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This article will list some of my top Quora answers this week which were asked by readers.

If you want me to answer any questions in the future, don’t hesitate to contact me.

Why do rich people bother running a business or investing in real estate when they can live passively off an index fund/stock market?

Source: Quora

Before answering your question, I have to say I like how you associate real estate with running your own business.

This is what many people don’t get. Real estate is like running your own business. It is considered so by many tax authorities, including HMRC in the UK.

This is because you have revenue coming in, including rent, and costs going out such as bills and maintenance.

There is a lot of complexity which goes along with real estate investing. That is why most people can’t beat a passive investment with real estate, but some professional real estate investors can.

The fact that making money from real estate and indeed a business is more of a challenge, is maybe one reason why some rich people prefer it.

Apart from that, reasons differ, depending on the person.

The main reasons I have seen are:

  1. Most wealthy people do invest in the markets but also have their own business or real estate, either for diversification or just for something to do. You see it all the time with retirees as well. Sometimes an AirBnb property gives them something to do. This diversification reason is one of the more rational reasons.
  2. Keeping active. Like number 1, this is also a rational reason. Some wealthy people just have lifestyle businesses.
  3. Even though richer people are much more likely to invest in the stock markets than even the upper-middle, a small minority have the misconception that stock markets are dangerous, even if you buy and hold. This is more likely to be the case in places where investing in markets is a relatively new phenomenon. In places like the US and UK, this isn’t common.
  4. Some wealthy people that previous panic sold during market downturns like 2008, realise that they don’t have the emotional stability to invest. So they either pick something which is less volatile but also goes up less, or outsource to an advisor
  5. Ego. If you make 10x-50x from buying and holding for decades, you can’t claim you are smart. Now sure, you can boast that you weren’t like most people and didn’t panic sold. But you can’t claim that you saw some great trend in business.
  6. Complacency. If somebody has made 20%-30% for 20 years in their business, they often assume they will beat passive investments forever. Then an unexpected event like lockdown happens, and they go bankrupt, and wonder what happens. I have seen countless cases like that. I especially have seen a lot of cases this year and during periods of geopolitical change like in Tunisia and Egypt in 2011. But too many people wait to diversify away from their business. Rationally, it is better to diversify when you aren’t desperate.
  7. Wanting to accomplish something beyond money. This could be charity or something else.

So what you are saying logically makes sense. Human nature, regardless of whether you are wealthy or not, is more emotional than rational though.

That’s the key point. It is rational to have the lions share of your wealth in something which has a 200+ year track record, is liquid, globally diversified etc. Doesn’t mean everybody will see it that way though.

I would say though that it makes sense to keep working if you love your business or day job.

Early retirement is great as an option, and if you hate your day job or business, but isn’t for everybody.

What is the number one rule to invest better than many other people?

Source: Quora

The key mistakes investors make are:

1. Being emotional. That could either mean buying stocks that they “like”, only investing in firms they are familiar with, or panic selling when markets are down.

2. Market timing. Trying to time when the best time to enter the market is. Sometimes this is linked to number 1, but not always. Some people don’t market time, but they put in less during the bad times (like March) and more during the good times.

3. Not investing for long enough. Many people have heard that investing early is good due to compounding. That is true. What is more important is staying invested for a long time, regardless of whether you start at 18, 25, 30 or 40. If you are 40, and you live until 90, you might still have 50 years left in the markets, even if you are in “drawdown mode” after 70. Having money in cash come 65–70 doesn’t make sense.

4. Failing to reinvest dividends – dividends makes a big difference to an investing portfolio.

5. Now focusing on how much you put in – how much you put in and for how long (point 3) is even more important than investment returns. If you invest $500 a month for 10 years, getting 15% in the process, you will get far less than somebody who has invested $2,000 a month for 40 years, or somebody who invests $400 for 40 years. That is true even if they only get 6%. This point shows that spending habits can indirectly be key to total investing returns, even if they don’t affect percentage investing returns.

6. Focusing on knowledge alone – intelligent and knowledgeable people can also make bad investors.

main qimg 87b6f175808a7d0c6888e4dd0974fefa

So my number one rule would be controlling your emotions long-term. Points 2–6 are also indirectly linked to that point.

