I often write on Quora.com, where I am the most viewed writer on financial matters, with over 244.8 million views in recent years.
In the answers below I focused on:
- What is better a long-term or short-term investment?
- Is Kuala Lumpur (Malaysia) or Bangkok the better place to live in Asia?
- Is the average person really poorer than before the pandemic, if we look at income and wealth?
- What are some of the biggest misconceptions about the global stock markets? I made a detailed list which includes the (false) idea that the Japanese stock market has fallen compared to the peak on all measures.
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What is better, a long-term investment or a short-term investment?
If you don’t want to hold an investment for the long-term, it is better not to own it at all.
For example, if you felt in March 2020 that the long-term outlook for the airlines was negative due to the rise of Zoom and online meetings, but felt they looked oversold, you are speculating rather than investing.
In that case, somebody who made such a move was hoping that the airlines would partially recover short-term, so that a sell order can be placed.
- Your margin for error is bigger for longer-term investments
Long-term investments can go wrong without affecting the overall outlook.
2. Longer investments mean you can compound. If your grandma or grandpa had invested $10,000 into the S&P500 in 1945, you would have made:
- 28379.911% total returns
- Which is 11.319% per year if dividends were reinvested every year.
- That represents 1831.872% after inflation and 7.455% per year adjusted for cost of living changes.
- That is about $5million adjusted for inflation, and about $50m if you don’t adjust for inflation.
Even if you invested in a company which does 25% for 20 years, you wouldn’t make as much as the person who invests “forever”.
Study after study has shown that how much you invest, and for how long, matters more for total returns than your percentage returns.
There is no point in getting very high percentages for small periods of time.
3. With longer-term investments, you can reduce your risks, whilst still getting good returns.
With the vast majority of short-term investments, risk and return are very related.
With longer-term investments, you don’t need to care if one year is +40% or -40%.
The aforementioned S&P500 returns is adjusted for countless events like 2000, 2008–2009 and the 2020 crash.
If you are in it for the long-term, those events don’t even affect the long-term trend.
4. As a result of all of this, you don’t need to worry as much about the short-term.
Many long-term investors don’t even watch the financial news, or know their exact valuations.
I was recently listening to an investor who has about $4m invested from having a middle-class job (he started early).
He says that he logs in quarterly at most to rebalance and doesn’t know his balance. He can only guess it most of the time until he logs in.
Despite that, there are some periods of time when you might not be able to invest for decades.
In that case, a short or medium term investment is often needed – for example if you are investing for something specific like a kid’s university education which needs to be funded in five years.
That is why some people have different pots for contrasting short, medium and long-term objectives.
Why is it worse living in Kuala Lumpur than Bangkok as an expatriate?
I have never lived in either place, but have spent extensive time in both, and indeed overtook some research on this as I almost moved to both locations in the past.
The bottom line is that Kuala Lumpur is very underrated. It goes under the radar due to Singapore, Thailand and some other places in the wider region like Japan and China.
Yet for the people in the know, it is a great location. Quite modern, but at a good price.
Not as built up with tourists, and even expats, as Thailand. People are mainly friendly, food is good and an excellent mix of Malay, Indian and traditional Chinese cultures.
As a former British colony the English is also excellent. Only Singapore and Philippines can compete in the region in that regard.
Singapore is hard to get into, and whilst the Philippines is friendly, it is in some ways a harder place to live as an expat.
Due to the fact that it is a Muslim-majority country, some people have the mainly incorrect view that it is very strict.
There are, however, some negatives compared to Thailand.
This mainly depends on your lifestyle. For example, for most people the cost of living will compare well.
If you enjoy drinking, as some expats do of course, Kuala Lumpur will be more expensive, and indeed will be pricier across the board compared to some Thai cities outside of Bangkok like Chang Mai.
If you are a younger expat, or somebody who lives nightlife in general, Bangkok is probably more vibrant than Kuala Lumpur.
Both are good places for location-independent people (some business owners, digital nomads etc) and retirees, but not as good for corporate expats who have an employer, apart from some industries.
Both have their negatives compared to more orderly and developed places in the region, but that is an answer for another day.
Is the average person richer or poorer compared to pre-pandemic?
It depends on the country and if you look at wealth or income. In terms of wealth, almost everybody who has assets is richer on paper.
There is a simple reason why that is. The stock markets, globally, are up. Not all individual firms or sectors are, yet the entire market is.
Therefore, if you own shares directly or indirectly through a pension structure, you are likely wealthier.
