I often write on Quora.com, where I am the most viewed writer on financial matters, with over 249.2 million views in recent years.
In the answers below I focused on:
- The stock market has reached an all-time high. Does this signal a large drop in the near future? I explain why stocks actually look very cheap in some parts of the world, like Europe and the emerging world, and it is normal for stocks to hit all-time-highs.
- Is getting an inheritance always a good thing and should parents feel obligated to give to their kids? I speak about some of the positives associated with not inheriting money.
- What is the most aggressive way to invest towards retirement? Is saving and investing a large percentage of your pay cheque the only way to be aggressive?
- Does life get easier as you earn more money or isn’t it as simple as that?
- Which people don’t benefit from early retirement? The busy, those who don’t plan or other kinds of people? From the people I have seen in my network, which tend to be happiest in retirement?
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The stock market has hit hundreds of record highs in history. That is the whole reason why people invest in it – despite the volatility they go up over time especially adjusted for dividend reinvestment.
If we take the Dow Jones as one example of many, it has historically hit record highs on countless occasions in the past.
In some years it has hit record closes tens of times, like in 2016, when it hit 26 record closes, or the 71 times it did in 2017.
That doesn’t mean markets hit record closes every year, but the general trend is they will hit record highs one day.
Therefore, the fact markets have hit a record high even is expected and nothing unusual.
This question has been asked by almost everybody when they start investing.
I once met a guy who has invested for over forty years. He admitted to me that had he known that markets were trading at record highs when he first purchased stocks, he would never have bought them.
Yet he now knows that would have been foolish, and is therefore glad he was ignorant of that fact.
On another point, stocks aren’t at all-time-highs on some measures.
Star Capital publishes regular reports on CAPE ratios. The CAPE Ratio, also known as the Shiller P/E, is calculated by dividing a firm’s stock price by the average of the organizations earnings for the last ten years, adjusted for inflation
Developed Europe and Emerging Markets both have CAPE ratios of below 16 times earnings.
The US Stock Markets have only been valued so cheap twice in the last three decades.
Take the FTSE100 as an example. The CAPE Ratio has consistently been trading at 11–18 for a few years now.
Even US Stocks, like the S&P500, were far higher in the late 1990s and early 2000s in terms of this valuation metric.
The late 90s and early 2000s was also a different time as investors could make 6% in bonds and even 3% in cash!
By historical standards, therefore, some non-US markets look very cheap, and US markets don’t look too over-valued.
That means stock markets have hit record highs in terms of valuations, but not in terms of how expensive those valuations look.
It is a bit like saying that if the Dow Jones in 2080 is worth $1m or more (Warren Buffett’s prediction for the Dow), that means it is overvalued, when looking at how corporate revenues and profits have improved is more sensible, alongside inflation.
I strongly disagree. It is an entitlement mentality. It reminds me of people who think the government, or “the rich”, should automatically help them.
Ultimately, if people have made their own money, it is up to them how to spend it, invest or save it.
If parents want to leave some money to their kids that is great, and in many ways responsible, but it isn’t an obligation.
Many parents are also worried about leaving big inheritances, and for good reason.
Surveys have been done that have compared lawyers, accountants and other professionals.
Those studies have found that even when comparing these people at similar ages and salary levels, those who never received an inheritance have higher-net-worth.
So, despite earning a similar amount of money to those who received the inheritance, and never receiving one dollar or Pounds from inheritance, people who didn’t get inheritance ended up wealthier.
There can only be one explanation for this. Those who received inheritance spent more money or invested money less sensibly.
Yet one of the biggest reasons for this, surely, is that they are less likely to understand the value of money if they have inherited a lot of it, and expect such large amounts of money.
Why would a 25-year-old, who knows they will inherit millions in a decade or more, bother to learn how to do business, invest etc?
Sure, some do, especially if they are mature, but plenty also won’t push themselves.
Inheritances are expected to get bigger, as per the below graph from the Financial Times, so this problem will only get worse:
Don’t get me wrong, receiving an inheritance can change some people lives.
Those who are mature enough to deal with a large inheritance can live better lives.
It causes many problems those, and family arguments for that matter, so nobody should feel obligated to one.
For me, I knew from the young of 16–17 that I wouldn’t get much inheritance due to family divorces!
