This post will run down our top Quora answers for the week.
People are people. Most people go through at least one stage of depression, regardless of wealth.
I personally know countless millionaires who are happy, and others who are not happy.
Money and wealth doesn’t automatically buy happiness but it can increase the likelihood.
Countless surveys have been done on this and most find two patterns:
- Rising levels of happiness as incomes increase
- Then above a certain threshold it stops. Or at least you get diminishing marginal utility. In other words, if you are poor and become comfortable, that makes a big difference. In comparison, if you are making 150k, you might not be any happier earning $1.5m. If you are earning 300k, it is even less likely you will be happier earning 10x more
Money doesn’t buy happiness but it buys choices. The choice to quit work early. The choice to spend more time with family.
The choice to give money to charity, to your kids or just spend it on yourself. Those choices, in turn, can lead to more happiness and less anxiety.
The problem is some people make the wrong choices, often due to peer pressure. Most of the wealthy people who are unhappy that I know, have often made choices they feel pressured to make like always expanding their lifestyle to keep up with the Jones’.
The opposite extreme, assuming that money never can increase happiness even if the right choices are made, isn’t true.
A lot of ill health, divorce, anxiety and other problems is caused by the kinds of trouble a lack of money causes.
If people don’t manage money correctly, money will usually find a way of managing you and your choices.
Even many formerly wealthy people who end up broke have learned that lesson.
Let’s start with some basic premises:
- Most people want to be at least comfortable if not rich – whatever they say. Even those people who claim they are socialists and spend their time criticising the rich, often want to be rich themselves and want their kids to be rich.
- Even more people would want to be rich if there was no drawback – the easy route as you say. Some people wouldn’t be willing to get rich by killing rats in the subway station or working 20 hours a day but almost everybody wouldn’t mind getting rich if they didn’t need to do much for it
Based on those two quite obvious statements above, we can deduce two things:
- There is an oversupply of wanting to be rich
- But there is an undersupply of being willing to take the hard decisions
Therefore, you need to focus on doing things that other people aren’t wiling to do.
For example, most people aren’t willing to:
- Invest from a very young age for decades
- Take big even if calculated risks. For example, few are willing to work commission only or give up a good job to start their own business
- Emirate or move to another city or down in their home country if they see a good opportunity
- Be unpopular
- Be incredible persistent and never give up
- Going against the established consensus.
- Not getting caught up in get rich quick schemes or being too cautious on the opposite end of the spectrum.
Not all of these things are technically different. Investing for decades isn’t different.
It is easy. It can be done with a few clicks of the mouse. However, it isn’t emotionally easy.
Likewise, taking a job in another country if the price is right, isn’t always hard, but can be emotionally difficult.
There is money in being willing to do things that other people aren’t willing to do.
Few people are willing to get out of their comfort zone and change their actions and choices.
If you can do this, you are ahead. Go for the hard choices, and your life is more likely to be easy long-term.
Even the money is more likely to be “easy” if you are willing to make the hard choices and have a hard life for a period of time.
Simple example. I know two business owners, one a recruiter and one a real estate agent.
Both are on auto-pilot now and make a lot of money from referrals.
They work 2–3 hours a day because they have their client bank already.
So they make a lot of money for doing very little…….because it took them 10 years of work hard to get to this point.
Of course, it would be more interesting if they had stayed motivated, but they want an easy life after putting in the hard yards.
Make the hard choices.
It depends on your time horizon. If you just want to invest for 1–2 years, it is best not to invest at all.
Cash pays nothing and doesn’t even beat inflation, but good investing is best done medium-long term.
Your chances of making money go up, the longer you invest. Want less volatility? Have bonds too:
Bonds aren’t sexy. They don’t pay much anymore but they perform during the worst of crisis.
Which asset did best in 2008–2009 and March 2020? Gold? Silver? Bitcoin? No short-term government bonds.
Gold’s 2000–2011 bull run was interrupted during then worst of the crisis in 2008–2009:
The best thing to do is invest every single month for decades in stocks and bonds. It is effective .
What isn’t effective is trying to trade investments based on the news.
I have lost count of the number of people I have met that bought gold after 2008 only to regret it.
Or went out of US Stocks before the 2016 election and the fear or Trump, only to regret it.
