Top Quora answers for the week – Part 1

The following article will list some of my Quora answers for the week.

What are the money lessons you learned in your 20s?

The main ones I learned are:

  1. It doesn’t matter how much you are making at 21, 22 or even 25. What matters is how you are set up by 29–30. Those that peek too early and only focus on short-term income, sometimes struggle later on.
  2. Linked to the last point, there are no free lunches. So those that take the harder decisions early on, when they are young enough to take risks, are more likely to benefit by 30 if they are persistent. Some of the people making the most money in their 30s took some hard decisions in their 20s and did uncomfortable things like starting their own business or getting a commission-only job.
  3. How much you earn isn’t as important as how much you can save and invest. If all your salary is going on taxes and showing off to others, it doesn’t really matter how much you are earning
  4. It is always best to invest now. The best time to invest was yesterday. The second best time is today. There will always be excuses not to invest but as nobody can time markets and they go up long-term, investing early and not caring about the volatility makes sense
  5. Getting a job, getting good at it and then learning how to scale your income is a tried and tested formula. Many people try to start their own business too soon. It is good to take risks as per number 2, but getting a few years experience first makes sense.
  6. Ideas aren’t important, everybody has those. Execution is what counts.
  7. If you read even more after leaving university, you will be rewarded if you implement the ideas
  8. Persistent is more important than patience
  9. Everybody can get wealthy slowly on a middle-income and everybody can get broke on a high-income if their spending habits are bad enough.
  10. Every dog has its day. Over-performance often doesn’t last in business or investing
  11. Always adapt to a changing world. Look at the last 10 years. In business, increasingly people are doing things online. In 2029 we don’t know what the world will be like, but change is surely coming as it always has in the past.
  12. It makes sense to change your residency for tax reasons if you are young enough to do so, and open-minded enough to live overseas
  13. You will learn more in 1 year overseas about money and life as you probably will in 3 years back home, because you are forced to get out of your comfort zone.
  14. Most people are more afraid of losses than motivated by gains even when they are young and have little to lose.
  15. The media mostly exists to sensationalise and scare people about all kinds of subjects, including money. Best to switch it off.
  16. Everybody needs to not blame other people, including the economy, parents and others, for their own situation. Those that succeed are likely to take personal responsibility for their own actions
  17. The numbers game is important. No matter how good your ideas, if you only implement 1 idea a year, you will likely be less successful than the person who implants 1 new idea a good, and has a very low success rate.
  18. Time is the most important resource. If you use time well, money will flow. You can leverage time by investing (compound interest), other people’s time and so on
  19. Emerging market stocks aren’t always going to outperform developed markets.
  20. Most people are confused about money so best to educate yourself or speak to somebody who has rather than relying on well meaning friends and family for advice

What screams “I’m way richer than I look”?

It depends on the society because in many new rich developing countries, the values of the wealthy are different to in some old rich societies.

Moreover, rich and wealthy aren’t always the same thing. Some wealthy people have middle-incomes, whilst some high-income people who broke as they have spent as they go along.

Assuming you mean wealthy and not just rich, some of the biggest commonalities you elude to in your question are:

  1. If somebody has quietly retired or semi-retired at a young age
  2. A person never boasts about money or buys luxury to show off, yet always doesn’t seem to be broke and may occasionally treat themselves.
  3. There is a focus on quality rather than brand
  4. An inverse snobbery to very crude displays of wealth. That is partially linked to number 3. In other words, buying clothes from an independent store as opposed to Gucci.
  5. They clearly focus on investing, and how much money can earn, as opposed to how much money can buy (spending)
  6. Are relatively humble
  7. More likely to be middle aged or older. There are many “get rich slow” middle-aged people who never earned that much but used time to compound.
  8. They read a lot.
  9. Believe it or not, people who are wealthier are more likely to be trusting than those with nothing, but that doesn’t mean naive.
  10. Linked to point 9, wealthier people are more likely to have a middle-ground between being very conservative with money and untrusting and doing silly things like get rich quick schemes.
  11. They aren’t divorced! Even somebody who is careful with money, earns a lot and invests well, might have been affected by multiple divorces.
  12. Increasingly people who aren’t living in the flashier areas. It isn’t easy even on a super high income to get very wealthy if rents are $100,000 a year. There are plenty of broke bankers and lawyers for this very reason in some of the most expensive cities in the world.

These are broad generalizations though. It is almost impossible to tell how much a person is worth unless everything, including financial data, is public, like is the case with people who own public listed companies.

That’s one reason so many people Google about the net worths of certain celebrities.

Compared to income, where you can definitely say that certain jobs are paid better, it isn’t easy to know how wealthy somebody is.

How can I be rich in 1,000 days?

You can if you inherit a lot of money or marry into wealth. Otherwise, it is unlikely you will get rich in just 1,000 days (3 years).

What can happen, and I have seen this occur so many times, is with persistence and after many failures, people suddenly “take off” in a 1–3 year period.

Almost like a young sports stars that struggles and then suddenly “comes good”.