Otherwise, I might have inherited a reasonable amount of money.
I am now happy about this fact. If I was expecting a relatively big inheritance, it could have caused problems.
Far better to learn how to generate wealth by yourself, and see inheritance as a bonus.
I completely agree with Caleb’s comment below that “Money is the single most important thing in the world… until you have enough of it”.
Most of the problems in the world, including divorce and ill health, are indirectly caused by lack of money.
Yet once you have enough money to be comfortable, the rules change.
Life definitely gets easier if you start making money after being starving for months!
Life also gets easier if you start making more money than being on benefits or the minimum wage.
Yet above a comfortable threshold, where our minimum requirements are met, it gets more complicated.
We have to, then, consider money AND
- Sense of achievement
Let’s give some examples. If you are in a well-paid job that you hate, you might be better off working for an average wage in a position that you love, especially if you already have security due to saving and investing for years beforehand.
Likewise, if you don’t spend any time with your kids to make as much money as possible, it is unlikely that is a sensible policy, unless you really love what you do or you don’t have enough money for your family’s basic needs.
Many studies that have been done have founds a correlation between money and happiness, but it goes down as people have more (declining marginal utility).
So money isn’t everything, especially for people who have achieved comfort, but it is everything if you don’t have any at all.
This quote sums it up:
So, in answer to your question, it does on average for sure. The harder part is ensuring that your life gets better as you receive more in.
As an aside, one of the easiest ways to ensure that money can bring less anxiety is to avoid the rat race.
People who just spend 100% of any pay rise, are just engaged in a rat race.
Those who make the right choices at a young age are often far wealthier by their 30s and 40s, therefore making it easier to spend more time with friends and family, if that is what you want to achieve.
I have met countless semi-retired people in their 40s, who basically just invested small amounts every month from their pay cheque.
Some people have this picture of retirement:
Others have this:
People are different and have different characters, but from speaking to countless people, I have noticed that those who stay active in retirement have the best time.
Doing all of the things we couldn’t do during our working lives, and planning it well, gives people a reason to wake up in the morning.
In comparison, those who don’t plan their retirement properly, don’t stay active or experience ill health, often don’t benefit as much.
I think you ideally need all of these things
- Financial security. That doesn’t mean being rich per see, but having enough.
- A sense of doing something that matters/ a sense of purpose. That could be volunteering, spending time with grandkids or many other things.
- Your health. This one can’t be fully controlled though and if you don’t have health, being retried is still better than working.
- People. It is easy to get lonely when you are old and don’t have anybody.
- Planning. That doesn’t mean spending years on a retirement plan but thinking about it a bit.
Having all of these things makes life easier in retirement.
Out of all the kinds of people I have met, those who struggle the most had interesting careers.
If you are used to traveling, meeting interesting people and going to interesting places for decades, it is hard to plan a retirement which seems as interesting.
It depends how you look at it.
There are two ways to be aggressive
- How much you invest for retirement
- What you invest in
The first one isn’t connected to risk. If you invest 30% of your salary towards retirement, you aren’t taking more investment risk compared to putting 10% aside.
In terms of the second part, it depends if you are talking about calculated risks or speculation/mad risk.
Putting 100% of your portfolio in stock market ETFs and then increasing allocating to bonds above 50, and especially within five years of retirement, isn’t a stupid risk at all.
It is very much a calculated risk as bonds have always lost to stocks long-term, and these days pay so little.
In comparison, if you have a one stock portfolio, that is very aggressive, but it isn’t really a calculated risk.
It is just being very aggressive in a speculative way.
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Adam is an internationally recognised author on financial matters, with over 249.2 million answers views on Quora.com and a widely sold book on Amazon
In the answer below , taken from my online Quora.com answers, I spoke about the following issues and topics:
- What are the biggest mistakes made by newbie stock investors? I list some of the obvious, and not so obvious, ones.
- Why are so many “experts” always predicting stock market crashes and is it profitable to listen to their advice?
- How should a 66-year-old invest $1m, to ensure the money shouldn’t run out in retirement?
- What are some non-traditional investments that can pay off long-term? Even if they can pay off, should the average person invest in them?
- How has the concept of being an entrepreneurs changed over the years, now “everybody” calls themselves one on LinkedIn and beyond?
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