That is key for:

  1. Setting up investment accounts. Half of life is showing up. Procrastinating about getting started isn’t a good start!
  2. Being wise whilst you are invested – not panicking during crashes and so on.
  3. Even how much you invest in the first place. People overspend, meaning they have less to invest in the first place, for emotional reasons like showing off to others, much more than the rational reasons that exist for spending more on some items. Some social media seems to only exist to give people the opportunity to show off items they have bought, to impress people they don’t know, like or care about!

Keeping to a long-term plan through thick and thin is more difficult than people think.

It is much more useful than just having loads of knowledge. Implementing knowledge is what counts, not knowledge itself.

Why should you stick to your job and never start a business?

Source: Quora

It depends on your character. The following people are better off as salaried employees:

  1. People who don’t like taking calculated risks, especially if they confuse volatility (income, investments etc) with risk. In reality, being a salaried employee isn’t always less risky than being a salaried worker, especially once you are established, but your income will be more volatile
  2. If you are happy with your job
  3. If you haven’t got experience in the domain you are trying to start the business in. Everybody knows that most start ups fail. What fewer people know is one of the biggest indication of business success is if you have experience in the domain. So if you have a job, have gotten good at it, and then start your own business, you have a much better chance
  4. You think you “need” loads of things to start a business, so millions in financing, a flash office etc
  5. You can’t manage cashflow, market, sell or do any other key business task, and assume you can outsource it all and therefore take loads of “passive income”. It is possible eventually in some industries, but not usually on day one.
  6. You assume that it is easy to make money in business.
  7. You have a negative view of making money. It is incredible how many anti-capitalist people, who want to take “the rich, suddenly want to start their own businesses!
  8. You are not a pragmatic person. Look at all the top business people. Look at people in your network that have succeeded in business. Plenty have morals but few are moralistic, which is quite different to having morals. The best businesspeople I know give the customer what he or she wants, and solve their problems, regardless of their own moral views on the subject. For example, I know a world class alcohol executive, who started off as a salesperson. He doesn’t like the taste of alcohol. I know others who don’t gamble or agree with gambling, but they sell gambling to customers as there is a demand from them. Too many people are preoccupied by their own passions, moral opinions and so on. They assume the world revolves around their outlook. It doesn’t. That’s why so many people fail following “their passion”. The consumer doesn’t care about your passions unless it is aligned with theirs!
  9. You can’t delay gratification. Sometimes you need to play the long game in business.
  10. You aren’t willing to work harder and smarter than if you are salaried employee.
  11. You can’t put production over perfection. There will never be a perfect time to start a business, release a new product or service etc. Sometimes you need to get something out there at 70%, and improve it, rather than waiting for 100%.
  12. You will just follow whatever everybody else is doing – following norms.

What is it that rich people don’t want the poor people or people below them to know about creating wealth?

Source: Quora

There are two things to point out here. Firstly, “the rich” aren’t a monolithic group that have uniform opinion.

Second, as a generalisation, wealthier people are more likely to have:

  1. A growth and abundance mindset. Part of that mindset is sharing information for free. Most wealthier people will share information with others more freely than people who think money is scarce. The tables below summarise the difference quite well:
main qimg 7787ce89152a0fa6f4b8827f70325767

2. No more knowledge than you

Knowing something isn’t as useful as doing something. Having an idea is useless unless it is executed.

So many wealthier people haven’t done anything “secret”. Often it is just about better execution.

For example, as the book below shows, the lions share of wealthy people are middle-income and middle-aged.

Why? Well many of them just invested from a young age, and have good spending habits.

By consistently having good habits (spending habits, investing habits etc) they have actually beaten some people who have high-incomes

main qimg 012f269db4aae45d11321b3703a1d520

Likewise, I can remember when I started in business after graduation. Most of the graduates wanted to hear from the top people about how they got to where they are.

When many of those people spoke about long nights cold calling or knocking on doors (in the 1970s, 1980s and 1990s) and more recently different techniques which are still a grind and painful, many of these youngsters were less motivated.

All of a sudden, they realised that getting to the top wasn’t all about having “secrets”.

Sometimes it is just about habits. Working hard, but also working smart, is something most people can do, unless they have a disability which prevents them from doing it.

Yet few people want to do it. Most prefer to be in their comfort zone. So perhaps one thing that most wealthy people don’t admit, is that almost anybody “can” get wealthy.

Being wealthy isn’t a sign of superior intelligence or knowledge, even though those things can help.

Often times, the ability to make the right choices, day in and day out, is one of the biggest indications of wealth.

One thing I have learned is this. If there is an “easy” way to make money, everybody will do it. If something is either technically or emotionally difficult, then less people will do it.

