TOP QUORA ANSWERS FOR THE WEEK – PART 2

In this article, I will list some of my Quora answers for this week. If you want to contact me you can use the WhatsApp QR code or email me – advice@adamfayed.com

What is the best investment I can make with 1,000 USD that yields at least 10% per year? Is there any?

There are two things here. Firstly, even though cash isn’t an investment, having some emergency money isn’t a bad idea.

So if $1,000 is the only money you have, then I would keep it in your bank.

If you have an emergency fund and have extra money, it does make sense to invest, especially if you can invest monthly.

Even small amounts of money can compound as the chart below shows:

Second, in terms of returns, it is possible to get 10% per year, but not 10% every year.

Take some of the most successful indexes. The Dow Jones and S&P500 have yielded about 10%, and 6.5% after inflation, over the long-term.

The Nasdaq has done better but is less diversified and has more risks in some ways.

However, that number is a broad average, and assumes you reinvest dividends.

So as an example, if you would have invested in the Nasdaq in 1990, 30 years ago, you would have made over 10%.

The Nasdaq was at about 450 in 1990, depending on which day you pick.

10% returns would be 8,218. The Nasdaq is now sitting at 10,500, which means it has done about 11% in the last 30 years, and then there is dividends.

However, it had a great period in the 1990s and after 2009. It had an awful period from 1999, taking ages to recover.

It took the Nasdaq 14 years to recover from its 4,500 height in 1999.

Likewise, the Dow Jones and S&P500 have had many 5 and 10 year periods of stagnation.

From 1960 until 1990, the major US markets did about 10%, but had 17 years of stagnation from 65–82.

So if you want to get 10% returns compounded, the “easiest” way is to invest for decades.

This way you will have periods where you will get over 10%, and some negative periods.

It is emotionally difficult though compared to having a less volatile portfolio of stocks and bonds, which will produce a bit less but be less of a rollercoaster.

Anything significantly above 10% (if it is every year) is usually just gambling and based on speculation.

The only exception is if you have a private business and find a way to have a good system which produces consistent returns.

That is like comparing apples and pears though because private businesses have more risks and most fail.

Ask all those business owners that suffered during lockdown. I know many who “didn’t want to invest privately as I can make 20% per year in my private business and have done that for 20 years”, only to fail during such an extreme event.

Would the buy and hold strategy work with Robinhood?

It works with any investment platform. People over-analyse this. A platform is just like an umbrella to hold investments:

It’s a holding structure. Within that structure, you can pick different investments and decide how long to hold those investments.

That’s the key. There are some people making a lot of money, and others losing money, on the exact same investment platform.

Look at Vanguard and BlackRock. The two biggest fund managers.

According to Vanguard’s own research, and those of its founder Jack Bogle, there is a huge difference in performance between different investors.

The key things are:

  1. To buy and hold as you say but make sure you are diversified enough. Buying and holding a niche index, say the Peru or Chile index, or buying a small selection of individual shares, is much riskier than being more diversified
  2. Buying and hold for as long as you can. This reduces risks
  3. Buying, holding and rebalancing. If you are diversified as per number 1, you can take advantage of any market falls by rebalancing from government bonds that tend to go up during crisis
  4. Not panicking during market falls
  5. Not getting too excited during the rises for the investments
  6. Adding more money as well. Many investors that don’t panic during crashes nevertheless often put in more cash during the “good times”, and then stop adding more money when they are worried due to an upcoming election or something they have read in the media.

The one caveat I would make is that as a broad generalisation, it is better for non-Americans to avoid US brokers and platforms.

There is always a small chance that US withholding and death taxes will apply despite the W8-Ben form protecting you in theory.

In what ways will the coronavirus help people get rich?

Every crisis provides both a threat and an opportunity for people, businesses and even governments.

People are conservative by nature and often don’t like to change.

When they are forced to change, or adapt gradually, they often like what they see and don’t want to go back.

I went back to visit the UK relatively recently, and I saw people enjoying drinking on the street:

It wasn’t acceptable before the crisis, and in general, only alcoholics or people in designated areas would drink on the street.

The lockdown has changed that, and now many people are asking why it wasn’t possible to do this beforehand.

Same with business. We were already moving to a digital world before the crisis.

Now people are using zoom and other electronic communication :

The same thing in investing. Many people panicked in March during the days when many stock markets were falling by 10% in a single day:

The sensible people did what we should always do when these things come along. Keep buying and holding onto it.

