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What do you do with savings when interest rates are low?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 252.1 million views in recent years.

In the answers below I focused on the following topics:

  • What do you do with savings when interest rates are at historical lows, below the rate of inflation?
  • Why isn’t the smartest person in the classroom the most successful one in financial and other terms?
  • Will the dollar collapse in 2021? I suggest why it is foolish to expect such a thing, and even more silly to hope to profit from it.
  • Is the average investor feeling worried right now, and could that affect stock markets, in a world where institutional investors dominant?

Some of the links and videos referred to might only be available on the original answers.

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me, email (advice@adamfayed.com) or use the WhatsApp function below.

What do you do with savings when interest rates are low?

Source: Quora

The biggest reasons to have some savings actually hasn’t changed. Savings, long-term, have always paid less than assets like stocks.

They have just been less volatile:

main qimg 2594a3d73323c3be523f1f888357603c

The reason to have some liquid savings is in case of an emergency. If your car or laptop breaks, it is good to have some cash lying around.

It is true that rock bottom interest rates have incentivized more people to invest rather than save, yet the fundamental logic should still remain the same; if you need money in less than five years you should save it. If you can have a long-term investment horizon, invest it.

Therefore, it still makes sense to save in some limited situations, or engage in fixed deposits.

For money you can hold long-term, it should be interested in a mixed portfolio of stocks, bonds and some instruments like real estate investment trusts.

Investing isn’t complicated or scary, unless you make it that way. In fact, you are usually taking more risk with cash than investing.

Here is Ray Dalio explaining why cash is the riskiest investment of all:

As per the graph below, nobody has lost long-term if they hold the entire market (like the S&P500) for decades:

main qimg 7b72f0ee274ec982fcc7da0d50cc74da

The only reason people have lost money investing is:

  • Not being long-term enough
  • Panic selling when markets are down
  • Not being diversified enough and being in too many individual positions
  • Speculating and not investing

Look at 2008–2009 or the COVID-19 crash of 2020. Nobody who bought and held lost money.

The S&P500 recovered in 2–3 years in the first crisis and six months or so last year. Many people lost by panicking.

So for me, I have a simple rule. I keep 3–4 months worth of costs in savings/cash accounts.

The rest gets invested, and I don’t care if the market is down, up, sideways or crashing.

If markets crash today or soar in value it won’t make any difference as I won’t sell for decades.

Why isn’t the smartest person in the classroom the most successful one?

Source: Quora

Firstly,  there is a correlation between IQ test scores and average salaries and wealth, even though it isn’t politically correct to say it.

Yet I get your point. It is very true that, despite the aforementioned averages, many smart people aren’t successful in many ways.

Let’s start with what success is

For most people success is at least some of the following things:

  • Achieving what you personally want to achieve, regardless of whether that is spiritual, materially or something else
  • Material/financial success
  • Working on a cause
  • Helping people close to you like friends and family
  • Being happy and healthy

Some of those things are linked. If you want to become a world-class, and famous, scientist, you will probably be working on a cause and be financially successful at least in terms of income. You will also be wealthy if you manage that income properly.

No matter what form of success you want to achieve, you are partly reliant on other people.

No matter how hard or smart you work in business or even as a charity, you are reliant on the market to buy your goods.

You might feel like your goods or services solve a problem, but the market might not agree.

You could also have two charities, or businesses, who are trying to solve the same problem and are equally good, but one is marketed better.

That isn’t to mention that life, and the market, isn’t always fair.

Let me give you a simple example.

The three best people in terms of Chinese language skills (non-natives I mean) in my network are:

  • One man whose parents came from China
  • Another who lived in China from age 18 and speaks very good Chinese
  • Another guy who learned Chinese in America from 18, and also can read traditional and simplified Chinese to a high-enough level where he can read scientific books

The third person is clearly more impressive. He doesn’t have any Chinese roots.

He didn’t live in China until his 30s. He doesn’t just speak everyday Chinese fluently, he can read the traditional characters to a higher-level than the average Chinese person outside of Hong Kong, who no longer study them as much as before.

He can read books in philosophy and science in both, interconnected, written languages.

Despite all of this, he wouldn’t be offered one dollar more for most translation work than the first two people.

There is a simple reason for this. Apart from in some very narrow circle, the market isn’t looking for somebody who can translate science in traditional Chinese.

Even if the market cared, they could get a cheap freelancer, maybe a well-educated student from Hong Kong, who could do the same thing cheaply.

The first two people are “good enough” as far as most jobs are concerned. Their practical Chinese is just as good, they are just weaker in some areas the market doesn’t care about.

Likewise, in sport, two horses could be one hair or nose apart, and that winning horse could win millions more in prize money.

The market and people in general, don’t care that much about:

  • How smart you are
  • How hard you work.

