, including:

  1. Nobody knows where they will be in 5–10 years – this is especially the case in the expat market. Many expats are moving from country to country, and don’t know when they will be back home. So investing in the new country, or back home, has a lot of currency and other risks, compared to having a diversified portfolio
  2. It is a tried and tested strategy- unlike “country picking”. I have seen so many people pick a specific market they like, such as the Chinese Stock Market if they lived in China, only to regret it later.
  3. It is often tax efficient if it is done in the right way-whereas, some local-specific investments can be taxed more heavily.

A lot of the other options, have too many risks relative to the gains.

Fixed deposits in emerging markets? Quite risky, if you factor in the currency factor.

Emerging markets property? Again, very risky. So especially for expats in some parts of SE Asia and Africa, many get carried away by the “growth story” forgetting there are safer ways to gain access to that growth.

Remember that a lot of emerging markets growth is reflected in the US and other major stocks markets.

Amazon, Apple and Google have certainly benefited from emerging markets growth!

19. As an expat living in China, how can I invest money?

750,000 views

There are two things to remember here:

  1. China-specific considerations
  2. Non China-Specific considerations

In terms of non-China specific considerations, remember:

  • Expats by definition won’t be staying in their country of residence (China in this case) forever.
  • Therefore you need a portable solution, which can be taken with you anywhere in the world
  • In addition to portability you need a diversified portfolio which isn’t linked to one sector.
  • Be long-term and not short-term. Time in the market is one of the only free lunches in investing as it both reduces your risks and increases your chances of compounded returns. The figures below for the S&P500 tell their own story:

In terms of China-specific considerations, the main one is getting money out of China.

Many expats struggle with that so often you need to “kill two birds with one stone”.

In other words, send money out of China, in order to contribute towards an investment

20. What’s the basic rule behind wealth?

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I am not sure about 6 laws. But the 6 most important things would be:

  1. Start early
  • Investing $500 a month for 30 years and getting 5%, is more money than investing $500 a month for 10 years and getting 12%
  • But if you haven’t started early, never forget that you will never be younger than today

2. Focus on your income

  • A middle-income is fine though

3.Focus on your spending habits

  • They matter more than your income average a certain threshold

4. Maximize investment returns

  • Invest in the types of funds that regularly outperform
  • Use a house as a home in most situations – not as an investment
  • Be liquid as much as possible – don’t think your business or property can be your pension

5. Be an investor not a speculator

  • Invest for the long-term rather than picking winners
  • Avoid seductive short-term get rich quick schemes

6.Don’t time market

  • Always be invested
  • Be in stock and index funds, just alter your allocation as you age

Also remember this quote;

Simplicity beats complexity.

Some other notable mentions

The following answers just missed out on the list:

What is a relatively safe way to make 5-8% return on investment annually?

Many people wrongly think you can make 5%-8% safely in the bank.

You can’t. At least not in most countries. If you can, you are only getting 5%-8% because of:

  1. Currency risk
  2. Inflation risk
  3. Various other risks

Just ask all those South Africans, Brazilians and other people living in high-inflation and depreciating currency environments.

They have lost in USD terms, even adjusted for the high interest rates. Look at the South Africa Rand vs the USD as just one example I could use:

So there is no “0% volatility option” which can give you over 5% per year consistently in USD terms without significant risks.

So you need to invest and get an average of over 5% per year. In that case, you can’t get 5%-8% every single year safely, but what you can do, is get 7%-10% yearly on average, without taking huge risks.

Remember something. The nominal rate of return on the Nasdaq in the last 25 years has been 12% per annum, but it has been very volatile.

The S&P and Dow Jones has averaged 10% nominal over 100 years, and 6.5% after inflation.

However, there are huge differences by the years and decades. Some periods have been 12%-15% or more like 1985–1999, 2009–2017 and some have been minus.