Whenever any crisis comes along, you can react in two ways. Fear/panic or see it as an opportunity.

An opportunity to adapt yourself to changing consumer preferences, to invest more if you can afford to do so and look at weaknesses in your business model.

I saw the same thing during my time living in China. Manufacturers who adapted and moved their operations.

Many told stories about competitors that didn’t adapt and died in some cases.

So it will only help those that have adapted, rather than those simply waiting for things to get back to normal.

Even once growth is back and strong, the consumer isn’t just going to go back to all their old habits.

What are the key financial secrets/steps to take as a young person?

Here are 15 steps you can take:

  1. Get rid of any big commercial debts if you can. I am not speaking about some student loans which are more like a graduate tax in some countries. I am speaking about those credit card debts that often cost up to 20% per year to service.
  2. Get an income and work on that primary source of income. If you get a job, get good at it and work on your core skills, it gives you a chance to start your own business as well.
  3. Live below your means and don’t just keep increasing how much you spend as you earn more
  4. Start investing productively at a young age. Automate the process. The best way to do this is to invest 1 day after you are paid rather than waiting until the end of the month to invest.
  5. Make university the start of the learning process. If you can learn even more in your 20s and 30s than you did in your teens, it is a great investment.
  6. Get hid of toxic people and spend more time with those that add value
  7. Eventually find a way to leverage and scale. There is nothing wrong with selling your time for money in your early 20s. However, if you can find a way to make money when you are sleeping some day, it gives you a great advantage.
  8. Always adapt to the world. What works in 2020 didn’t work in 2015. Look at coronavirus and lockdown. Likewise, what works now might not work in 2025. That is why reading is important as well.
  9. Focus on execution and not ideas
  10. Focus on your income, spending habits and investment returns and not just one side of the equation.
  11. Be open-minded to the world around us. There is a big world out there. The world doesn’t resolve around our own countries, cultures or industries. Be prepared to think big and outside the box
  12. Don’t care about what other people think about you. They aren’t thinking about you anyway and it takes time to learn that. Most people haven’t worked that out in their 20s
  13. Put yourself out there. People won’t just known on your door offering you opportunities.
  14. Take some calculated risks
  15. Focus. It is probably the number one reason for success if applied with persistence.

What’s the smartest, generally fail-proof advice for building wealth? What would be the general prescription for anyone to become wealthy?

There is no 100% fail-proof way. We can’t say just because something has always worked in the past, that it will do in the future.

Look at savings accounts. For decades they paid above inflation even if they didn’t beat other investments. 2008 changed all that.

Same thing in business. For decades some businesses made a lot from cold calling and door to door sales and then in the last 10 years struggled with that approach.

So the first thing to say is always be willing to adapt and change your course.

Apart from that I would say:

  1. Start investing early so you can compound
  2. Focus on your income by learning more, adapting, leveraging and scaling.
  3. Watch your spending habits. If you do number 2 correctly, you won’t build wealth if you just spend it all
  4. Focus on the long-term. If you invest even small amounts early on (number 1), improve your income (2) and watch your spending habits (3), that is great. But it is better if you can do that for 30 years and not 3!
  5. Look for some easy wins. Simple example. Let’s say you start your own business and you can earn from anywhere in the world. Changing your residency can save you a fortune on taxes and costs of living
  6. Number 5 is an example of the 80/20 and 64/4 rules. What is less known is 1/50. 1% of your actions can lead to 50% of your results. For example, calling your biggest client in business, could result in a big pay off for not much effort. Likewise, as per number 5, changing your residency could take 1–2 days of work, but save you millions in taxes and cost of living if you move for 10–20 years. Simple example. Let’s say you are earning 200k. In many countries you would pay $80,000 tax on that. If you can adjust that lower, the benefits are huge and will compound.

7. Never try to impress other people. Boasting about your success to others, and spending a lot to impress them, isn’t rational unless you have some strategy. Rationally speaking, you shouldn’t want others to know that you are doing well. Especially competitors.

Also I don’t think “everybody” will ever be wealthy. What is possible though is for more people to reach that point.

In many societies there are countless “everyday millionaires” who have only ever had middle-incomes but built wealth.

f the stock market or real estate has a great chance of making people so rich as they say around, why do most people who even know that don’t invest in it?

People that know that invest. In popular culture though, most people are surprised to know some basic facts like how much markets have gone up historically and how they have beaten even real estate in the long-term.

Most people assume the markets are dangerous, and make no distinction between holding individual stocks and the whole market/index.