The market and people in general, care about whether you can help them solve their perceived problems.

Those who know how to solve other people’s and businesses’ problems, and can communicate and market that problem-solving ability, will do better than somebody who is merely smart and can’t do those things.

Yet sometimes people who have been considered smart all their lives feel like they deserve more due to their hard work or intelligence.

Real life isn’t school or university though. There are no participation medals or rewards to compensate for unfairness.

main qimg d4f5e50b5559837e1cd7b480fea07171

Is the dollar collapse the biggest risk?

Source: Quora

There is something that is a universal truth. That is, betting against the end of the world isn’t very profitable.

It is unlikely to happen and if it does, you won’t make much profit from it in any case.

The dollar depreciating wouldn’t be the end of the world. Even a dollar collapse might not be, but it could feel like close to the end of the world financial speaking.

It would cause so much contagion that it would make these events like look a picnic or a party:

main qimg d765e3769f1ad35f46cca80978a26c2a
main qimg 71641718dd58b1605edea770ece4b052

There is another point to make. Spreading doom is profitable. If you have been doing what I have for any length of time, and/or read history, you will see the same stories come up again and again:

  • Stocks will crash this year because of X and Y event
  • The stock market (and maybe the dollar) will crash in 2016 due to Trump…..and then the same people said the same thing in 2020.
  • The dollar will crash due to QE and 0% interest rates (2008 and 2020).
  • This time is different because of x and y reason

The same people predicting a dollar crisis in 2021, predicted one in 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019 and 2020!

I don’t like making predictions, but I will make one now. On the day we die there will be stories on the news or internet saying:

  • The stock market will crash. It looks too expensive. It is at/near record highs
  • The dollar will crash

I am not saying black swan events can’t happen. Merely, it isn’t likely the dollar will collapse, and many of the people predicting this event have form.

Does a new survey show that nearly half of Americans are too nervous to invest in stocks right now? So instead, do they have it in banks or under their mattress?

Source: Quora

That could be true, but this quote is relevant here:

main qimg 39a9350db967c725bb3d44bb47be5c0c

At any given time 40%-40% of the population doesn’t invest for numerous reasons:

main qimg 986c7d5abe099d3056891bac6e18de5a

In most countries it is much more than 50%.

Also remember

  • In February/March last year, maybe up to 70% of the population in most countries would have been too nervous to invest. That didn’t stop markets going higher
  • Following on from the last point, 80%-90% of the money is now controlled by institutional investors and a lot of the rest by wealthier people. There is a simple reason for this. Even though many people invest, the sums of money involved for many people are small. If an 18-year-old has $1,000 invested in the stock markets they are (technically speaking) one of the 50%-55% of people who are investing, yet it is an understatement to say that they can’t move markets. The nervousness of the average investor isn’t a sign of markets rising or falling
  • This issue is likely to get worse over time. There has always been sensationalism. The difference is the 24/7 nature of it now. Before, we read the newspapers and watched TV. Then we got cable TV 24/7 hours a day. A decade or so later, the internet became popular. Now, we even get notifications on our phones, which are often working outside due to G5. So, people who easily panic will only panic more in the future, because I have no doubt there will be no mediums to make the news more accessible and more difficult to avoid.
  • The kind of people who are nervous always are. The people who were the most nervous about the 2000 crash were also nervous in 2008 and 2000. The kind of people who were nervous about the 2020 election worried about 2016.
  • The most important point is that those that don’t get nervous, or do get nervous but still invest, benefit long-term. People who can’t control emotions like nervousness suffer. This quote sums it up:
main qimg 130c0ac3c70535762ca4e6246ec54ba7

Being nervous is ultimately pointless, because there is a lot of academic evidence that shows that nobody can time the stock markets.

Therefore, unless somebody believes they are smarter than the entire market, it makes sense to just invest when you have money.

Very seldom have a met a person who is wealthy and extremely nervous and always pessimistic about the future.

So I wouldn’t worry about it. There have always been people who have been willing to put money under their mattresses or to lose to inflation by keeping the money in the bank.

Pained by financial indecision? Want to invest with Adam?

Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 252.1 million answers views on Quora.com and a widely sold book on Amazon

Further Reading 

In the answer below , taken from my online Quora.com answers, I spoke about the following issues and topics:

  • I was asked “if you could travel back 25 years with $10000 what would you do with it?”. I answer this question by asking if hindsight is easy in a world of uncertainty. 
  • How many years does it take to become a millionaire by investing? More specifically, I look at different scenarios to illustrate a wider point about investing returns.
  • Do professional athletes deserve their salaries? Or is it the wrong question to begin with considering life isn’t fair?
  • Why do so many people get intimidated by the topic of investing? Is it because investing seems technical or another reason such as the complicated way most financial experts speak?

To read more click on the link below.

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