Many people assume “how hard is it, really, in reality to be an everyday millionaire. All you need to do is buy the indexes like the S&P500 for 40 years!?”.

That might be true but let’s face it, most people don’t have the self-control to invest for decades, refusing to panic sell during every crisis.

The same is true in business as well. I know several real estate agents and recruiters who make $400,000+ a year.

“All” they do is cold call everyday. Not technically difficult, but I doubt you know many people who could keep that up for 20 years.

What is the best asset to invest right now to gain returns for the following decade?

Source: Quora

The year was 2010. 10 years ago. “Everybody” was bullish on commodities, including the IMF.

Oil, gold, silver and other commodities, especially linked to food, were expected by most people to be a good bet.

The reason was that the global population was going up, the Fed just did QE in 2008–2009, and the world was recovering from a bad financial crisis.

Also expected to go up were emerging markets linked to the BRICS – Brazil, Russia, India, China and South Africa. The USD was weakening and expected to weaken further.

Does any of this sound familiar in 2020?

What has happened since then?

  • US Stock Markets have been a better investment than most emerging markets, with even some European markets doing better
  • The USD, Euro and even British Pound has beaten almost all emerging market economies
  • Commodities have fallen. In most cases they have fallen in both real and nominal terms. Gold, if you include it as a commodity, has been one of the better performers, but still hasn’t kept pace with inflation. The price of gold was 1900 in 2011, and it is about 1900 today. So about 20% down on its peak, with no dividends. During the same time the S&P500 has increased by about 300% and paid dividends, and the Nasdaq by about 500%.
  • The Chinese stock market has continued to perform poorly, despite predictions that GDP growth would result in higher stock market valuations.
  • Inflation hasn’t been high.
  • Economies like Ireland and Spain, which used to be part of the unfortunate PIGS acronym, have actually performed better than 2–3 of the BRICS economies.
  • Government bonds might not pay much, but they once again performed well during the worst of the March 2020 stock market rout.
  • Stocks have risen during periods of geopolitical crisis (coronavirus, lockdown, North Korea and China in 2018, a Government shutdown in 2019, Trump’s election in 2016, Brexit etc) but also fallen during periods of calm.

So what am i getting at here?

  1. Nobody can foresee the future. I could have picked 2000, 1990 or 1980 to show how the majority consensus was wrong.
  2. It is better to invest in assets which stand a good chance to grow over 10, 20 or 30 years. Gold isn’t really an investment at all. It pays no dividends. It isn’t based on technological innovation. So the price of gold stays stagnant over long periods of time. Markets, on the other hand, have ran rings around gold long-term. Now sure, gold has its excellent periods, such as 2000–2008. But nobody can know which periods will be like that.
main qimg 3acd02338c55d7c02a2e88e8b054f221

So the safest thing to do is invest in stocks and bonds, every month, for 10 years. Ideally 20, 30 + years. Buy the entire market (index).

If you are younger, 80%-90% in stocks is fine. If you are older, 50%-70% in stocks is better.

That why, regardless of what happens in the markets, you stand a good chance of being up over 10 years.

A typical example would have been the “lost decade” for US Stocks during 2000–2010.

Between 2000–2010, US stocks, even if dividends were reinvested, produced pretty much 0%. But bonds purchased more.

From 2010–2020, bonds produced only about 2%-3% per year, depending on which bonds you picked. Stock markets in the US did about 13% per year.

So even during a rough decade, you can be up through sensible diversification.

What could I buy for $1,500 dollars that’ll benefit me in the future?

Source: Quora

The simple answer is anything which will return you much more than $1,500, even adjusted for things like time.

Examples include:

  1. Reading. Buying a lot of books and then implementing.
  2. Learning a new skill. For example, language lessons if it is beneficial in your industry.
  3. Investments. Self-explanatory
  4. A good bed. Or anything that could help your productivity. Other examples include good lighting, a comfortable work chair etc. This will indirectly buy you more productive time.
  5. Good quality cameras. If it can save you money working remotely.
  6. Sometimes networking. Now be careful with this one. In reality 95%-99% of networking is useless, with 1%-5% being incredibly useful. So a very small, select few, networking events or opportunities
  7. Anything that will make you money in business. Examples include ads that pay for themselves.
  8. Extra spending on rent if it buys you more time, allows you to work at home, or can cut the commuting cost. An extra $1,500 in rent per year can pay for itself if you remove commuting costs.
  9. Any equipment that will save you a lot of money. A great example is a coffee machine. Doesn’t need to be flash. Could save you a lot of cash. Buy 100 different things like that in your life and you will save a lot
  10. Time. If you buy time, in certain situations, will more than pay for itself
  11. Unbranded goods. Often you just pay “the luxury premium” with brands. Not always, but it is the case more often than not.
  12. Opportunities. If you are currently selling your time for money (a salary) and know you can earn more long-term from starting your own thing, it doesn’t matter if you need to spend $1,500 a month in the short-term to support yourself.