There are some people, however, that know about the historical returns of the markets, but are still not eager to invest.

The main reasons are:

  1. They either don’t have any money or aren’t willing to make it a priority.
  2. They are young and assume that they will always have time even though investing at a young age makes sense.
  3. They think they are “losing out on something” if they don’t live everyday like it is their last, and then often regret it later on.
  4. They like the trill of gambling into new investment opportunities which are more akin to gambling
  5. They can’t hack market volatility. So they panic during moments like 2008 and easier this year. This is especially likely to be those that watch a lot of sensationalist stuff in the media.

As an aside though, in many developed countries at least, over 50% of people now invest directly and more indirectly.

So I think most people eventually see the benefits of investing and not working until we drop.

Very few people though invest from a young age until retirement.

You hear so many people “pledging” that they will tell their kids to start investing at a young age to learn from their mistake for this very reason.

What should I do with a $140,000 inheritance to make it grow?

It depends on many things including:

  • Where you live to decrease currency risks
  • How old you are
  • What you want to do with it. You seemed to have answered this question with the word grow. Some people, in comparison, want to take an income from it

I would keep to model portfolios like this. Stay diversified and long-term:

Model portfolios for American citizens and expats under 40

60% US Stock Markets,

20% International stock markets,

10% Emerging stock markets

10% US short-term government bonds

Model portfolios for American citizens and expats over 40 –

50% US Stock Markets,

20% International stock markets,

5% Emerging stock markets

25% US government bonds

Model portfolios for American citizens and expats over 55 or close to retirement –

50% US Stock Markets,

20% International stock markets,

30% US government bonds

Model portfolios for British citizens and expats under 40 –

40% UK FTSE All Shares

40% International stock markets,

10% Emerging stock markets

10% Global government bonds index

Model portfolios for British citizens and expats over 40 –

35% UK FTSE All Shares

35% International stock markets,

5% Emerging stock markets

25% Global government bonds index

Model portfolios for British citizens and expats over 55 or close to retirement –

35% UK FTSE All Shares

35% International stock markets,

30% Global government bonds index

Model portfolios for European citizens and expats under 40

40% Euro Shares

40% International stock markets,

10% Emerging stock markets

10% Global government bonds index

Model portfolios for European citizens and expats over 40 –

35% European All Shares

35% International stock markets,

5% Emerging stock markets

25% Global government bonds index

Model portfolios for European citizens and expats over 55 or close to retirement –

35% European All Shares

35% International stock markets,

30% Global government bonds index

You can follow a similar pattern depending on where you are living, your age and investment time horizons.

Is it a bad idea to sell stocks during a crisis?

Almost always. It doesn’t make sense to sell something when the price is going down.

However, selling stocks isn’t always a good idea in of itself, as individual stocks and the indexes are different.

So it depends on the reasons. There are bad and good reasons for selling stocks – especially individual ones.

First the good reasons

  1. Selling out of individual stocks you have bought for the wrong reasons can make sense. Many people buy individual stocks due to emotions. Research has shown people are more likely to buy stocks that they are more familiar with. For example, buying the stock of the company you work for because you think you know about the business and therefore doubling your risk if you lose your job.
  2. If you have had a good run, you decide to sell, and buy something which is safer like the overall index.
  3. If you are rebalancing. If your stocks have had a good run relative to government bonds, or vice versa, selling a percentage (rebalancing) makes sense to reduce risks. Look at recent years. Rebalancing at the year of 2019/early 2020 when stocks had a good run, and then rebalancing towards stocks after the big March crash, would have made sense.
  4. If your individual stocks are outperforming in a crisis. For example, Netflix did well during the crisis, and have had a great 5 years. Therefore, taking some risk of the table would have made sense in this case. The same thing with Tesla, Amazon and some others.
  5. If you have made an awful mistake. For example, cutting your losses on the banks in 2008 would have made sense rather than waiting for a rebound.

The bad reasons

  1. If you are panicking during a market crash or you are doing it for any emotional reason.
  2. If you are continually buying and selling stocks all the time rather than buying and holding
  3. If selling will mean a huge tax liability

So it all depends on the reasons and motivations behind the decision.

In general I would say selling individual stocks can make sense for the average investor.

Many investors buy individual stocks for the wrong reasons and would be better off in indexes.

A crisis is rarely the right time to put this right, however, unless the individual stocks you picked were worth it.

Selling the market (the index) during a crisis never makes sense as it will come back.

Further Reading

What are my most viewed Quora answers of all time? That is the topic of the article below:

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