So the easiest way to get 8% averaged out, is:

  • To be 90% in indexes and 10% in bonds. Just invest every months for decades. Don’t give a damn if markets are going up or down
  • Doing that, even if markets are doing badly when you start to invest, you will do fine long-term. For example, from 1960 until 1990, the US Stock Market produced 10.2% average annual returns, but 65–82 = 0% returns. So the average monthly investor actually got more than 10.2% because they had many years to buy markets at longer prices
  • Only significantly increase your bond portfolio when you are close to retirement, and trying to preserve your wealth
  • Also remember something else. You should rationally want higher returns later on. Let’s compare two people that invest $1,000 a month for 30 years. If person A gets 15% from years 1 until 15, and then 2% from years 16–30, he or she will have less than person B that gets 0% from years 1 until 15 and then 12% from years 16 until 30. That is because of compounding

How do people most often waste the prime of their life, as in their 20-30’s?

  1. Not caring about their health – when they don’t need to. Waking up at 30, 35 or 40, and regretting it
  2. Not taking risks – when they have the chance. Waking up with kids and a mortgage and regretting being so cautious
  3. Not investing – when they are still young and utilizing compounding. Getting rich starting in your 20s is 100x easier than starting at 55. Investing $500 a month from early 20s, is much better than $2,000 a month from age 50.
  4. Not traveling – and seeing the world
  5. Not staying in contact with family – and real friends.
  6. Not reading after university – and wondering why their career has stagnated come 30
  7. Spending too much time worrying about other people’s opinions – and worrying about things they can’t control.
  8. Overspending – due to point 7 and as per the quote below;

9. Assuming 20s is the prime – for some people, the prime is 40. Others 50. 20–30s is just the physical prime. Many people waste their 20s and 30s, because they assume that `life isn’t worth living after 40`, so do silly things like overspend, because they assume life will be bad come 40. This is especially the case for people in early 20s. Most people are surprised to realize that, come 30, they are happier than ever

10. Settling – for the wrong person.

11. Trying to please everybody – and not pleasing anybody, including yourself

12. Not learning from previous mistakes – and the mistakes and triumphs of other people.

13. Wasting an inheritance – and not keeping hold of the money and growing it.

How do I become a millionaire in Kuwait as a foreigner?

It is a very broad question. I don’t know if you are speaking about investing, business or in general.

However, I will stay something. The only way to get wealthy is to live below your means and invest the surplus well.

Net worth is net income – expenses x compounded returns. So regardless of whether you live in Kuwait, Qatar, the UK or Ireland, you need to have an income, live below your means and then invest well on the side.

Remember a millionaire means somebody whose assets are worth $1M or more.

Somebody who makes $500,000 a year after tax, but spends $500,000 every year is broke.

Somebody who makes $500,000 and spends $505,000 a year, is in debt and financial trouble.

Somebody who earns just $50,000 a year after tax, but manages to save and invest $15,000 a year for 30 years, will become wealthy, if they invest it right.

So the keys are:

  • Creating a surplus. Whether that is from a combination of a job or self-employed work and good spending habits, or a business and decent spending habits, you need to live below your means
  • Compounding that surplus. If you have a surplus but leave it in the bank, the money will not grow, it will match inflation at best

So focusing on your income, expenditure and investment returns are important.

That is relevant worldwide. What is specific to Kuwait as an expat is that there are many tax-efficient ways to invest.

The things which are specific to Kuwait are:

  • You have a tax free income
  • You might have your housing paid for you. So you can save and invest more than most people back home
  • As you are an expat, it is better for tax reasons to invest outside your home country
  • You need to have a portable investment account, meaning it can move with you, because expats tend to move around more these days
  • Getting advice can be key.

Keep it simple and you will be fine.