Just stay the course. If you do that, you will have good and bad years, but you will do fine.
Over any long period of time the stock markets outperform but bonds have their day in the sun and are less volatile.
So having a buy, hold and rebalance approach over the long-term makes sense.
It is boring but effective.
It’s been an incredible ride for Tesla. They have become one of the best performing stocks in the last 1–2 years:
Even Musk thinks it is overvalued judging by his now infamous tweet which sent Tesla’s stock down:
The response of “Elvis” below shows the issue with some of the “investors” in Tesla.
Tesla’s stock price went down after Musk’s tweet. That is a decline not a loss.
The point is, Elvis’ remark shows that plenty of DIY investors in Tesla are seeing this as a get rich quick kind of investment.
Many are overwhelmed by Musks’ personality and charisma. The reality is, nobody knows what the price of Tesla will be in the future.
It could hit 10k or could be worth $100. Strange things happen in the markets.
But Tesla still isn’t profitable now. They might become incredibly profitable or may never be profitable.
Again, nobody knows. What is for certain though is that long-term one of two things will happen:
- Tesla’s stock price will fall
- Or Tesla’s profits will have to increase to match the valuations.
Unprofitable companies stock prices can’t go up forever. So just be careful with Tesla which has a crazy p/e ratio.
Individual investors should only be in individual stocks if they are only holding them as 10% of their portfolio at most. Far safer to stick to some of the indexes.
If you have been lucky enough to profit from Tesla’s rise, I would take some money off the table.
That doesn’t mean the price can’t keep going up for a few years.
Merely, it is unlikely to go on like this forever.
I don’t know the exact figures. However, I suspect that in the UK, US and many other major Western economies, the number is higher than you would think.
The two major reasons are:
- Many high earners are based in places like NYC, California etc. Now whilst the work from home trend is changing this, many high earners do still work in these places. If you are making 100k or 150k in a NYC or London, adjusted for taxes and cost of living, it can be less than earning 60k-80k in some smaller cities
- Culture. Most people have been influenced by this culture of “live everyday like it is your last”. Likewise, most people are influenced by people in their social group – peer pressure. For example, most religious people hang out with other religious people. So is the case with money. People with higher salaries, are more likely to hang out with other high earners from work, competitor companies etc. You have more in common with a fellow lawyer, banker or doctor than you do to a random person. Therefore, unless you pick your friends very carefully, you might all get into the same bad spending habits.
A final reason is Parkinson’s law. Often people’s spending simply increases when they earn more, meaning that their wealth isn’t growing:
Parkinson’s law also applies to time – “work expands so as to fill the time available for its completion”.
In terms of money expenditures rise to meet income. So that is one reason some people are perfectly capable of living for little and others manage to spend 10x more.
With that being said, some surveys have shown that people on average 150k a year are likely to be more frugal than those on 50k a year.
So it just depends on the person. Often I notice a trend. For a few years. people get excited on a higher income.
After a few years of realising that “things” aren’t all that, a percentage of sensible people spend more money on security (investments), health, experience and helping others.
No it doesn’t. Gold will rally many times in our lifetime. It often has historically and will do again.
Who knows, gold could hit a record this year, next or any only year.
The major problems with gold is:
- It has been stagnant since the times of Christ. Close to 0% real inflation adjusted returns. 6.5%-6.7% for US stocks adjusted for inflation and reinserting dividends vs 0–0.5% real:
2. Gold does have its periods in the sun like in 2000–2011 and more recently. But nobody knows for sure when those periods will be. Simple example. I know countless people who felt smug in 2008–2009. Gold had a great bull run and had beaten the US Stock Market for the decade after an awful 10–20 years. They assumed that with QE and 0% interest rates, gold would hit 5k (sound familiar anybody). Then what happened? Gold fell during 2008–2009, hit a record in 2011 and then fell for years despite more and more QE. Gold has never recovered from 2011 and we have had 2%-3% yearly inflation in the meantime. So those that predict one rally, usually get the next one wrong.
3. Following on from point 2, gold isn’t a safe heaven asset. During 2008, its bull run was cut short. 2000–2011 was a bull run but 2008–2009 was the exception. Likewise, in March 2020, during the worst of the crisis, gold’s bull run was cut short. Just like in 2008, gold performed badly during a bull run, and only started to increase again after the worst of the crisis was over. Therefore, don’t for a minute think that if there is a huge market crash in 2021, 2025 or 2030 that means gold will do well.
