I often write on Quora.com, where I am the most viewed writer on financial matters, with over 681.8 million views in recent years.
In the answers below I focused on the following topics and issues:
- What are the benefits of investing in gold and silver? Are there any risks associated with this type of investment?
- Do hedge funds outperform the market? Basically, of all the hedge funds that existed at time now – T, what is their overall return relative to the S&P 500, taking the failed funds as a complete loss?
- How can I invest in Africa?
- Do I trust corporations?
- Can you live a rich lifestyle your whole life?
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What are the benefits of investing in gold and silver? Are there any risks associated with this type of investment?
The benefits are:
- It is uncorrelated to the stock market, meaning it can go up when the markets are down and vice versa
- If things get terrible, they could become very worthwhile……mind you, if that happened, people would beat you up in the street to get their hands on your food and gold bars!
- It is a way to diversify.
- Occasionally, the price can get so deflated, like in 2000–2002. Then it looks like a good buy
The negatives are
- It doesn’t pay dividends.
- It doesn’t perform well long-term. It can do very well in the short and even medium term. But the price is about the same today as during the times of Christ in real terms! So, you can only “win” with gold if you buy low and sell high.
- It is more volatile than the stock markets and produces lower returns in the long term. The worst of both worlds, in a way!
If you really want to buy metals, investing in something that pays cashflow is better.
Investing in a cash-flow-generating project linked to metals or a fund that reduces tail risks makes more sense.
It is still uncorrelated but at least produces cash flow and has better potential on the upside.
Do hedge funds outperform the market? Basically, of all the hedge funds that existed at time now – T, what is their overall return relative to the S&P 500, taking the failed funds as a complete loss?
The vast majority of hedge funds don’t outperform the market.
They usually aren’t trying to.
In many cases, they try to give uncorrelated returns – meaning returns that aren’t linked to the stock markets.
In other words, some hedge funds can go up when the markets are down and vice versa.
The problem is that most of the best-performing hedge funds become too big.
Take the Bridgewater Funds.
In the early years, they outperformed.
Recently, they haven’t, as per the graph above.
So, if you want access to hedge funds, you need to gain access to those few that offer value-added and haven’t got so big to become less agile.
Ultimately, making more significant returns with smaller amounts of capital is easier, compared to needing to deploy countless billions.
How can I invest in Africa?
It depends on whether you want to invest in the stock market or unlisted businesses (including your own).
You can either:
- Invest in African ETFs or mutual funds
There are many options for this with online brokerages.
However, higher GDP growth doesn’t always yield superior stock market returns.
Look at the Shanghai Composite.
It hit nearly 6,000 in 2006 and is now just over half of that value.
During the same time many US stock markets have skyrocketed.
2. Target the region remotely
If you work in many fields, you can target the region remotely.
Most services can be done cross-border.
Africa was our second biggest region in 2021, and I never spent even one second in the continent in that year.
We subsequently have many local partners, but that is beyond the point. In 2023, you don’t need to be on the ground.
3. Invest in a local business on the ground
If you are in manufacturing or several other industries, you need a formal local presence.
That often means:
- More time (getting offices, licenses in some cases, etc)
- Buying materials
- More risk but the potential to have huge returns
Do you trust corporations?
It depends on which corporation.
In general, though, big businesses and corporations aren’t that trustworthy.
Look at the financial services industry.
The big banks are involved in the most money laundering scandals.
HSBC is involved in numerous every year in some parts of the world!
For most bigger companies, you are:
- Just a number
- A statistic to be measured
- Somebody to be taken for granted
The best service is usually found with small or medium-sized firms.
They need you more and offer more personalized service, rather than an outsourced call centre or somebody who just leaves after a few years.
You might even deal directly with the owner, which means you can have a long-term relationship.
What is true, however, is that the biggest companies are too big to fail, and working for them can sometimes help your CV if you are early into your career.
It is also true that in some industries, say the airport or hotel industry, there are some bigger benefits associated with larger firms than the financial sector.
Can you live a rich lifestyle your whole life?
Your relationship between production and consumption is key.
If you are a farmer, you are producing food so you will never go hungry:
Most people are consumers of food only.
This is fine, but the cashflow for most people is:
- Money in
- Money out
- No surplus to save and invest more
You can only change this dynamic by changing the variables – consuming less or producing more.
You have changed the dynamics if you produce more value for the market (it doesn’t care about how hard you work – only what you can create that it wants).
However, you are back to square one if you produce more and consume just as much.
Many people are broke as students and are still broke in their 30s, even if they are earning 20x more.
So, to answer your question, it is possible to live a “rich” life forever after you have made it, but only if you control your relationship between consumption and production.
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Adam is an internationally recognised author on financial matters, with over 694.5 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.