This quote sums that up though:

Messi also offers similar sentiments here:

Even with less extreme success stories, often people can come up quickly, or indeed fall quickly, due to this:

So most people that seemingly become successful quickly, over a 1–3 year period, have put in prior work and readings to help them turn their life around quickly.

The best thing is to play the long game. You can do this by:

  • Reading a lot
  • Implementing even more than reading
  • Being very persistent
  • Focusing on how you can scale and leverage time and other assets
  • Investing for the long-term
  • Spending less time with toxic people and more time with successful ones.

If you do these things, you may or may not be ultra-successful over a 3-year period.

You have a great chance of doing it over 10–20 years though.

As a 17-year-old, how can I start investing in the stock market?

Well, literally speaking, it is very easy to start investing, even if you need to wait until you are 18 in some cases.

You usually only need to prove who you are (proof of ID and address), fund the account and start investing.

The only time when this process is difficult is if you happen to live in a country like Iran, Iraq or another sanctioned country, as most financial institutions don’t want the risk, including anti-money laundering risks.

It also makes sense to invest as young as possible. Time is one of the few free rides in investing.

The younger you invest means you can make more, for investing less, by leveraging time.

This graph tels an important story:

The more important question is how can you start investing productively.

The most tried and tested ways are:

  • Read a lot and educate yourself or find somebody who has done this reading to help you invest.
  • Learn about the general pattern of markets, why nobody can time them and why people fail in investing, including panicking during downturns like 2008
  • Be diversified but not overly diversified. Be in stocks and bonds forever, but increase your bond allocation as you age.
  • Invest with a buy and hold, or a buy, hold and rebalance strategy.Don’t trade.
  • Celebrate any market falls but don’t wait in cash for them.
  • Avoid letting your emotional bias affect how much you invest and where. The graph below shows some of the bias investors face:

So focus as much on emotional control as knowledge. In the same way there are many fat doctors in the world, there are some financial pros that have knowledge, but still struggle.

What are the risks involved in investing in bonds?

It depends which kinds of bonds. Ultimately, a guarantee is only as good as the person giving that guarantee.

So an guarantee from the US Government, is seen as more trustworthy than from a government that has had hyperinflation in recent times.

Likewise, Coca Cola doesn’t need to pay as much to investors for corporate bonds as some smaller firm.

So the main risk is institutional with corporate bonds, and political with emerging market government bonds.

Apart from that you have:

  • Inflation risk. Right now, some US bonds are only paying 1%-2%. That is fine with inflation so low but not if inflation rises
  • Interest rate risk: If interest rates spike, this can affect bonds.
  • Currency risk: this is more of a risk if you invest in bonds which are in a different currency to the one you are earning in. So let’s say you are earning in pounds and invest in US Treasury bonds, you will lose if the Pound increases by 10% in the next 1–2 years against the Dollar.

Another key point is this. Being 100% in bonds is much riskier than being 10% or 50% in bonds.

People don’t buy bonds for their yields. Most people know that stocks have always beaten bonds long-term despite the higher volatility.

The major advantage of bonds is they go up during the bad times for stocks.

Or at least some types of government bonds, like short-term bonds which are less risky than longer-term government bonds, are more likely to.

This gives you a chance to rebalance during moments like March, when stocks were crashing, but bonds were rising.

As a result of this, you can take advantage of market crashes, without having loads in cash, which pays even less than bonds do.

So often having 0% bonds in your portfolio, is a much bigger risk, unless you are very young.

Most people wondered what the point of bonds was after their weak performance relative to stocks since 2008.

This year has given bonds some respect again as a rebalancing tool.

Is it possible to break free from living from paycheck to paycheck? How did you break free?

It is but it takes time because the most effective techniques can take years, or 10 years+ in some cases, to fully monetise.

That is unless you get a big unexpected inheritance and invest it well, but most people can’t rely on that.

The best things to do are:

  • Don’t spend your entire pay cheque. Get into the investing habit even if you start small. The best way to do this is invest automatically one day after you are paid so it becomes a habit. In the same way that saying the mortgage is a habit for most people, make investing the path of least resistance.
  • Write down all your spending using an app like Mint or on paper. You will easily be able to cut 10% off even if you think that is impossible.
  • Read a lot and spend more time with people who are successful. It will start rubbing off.
  • Focus on how you can scale. If you work for money, that is fine, but you can’t scale that. Simple example. If you are a yoga teacher or online chemistry teacher charging $25 an hour, you can’t physically do 25 hourly classes in a day. In comparison, if you do online courses for $10, there is no limit to how much you can earn. Of course, the next question is, how can you get those people to pay. Well that is where reading and other things mentioned above helps
  • Be very persistent. Ideas don’t just monetise by themselves. They can take a lot of time.
  • Play the numbers game. You might need to be persistent with many ideas to make it work
  • Once you start earning more, don’t just spend more, often known as lifestyle inflation. If you do that, you are back to square one.
  • Be patient with investing. Even if you don’t succeed with scaling your income, you can get rich slowly from investing, but it takes a lot of time.

If you can scale your income, watch your spending habits and put money to work via business and personal investing, you are onto a winner.

It just takes time which is why many people start out part-time whilst having another job – often a full-time one.