4. As per number 3, government bonds are a better diversification tool than gold. They don’t pay much but outperform during the worst of most crisis.
5. It doesn’t pay a dividend, coupon or interest.
6. There are much more efficient ways to get rich slowly than gold of course.
So I am not saying gold will go up this year or next, or go down. I am merely saying it isn’t a good long-term investment and nobody knows if it will be a good short-term investment.
Of course they can. Although I have noticed a trend. Those people that have gotten rich quickly, including celebrities, lottery winners and sports stars, are less likely to keep money.
Easy come, easy go:
Even in business, those people who scale their business later in life, are more likely to be conservative than somebody who gets rich in their 30s or especially 20s.
A 55 year old who does well in business has likely faced many good and bad times.
In comparison, if you are 25 and doing well, you might think the good times will last forever.
I have ran out of the number of broke people in my network, who were previously doing very well.
Often they discount the possibility of black swan events like 9/11, Covid or any other events affecting their business.
Remember this quote:
It is human nature to think that the past will repeat itself. That is one reason why many successful people get arrogant and many struggling people lose their confidence.
In reality, over-performance seldom lasts. Every dog has its day.
People who understand that, and therefore hope for the best but plan for the worst, are less likely to lose all their money.
Bezos has a chance as most of his wealth is linked to the Amazon stock.
Amazon’s stock has skyrocketed in the last 10 years:
And therefore, so has Bezos’ paper wealth:
It has since gone higher in the subsequent few years, taking his total wealth to about 160 billion.
If Amazon continues to do this well, Bezos could theoretically reach the milestone in 2026 as this article explains – Jeff Bezos could be world’s first trillionaire by 2026. Ambani, Jack Ma to follow – World’s first trillionaire?
Here are some things to remember though:
- Paper wealth isn’t the same thing as income. So it is misleading to say such and such a person has more money than some countries GDP.
- Historically, these things don’t last. In the 1980s, many Japanese millionaires and billionaires were on the Forbes list. Many of those people are now worth much less as the Japanese economy stumbled. Likewise, even if Bezos reaches this milestone, it is likely that one day a firm will dent Amazon’s ascent, or the regulators will
- A loss and a decline isn’t the same thing. Likewise a gain and increases isn’t the same thing. So headlines like “Bezos losses 12 billion today” or “Bezos has made 40 billion this year” isn’t accurate. A more accurate picture is his paper wealth is fluctuating.
- Historically, there have been richer people. Even just over 100 years ago, some of the industrialists were worth more than Bezos and Gates.
- So ignore the media narratives on this. When somebody does reach this threshold there will be a lot of hysteria. Most of the people banging on about “wealth inequality” are using statistics in a misleading way.
Not only can you, but you are odds on favourite to do so, if you invest productively.
The key things are starting early, investing in the overall index and not individual firms and not panicking when markets go down.
These figures show how little you need to invest if you start early or relatively early:
Countless millionaires that leave $2m, $5m or even $10m fortunes often just bought and held for decades like this secretary in NYC – 96-Year-Old Secretary Quietly Amasses Fortune, Then Donates $8.2 Million
She isn’t an exception either. I personally know several “millionaire next door types” that have middle-incomes but have become rich slowly,
By the same token, it is a huge mistake to assume that investing is a get rich quick scheme.
It simply isn’t. You will have good and bad years, and even the occasional “lost decade” if you invest.
You will have to face countless moments like this:
Market crashes. The Stock Market has crashed 40%-50% on countless occasions, even though the Dow Jones has gone from 60 in 1900 to 2,000 in the early 90s to 26,000–29,000 this year.
If you are long-term orientated, that doesn’t matter though. The markets are like a rollercoaster where the general trend is up sharply, but with many bumps along the way.
If you are a long-term investor you will have to face numerous events like 2008 and March 2020.
There is nothing anybody can do about that apart from:
- Taking advantage of any falls by rebalancing from bonds, which usually rise, to stocks which have fallen + adding more money if you have some available
- Being very long-term to lower risks as per the graph below:
3. Not investing at all or trying to time the best time to get into the market! But that makes no sense because it really never works long-term. Now sure, you might get one or two times right, but it is unlikely you will long-term.