In many advanced economies 50%-60% of people own shares directly and almost everybody has some kind of pension.
Property prices have also held up OK, even if they have fallen in some big cities, which have been affected more as an increased number of people work out that they can work from home.
This is all part of a wider trend which has been happening since 2008–2009.
People can no longer beat inflation putting money in the bank. Historically, saving money in the bank has never been as profitable as investing it, but you could beat inflation as per the graph below:
Some countries, like Australia and the US, did briefly increase interest rates.
Those rates are even lower now. That means that more money goes towards assets.
In terms of income, it is a mixed picture. Clearly the number of people who have lost their job, or accepted pay cuts, has been huge.
There are plenty of previously successful businesspeople in areas like travel, aviation and hospitality that have suffered a lot.
By the same token, people have been supported more this time, due to furlough schemes, and commuting costs have in some cases gone to zero due to the work from home culture.
So, most people who have kept 90%-100% of their salary, and can work from home, is probably better off adjusted for commuting costs and the associated office expenditures like lunches outside.
Going forward into 2021, it seems that some countries, like the US, will recover much sooner than others.
In fact, it took the US two or three years to recover from 2008 to 2009 and over seven years in terms of unemployment.
This time it is much quicker, with GDP expected to reach pre-Covid levels by this month. Some Asian and African economies are also doing relatively well.
It will take some European countries two or three years to recover to pre-Covid levels of income and unemployment.
The bigger question is if, long-term, the average person will need to pay more taxes due to some of these COVID-19 stimulus measures which have helped get the economy back on track.
In any case, I don’t expect wages to rise faster than asset prices for quite some time.
What are the most common false assumptions about the stock market?
As Mike has said below, a huge misconception is that it is akin to gambling. It isn’t if you do it right!
This quote sums it up:
Apart from that I would make the following list
- The idea that investing in stocks is for the rich
- That assets like commodities and property tend to outperform stocks long-term. Most are surprised to know that the S&P500 has beaten almost every asset long-term.
- Markets are easy to predict.
- Linked to the last point, the idea that certain events will automatically result in rising or falling markets is a myth. There is little or no correlation between markets and GDP growth, pandemics, wars etc. The fact that markets rose during Covid-19 (or the general trend has been good) is no surprise to anybody who has read the past. The same thing with US markets rising during the 2020 disputed election, despite the media predicting doom and gloom. Things like this regularly happen.
- The media exists to sensationalize. Most parts of the financial media aren’t educational at all.
- The idea that you need to have a super-high IQ to invest. People who can have good EQ, and in particular can control emotions outperform.
- Emerging markets have underperformed developed markets unlike the assumptions most people make.
- You need to be 100% in stocks or 100% in bonds. It doesn’t need to be an either/or. A mixed portfolio is fine for many people, especially those approaching retirement.
- Volatility is the best way to measure risk. It isn’t a good measure at all. Many highly volatile assets, like stocks, are less risky if held long-term, compared to non-volatile assets like cash. See Buffett’s explanation below.
- Most people are surprised to know that nobody has lost money in stocks if they buy the entire market and hold it
- That the Japanese stock market is down. It is only down from the peak and if dividends weren’t reinvested. If somebody bought at the peak and just reinvested dividends until now, they would be up.
- You can only make loads of money from investing loads of money. The key is smaller investments held long-term. The world is full of “every day millionaires” who are middle-aged and middle-income.
- That it is easy to “market time” – in other words get in and out at the perfect moment.
- That market crashes are something to worry about. They aren’t if you are long-term. On any long-term graphs the falls look tiny.
- That the percentage return you receive is the most important thing. Sure, it is important, but not as important as how much you invest and for how long. getting super high returns for five years isn’t as good as steady average returns over decades.
- You can’t invest if you live in certain countries. With the exception of a handful of countries, it is relatively easy to invest internationally these days.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 244.8 million answers views on Quora.com and a widely sold book on Amazon
The article below, taken from my online Quora answers, spoke about the following points:
- Why is it important for most investors to hold a diversified portfolio? Or is the question wrong in itself? Perhaps diversification isn’t the be all and end all?
- Bill Gates didn’t complete his college degree but ended up successful. Is there a broader meaning here?
- Considering most wealthy people are older, is hard work overrated?
- is being a movie star really a glamorous career path and, if so, why do so many end up broke?
- Why do some successful people imply that making money is easy, when it isn’t for most?
To read more click on the link below.