Most people give up too quickly or aren’t prepared to put in the work.

What stock is the next Amazon?

Seriously, if somebody knew that, they would be busy keeping their ideas to themselves, and not commenting online about it.

Consider this:

  1. All the information is available to the public. You don’t have secret information. If you do, you are engaging in insider trading, which is illegal
  2. Stock pickers beat the S&P500 on 20% over a 5 year period, and more over 1 year periods. They only win on 2%-5% of occasions over a 40–50 year investing career.
  3. Based on number 2, many people do, however, get lucky and beat the market short-term.
  4. Most of the people who beat the market get complacent and even arrogant. I have lost count of the number of people who have told me that they bought Apple or Facebook, made a lot, and then lost it
  5. A good example of point 4 is on one episode of Dragons Den, the UK’s version of Shark Tank. Somebody came on the show who had invested in Facebook early on. He then lost a lot of the money, hence why he needed to seek finances from the Dragons.

So the point is, even if you find the next Amazon, it is highly likely that you will subsequent see your ego get bigger, and pride makes a fall more likely as the old saying goes.

So I would focus on doing this.

Either:

  1. Buy the indexes, including a bond index, and hold+rebalance
  2. Do number 1 but add 10% for individual stocks. Try to find the next Amazon and you will see how difficult it is over a 20–30 year period.

And let’s not forget another two things…..time and risk. Trying to find the next Amazon requires research, which is getting harder as more computers are joining the investing world.

Then there is risk. Of course an individual share is riskier than holding the market. So even if you win, you have got to beat the market by a huge margin, to make it worthwhile.

One of the few guys I know that has beaten the S&P500 over a 30 year period has now given up. The reason?

He has beaten it by about 0.1% per year adjusted for costs and sometimes taxes of selling!

Not a good return given the worry, time and energy he has spent on it, and given that he would have gotten wealthy slowly from doing something very passive.

Has your happiness gone up as your salary has gone up?

Yes and no. Many people are on the extremes of this argument. Namely, most people either assume that money and happiness aren’t connected at all, or that there is a very clear connection.

The reality seems to be in the middle. Researchers that have done research on this have found that:

  1. On the lower end, it makes a huge difference to have more. Let’s face it, going from poor to comfortable can make a huge difference. Having to worry about money all the time isn’t good for people’s mental health.
  2. Above a comfortable existence it gets harder. If you are earning $75,000, unless you live in a super expensive place like London or NYC, you probably won’t be much happier earning $250,000. If you are a bit happier at $250,000 from $75,000, it is unlikely earning 10x more ($2.5m) will make much of a difference. It can make a difference but it depends on your choices. If you choice to use the money on experiences, economic security (investing the money rather than just spending it) and helping others, it can make a difference. More things doesn’t make a difference if you are already doing well.
  3. The reason why spending on experiences has a bigger impact than spending is we have less time to adjust to them. If you go on holiday for a week, by day 7, you still haven’t gotten used to it. If you go horse riding with your kids for the first time ever, it is a one-off and new event unless you make it regular. In comparison, if you upgrade your house or car, you get a quick boast to your happiness. It then gets normal and you don’t feel any happier.
  4. As per the Hierarchy of Needs, material needs aren’t unimportant. In fact, they are very important if you don’t have the basics like good shelter, food etc. They are at the bottom of the needs table.

6. The biggest reason why people who have more money aren’t always happier, is they make this mistake below. They just spend more money, so aren’t getting wealthier despite more income. This leads to a “golden handcuffs” situation. Simple example. A high flyer who is earning 100k as a corporate lawyer or banking in his or her 20s, is now a director 10 years later. The house is upgraded. So is the car. It gets hard to walk away from that kind of money even if you hate the job.

7. Every dog has its day. So many people who briefly see their income skyrocket, don’t keep that over-performance. Examples are aplenty in business and sports. Most sports stars earn a lot for a relatively short period of time. Same with some internet influencers and a percentage of private business people. So more money can cause more problems if you don’t make the right decisions in the good times.

So those people that have more money, that focus on experiences over things and wealth (security) over mere income increases and consumption, are more likely to be happier.

Why is it reported that if Joe Biden wins, the stock market will crash?

Well it is silly. People were making the same predictions in 2016. Most people thought that if Trump won, the markets would tank.

Some were even talking about a Lehman moment for stock markets. What happened?

Markets fell for a few hours after it became clear Trump would win, and then rallied, and that rally carried on for years:

Many of his supporters claimed that he should take credit for that, but that is also quite silly.

Markets were on an upward trend after being very undervalued in 2009, and historically markets are usually up over a 4–8 year period. So why shouldn’t they have been up under either Trump or Clinton?

When markets have underperformed, it hasn’t usually been the presidents fault. Look at George Bush.

After the huge rise in the 1990s, stocks were very highly priced in 2000. So whoever won, there was always a chance of a lost decade for stocks:

So whoever wins, it won’t automatically affect markets over a 4 year period. Markets also don’t act rationally. They can panic for no reason whatsoever.

It would be a mistake for any investor to try to trade the US election result.

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