  1. The first, and most obvious thing, is to avoid lifestyle inflation. Late 20s until late 30s, is one time where many people get big pay rises. It is the time when many businesspeople finally see success. I know countless struggling 20 somethings who suddenly 5x or 10x their income at this age. However, many people just spend it on more housing, more kids or whatever else. `Lifestyle inflation` is the killer
  2. Not having a budget which properly accounts for lifestyle inflation, especially if kids are going to come along
  3. Both partners, ideally, need to work at least a bit. Even if it is 5 hours a week. The reason why this is less risky than relying on 1 income, is you never know what will happen to the primary income. If one partner works even part-time, and something happens to the bread winner, it is easier to increase hours than to apply for new jobs.
  4. Failing to hope for the best, but plan for the worst
  5. Failing to invest and save money – having a small 5k+ emergency cash amount + personally investing
  6. Spend only 50% of your pay rises. So let’s say you are investing $1,000 a month now and you get a $200 a month pay rise after tax, increase your investment to $1,100 at least.
  7. Have a direct debit linked to your investment account
  8. Also remember this quote;

What are the best financial hacks?

  1. Compounding.

High wealth takes more time than high income. If you have person 1, who is 30, has an MBA and is earning $200,000 after tax , and person 2, who is 60 and has earned $60,000 a year for 40 years, person 2 should be wealthier.

2. Good spending habits + compounding

3. Read

Buffett spends 80% of his days reading and Mark Cuban spends 3 hours a day reading. It is an investment. I suggest some of these books:

They also spend more on getting knowledge from online sources, rather than pointless material things.

4. Real estate

Use a house as a home. Don’t overspend on rent. Using real estate on leverage can be profitable but it is risky. Best to just own 1 home maximum, which is modest. Millionaires, who have sustainable wealth, are more likely to live in places like these.

5. Fees

They keep their investment keeps fees low.

6. Long-term.

They see the bigger picture. Often buy, hold and rebalance.

7. Have self-control

Human nature and especially fear, greed and egoism is the killer of portfolios.

8. Do the right things, consistently

The person below is one of the best, if not the best, at football. One of the reasons is he implements the evidence everyday. If you want to get wealthy, implementing the evidence consistently and with persistence can be key. There is no point in only sometimes being motivated.

Why do ultra wealthy people never show off?

Have you ever been to Dubai, Singapore, Shanghai or countless other “new wealthy places”?

You will see things like this everywhere:

Shopping is the new religion, amongst wealthy, middle-class and even some low-income people.

However, in most old rich countries, it is true, that most wealthy and ultra wealthy people are frugal and don’t show off.

The main reason for this are:

  1. How did they get wealthy in the first place? Living below their means. Nobody can get wealthy by just focusing on income. So why change a winning formula as soon as it starts to work?
  2. A lot of showing off is insecurity. Success, as a generalization, makes you feel more secure. If you go out of your hotel room on holiday with a hole in your sock, and you are worth millions, why would you care if most people think you are poor?
  3. It is often safer and more convenient to stay below the radar. If more people know you are wealthy, you become a target. More family members ask for money and favors, and you get targeted by scammers and so on. Sure these are a small minority of the human race, but they exist.
  4. Many wealthy people go through a period of over-spending and showing off. Then you realize, it isn’t worth it. For example, imagine a 35 year old businessperson who has finally made it, after 10+ years of trying. That person is highly likely to show off for a few years. And then what? You tend to realize that staying at the suite at 5 star hotels is no better for your soul than a comfortable 4 star hotels.
  5. Your realize the “real cost of consumption”. This is especially the case if you run your own business. The point I am making is, would you buy 5 pints tonight, if the cost was $30 or $50 a pint? Most people wouldn’t. However, most wealthy people know if they reinvested that money into themselves, investments or their business, they can 5x or 10x money through compounding. That doesn’t mean you should never spend money, merely know the real cost of your actions
  6. Linked to number 5, most wealthy people get wealthy, due to thinking long-term and delaying gratification. In business, that means treating customers well, and not just thinking about today’s $. In investing, again, that means not caring about markets today or tomorrow, and focusing on 10–20+ years later. If you have this kind of patient mindset, then of course, you are likely to have self-control over spending

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