So the commonalities are knowledge, opportunities and investments (time, financial and otherwise).

What is the best way to invest into stocks? And how can I do it?

Source: Quora

Let’s start with the how, because that is the easier part of the equation. To invest in stocks, you just need to:

  1. Open up a do it yourself (DIY) account online or use an advisor if you need advice
  2. Usually you need to supply your proof of address, ID, tax number and other information.
  3. Fund the account

The only time this process is difficult is if you live in a country which is sanctioned, and most providers will refuse to accept for.

In terms of the how, there are some basic principles you need to follow. Firstly, it is best to invest every month, regardless of the economic conditions.

When you start to try to be too cute, and time the market, this is where you get into problems.

It partly explains these results:

main qimg baad42414413b683baf0c821c1d38660

I have ran out of the number of investors who stopped investing fresh money, or even panic sold, during 2008–2009, Brexit, Trump, coronavirus etc.

I would go further. Anybody who thinks they can time markets, and will watch the news like a nervous puppy, shouldn’t even invest.

They should either not invest or use an advisor, as somebody like that will always do silly things with their money.

I was reading a recent study which showed that up to 35% of Fidelity DIY clients sold between March and May!

A Vanguard study showed that more people invest during bull markets (the 1990s for example) and sell during crashes.

So avoid buying high and selling low, or trying to time when you think markets will push higher.

Second, unless you are a professional investor, avoid having all your portfolio in stocks and individual stocks.

As a DIY investor you won’t beat the market long-term, almost for sure, by stock picking.

So own both stock and bond indexes. If you really can’t resist individual stock picks, use 5%-10% of your portfolio like that.

The main difference is age. When you are young, 90% in stocks is good, and 10% in bonds. As you approach retirement, increase your allocation to bonds.

Reinvest dividends and rebalance from one to the other. Two simple examples. Let’s say you are 80% in stocks and 20% in bonds.

You invest $100,000, with $80,000 in stocks and $20,000 in bonds. In 1 year, your stocks have increased to $120,000, and bonds are at $21,000.

Now you have only 17.5% in bonds. So sell a small amount of your stocks to buy 2.5% worth of bonds, or use fresh money to buy bonds.

Likewise, let’s say your stocks go down to $50,000 (let’s say in March when markets crashed) and bonds $22,500, stocks are now just 68.9% of your total portfolio.

So sell some bonds, and buy some stocks, to retain the 80%-20% portfolio. The same if you have a 90%-10% or 60%-40% portfolio.

The great thing about this is you can benefit from market crashes, and indeed bull markets, without having to have cash in the bank earning 0%.

If a crash comes, just login and rebalance, add more money and reinvest dividends. If markets keep going higher, rebalance as well.

If you can deal with a lot of volatility, there is nothing wrong with being 100% in stocks when you are young, but few people can deal with this in reality.

As a final comment, if you invest monthly, you can also benefit from any market conditions if you invest for decades.

If markets have a “lost decade” (like in 2000–2010) again, you are just buying units at cheaper prices for longer.

That will benefit you long-term.

What percent annual return on investment in the stock market is considered good?

Source: Quora

It depends how you look at it. Historically, markets have produced between 6%-10% long-term.

US Markets, alongside Australia and South Africa, have produced the most long-term.

The Dow, S&P500 and Nasdaq have produced 9%-11% adjusted for dividend reinvestment. The Nasdaq has actually done the best in the last 30 years.