4. Ignoring the news cycle. Remember everybody who panicked in March when they thought markets wouldn’t recover, or in 2016 due to Trump, 9/11 and so on? The news media will always run with different events.
One of the key reasons before number 3 is that there is little or no correlations between virus, earnings and the economy and markets.
Markets have risen during recessions, wars, trade wars, pandemics including 1918–1920 and fallen during similar events.
If it was so easy to just time markets based on the earnings season, then everybody could time markets by looking at earnings.
And remember a final thing. If markets do fall, that is cause for celebration for most people, if you aren’t a retiree or near retirement.
In other words, if you are a net buyer of units you should rationally want markets to fall or stay stagnant for a decade or more.
If you are a net seller (a retiree or maybe within 5 years of retirement) you should want markets to just go up, although you should be 40% in bonds by that point anyway.
But most people panic if they see their $500,000 account go to $350,000. In reality, if you keep investing and stay calm, it is cause for celebration.
If somebody held up a sign saying “ice creams are half price today” there would be a line of people waiting.
Few do the same for the markets despite the advantage of buying at cheaper prices.
Markets will fall regularly, but they have always came back and eventually hit record highs in the case of most major markets.
So the bottom line is nobody knows what will happen to markets in the next 6 months but you should rationally want markets to fall if you are a long-term investor, but that doesn’t mean trying to time them.
The chances of the market falling short-term are almost always unknown. Much more unknown than the chances of markets being down 30 years later, which is always slim.
I don’t know your personal circumstances. What I can say is that the main reason for this for most people is:
- Your salary is too low so even if you are frugal, you struggle to save
- More likely than not, your salary has gone up since you were 20 or 25, but your expenses have risen above inflation “lifestyle inflation”
3. Peer pressure which is related to lifestyle inflation
4. For some people bad luck can influence their financial circumstances
The easiest ways to give yourself a fighting chance is:
- Invest one day after pay day. So spend what is left over after saving and investing rather than investing or saving what is left over after spending. Many studies have shown you can invest 200%-300% more with this one simple trick
- Use cash more. Because it feels more painful to hand over than hand, people spend up to 5% less without even trying to budget
- Budget. Write down every expense for 1–2 months and you might be shocked about where it all goes.
- Don’t give in to peer pressure and especially become more sceptical about marketing and branding which encourages you to keep up with the Jones’
- Most people have spent less during lockdown but don’t feel any less happy due to this fact. So it should become easier to make it permanent.
- Have specifically goals in mind before investing or saving for motivational purposes.
Another thing is to invest money rather than simple
We are always told there is no such thing as a free lunch by people throughout life:
That usually true but in investing there is one big exception; if you leverage time. There are two reasons for this.
Firstly, compounding. Imagine you have two 18 year olds. They both have part time jobs. So they can both afford to invest $4, $5 or $6 a day. It’s a coffee a day.
Steve invests $5 a day from 18 until 26 and then does $16 a day from 26 until 56. Stuart, in comparison, doesn’t invest until 35, but is aggressive once he does. He invests $1,300 a month from 35 until 56.
So Steve has invested $14,400 for 8 years until 26 and then $172,800 until 56. So in total he has invested $172,800. Stuart has invested $327,000. So more than double what Steve has invested.
Now let’s say they both get the same returns. For arguments sake let’s say they get 8%, which is 1%-2% below what the historically market performance for the US Markets has been (more on that below).
The results are Steve has $912,783 and Stuart has $849,525. So Steve has more, for investing less and indeed moderately.
He can afford to do more things, including the pursuits of hobbies, and still have more than Stuart.
Second, risk related to return. The idea that “the higher the return means the risk is higher” is true if you are investing for 2, 5 or maybe even 10 years.
If you are investing for decades, it isn’t true to say that higher returning assets like the US Stock Market are riskier than low volatility assets like bonds.
Stock markets in the US and UK (FTSE all Stars) and many other markets have never been down over a 30, 40 or 50 year period:
So you can invest with less risk, and get higher returns, by leveraging time. If you invest at 18, 20 or 25 and markets are down for 10 years, that is an opportunity. It isn’t as much of an opportunity at 65.
So the best time to invest was yesterday as we will never be younger than we are now.