However, you have to factor in:

  1. How much risk you want to take. If you are 70, and don’t have an income, it is foolish to have 100% of your assets in the Nasdaq, or even a more diversified index like the S&P500. You need government bonds too. If you are in your 20s or 30s, being 100% in markets is fine, provided you adjust as you get older. Volatility isn’t risk when you are young, but things change if you are closer to retirement. So the key is a good risk-adjusted return.
  2. Is a good return always a good return? What I mean by that is, if you look at things with zero emotion and 100% rationality which isn’t compatible with human nature, you should want markets to go down or at least be stagnant for years. If markets are stagnant for over 10 years as they were from 2000, that is a great opportunity to buy low for years. When markets then increase, you have made more money than if they had increased. Simple example. Take the Nasdaq. It hit 4,900 in 2000. It fell to 1,300 in 2002. It rose again, but fell to 1,500 in 2009. Now it is at 11,600! Now that might be an extreme example, as the Nasdaq is more volatile than almost any index in the developed world. However, most people would panic and think “i am down 50%! I have been down for 10 years”. A rational investor keeps investing monthly for decades, and sees the benefit of falling markets. That doesn’t mean you should try to time markets though.
  3. Is it speculation? Occasionally people get lucky speculating in individual stocks. Speculation and investing aren’t the same thing though.
  4. Inflation. Historically, inflation has been higher. So the S&P500 has done 10% per year if dividends are reinvested. That is just a pure average though, with some years doing better, and some doing worse. Adjusted for inflation, that is about 6.5%-6.7%. For the last 25 years inflation hasn’t been 3.5% in most developed countries. So these days, an 8.5% nominal return, is likely to be a 6.5% real return. In Japan, where inflation has been 0% for a while, a 6% gain is both a 6% real and nominal terms gain. This year, if there could be deflation due to coronavirus, a 10% gain could be a 12% real gain. You see this confusion when it comes to the returns during the Great Depression era, when there was deflation.

So the best thing you can do is have a plan. Accumulate units. Your job is to be like a collector.

Collect more units. The more units you collect means that in the future, your investment will be worth more.

So don’t always assume that it is bad if returns are low for years. Imagine what a great opportunity it would have been if markets would have stayed at March levels for 10 years instead of recovering so quickly!

All those years to collect cheaper units! And yet so many people fear market crashes.

A loss and a decline aren’t the same thing, in the same way that a gain/increase and “making money” aren’t the same thing.

You see this confusion all the time. The media leads with misleading stories like “Zuckerberg has made $20billion today”, or “Bezos has lost $5 billion today”.

In reality it is just paper gains or losses – unrealised results.

Should we (individual investors) pay attention to the macroeconomy when making investments?

Source: Quora

The macroeconomy includes things like unemployment, GDP growth rate, gross domestic product and inflation.

When researchers have looked at correlations between these things and stock market performance, they have found little or no correlation.

Stocks have done well in inflationary times, and done badly in inflationary times.

Markets have done well during recessions and high growth times, and also done badly during the same periods.

The biggest correlation between stocks and performance has been various p/e ratios.

Researchers have regularly found a correlation between p/e ratios and stock market performance.

However, it isn’t an incredibly strong correlation. It it were, all individual investors would need to do is look at various ratios and “market hop”.

In other words, sell the S&P500 this year, buy MSCI Emerging Markets next year (if the p/e ratios look good), buy a Latin American market indexing 2022 and so on.

I have never, not once, seen somebody who has outsmarted the market from looking at macroeconomic trends alone.

In fact, I have only seen the opposite.

Recent examples include.

  1. Numerous people I know that bought Chinese equities after 2006, thinking that the excellent growth rate in that country would lead to better stock market performance.
  2. Others bought MSCI Emerging markets, thinking that excellent emerging markets growth would result in better stock market performance than developed markets. There is no correlation. In fact, developed market equities have beaten emerging markets long-term.
  3. Sold after 2008–2009, and covid, assuming that markets would go down with the economy
  4. Bought in 2018–2019, thinking that an upturn in the US’ growth would result in better stock market performance. In fact, the worst yearly result in the stock market in the last 10 years in America has came during the best year for the economy!
  5. I know a few people who bought South Korean and New Zealand shares this year, expecting them to outperform, due to the perceived excellent response to the virus.
  6. I lost count of the number of people who got burned buying oil 10–13 years ago, due to thinking that “peak oil” would make oil go higher.

Also these days about 80%-90% of the stock market is controlled by institutional investors (banks, hedge funds etc).

The majority of the rest is owned by upper-middle and higher income owners.

So only about 5% of the market is controlled by smaller investors now, in most markets.

So if unemployment is 15%-25%, but richer people are doing OK or well, like during the lockdown, the idea that loads of people selling their shares due to unemployment will affect the markets isn’t true.

When institutional investors sell, that has a bigger impact.


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