In this blog I will list some of my top Quora answers for the last few days.
If you want me to answer any questions on Quora or Youtube, don’t hesitate to contact me.
What is the best way to gain wealth?
There is no best way. There are many ways to skin a cat.
With that being said, there is only one way to get suitably wealthy.
That is to live below your means and invest the surplus well. If you spend 100% of what you earn, you will never become wealthy, no matter how much you earn.
This quote says it all.
It isn’t just in America that people get wealth and income mixed up. It is a global thing.
What is different about wealthy people is how the money was made.
Some got wealthy by “get rich slow”, in other words investing patiently on a middle-income for decades.
Others had a more aggressive wealth strategy and decided to scale a business online.
It really depends on your skills and desired lifestyle. If you want a work-life balance, then the get rich slow route is probably the best.
That is because you can get wealthy without working too hard. It just requires patience over decades.
With get rich slow, you also don’t need to take frugality to the extreme.
You can just patiently invest relatively small amounts for decades.
If you want something which is more aggressive then you either need:
- To start your own business
- Get paid on results and not time
- Or take other kinds of risks
- Or be much more aggressive with how much money you invest. More aggressive than is required to get rich slowly over decades.
- To be willing to do things others aren’t willing to do.
In other words, a more aggressive wealth management strategy requires more sacrifices than the slow version.
Those sacrifices might mean time (working harder), being more frugal and/or taking more risks.
I have never met a person who has gotten wealthy relatively quickly without needing to make one of those sacrifices, unless they just got lucky via an inheritance or something like that.
So the best way also depends on what sacrifices you are willing to make.
Most people say “money can’t buy happiness”. Would you be happy in poverty?
Many of the people that say that have never had money, and it is wishful thinking.
It is true that money doesn’t automatically buy you happiness. There are loads of unhappy high-income, and wealthy people.
There are many reasons for that. The main reasons are that people spend money on the wrong things (consumption and impressing others) and not on things like security (wealth) and giving money to kids.
As per Maslow’s Hierarchy of Needs materials needs are important, but they are at the bottom of the needs list:
That is why sensible wealthier people focus on other things once the basic material needs have been met.
Beyond that, it is also true that there is declining marginal utility once you have more.
People can get a huge increase in happiness after going from poverty to comfort, but the increases are much smaller after that:
However, that shows something important. Whilst it is defiantly possible for somebody who is comfortable to be happier than somebody who is super wealthy, it is much harder for somebody to be happier in poverty.
It is possible in limited situations. Most students are poor, but look back with happiness on that time.
The point is though, for most adults, ill health, divorcee, depression and substance abuse often comes due to lack of money.
Even high-income people who have those problems often have issues around financial planning.
In other words, they earn a lot, but spend it all, or are even in debt.
Those debt problems cause arguments with a spouse, and divorce is the end result.
So if we focus on people who are wealthy and have economic security, as opposed to people who merely have a high-income, we definitely see a reduction in anxiety.
Many argued that Brexit would lead to a decrease in longterm investment in The U.K. This year, stocks on The FTSE appear to be among the most popular investments. What is the disconnect between those who were anti-Brexit and today’s investors?
There are a few things to mention here.
- The FTSE 100 is one of the worst performing stock markets of recent years. It did relatively well from its 2016 lows, and hit 7,800 in 2018, before falling to levels not seen since the Brexit vote.
- One of the reasons why there is an increased interest in the FTSE100 is it seems undervalued. It is about 30% off its peak, and has a 4.5% dividend yield, vs 10% and 2% for the S&P500. The p/e ratios also look excellent vs many other markets. That doesn’t mean the FTSE100 is a better investment than the US Markets. It has more risks these days, but it just shows that on paper it looks undervalued.
- However, it would be a mistake to make this political. If the UK Stock Market hit a record high after Brexit in 2018, that doesn’t mean that the UK Stock Market’s poor performance in 2020 is due to Brexit uncertainty. It could be due to many factors. In the same way that many people claim that US Markets are only doing well due to the Fed, when the Bank of England also injected capital into the markets
- There is little or no connection between GDP growth and stock market performance, long-term. Just ask China! Stocks have done well during numerous periods of strong GDP growth, recessions and weak growth, and fallen during similar periods. Uncertainty can sometimes affect stocks short-term, but not always long-term. The UK Markets hit a record high in 2018 during a period of uncertainty.
- Almost all the commentators on CNBC and other channels that try to claim that politics or economics will affect markets, have been shown to have a terrible record vs buy and hold investors. There are just too many unknown variables to be able to say markets will rise, or fall, due to this or that event. If it was so easy then everybody would make 30% a year from the markets.
So regardless of whether Brexit is good or bad for the country on an economic level, the stock market could do well or continue to lag other major markets.
If it does continue to lag for a few more years, the increase in it will surely only go higher.
Sooner or later, markets do bounce. Look at the Nasdaq. It was stagnant for 14 years after 1999–2000.
It has been the best performer since then. I am sure the FTSE will have its time in the sun as well, one of these days.
That’s why many investors like to diversify.
I don’t know the statistics on this, but I can’t imagine rappers are much worst than other celebrities and people in general.
- 78% of NFL players are said to be broke within a few years of retirement, and 60% of basketball stars – Money lessons learned from pro athletes’ financial fouls
- Some studies show that up to 70% of lottery winners have gone broke – Lottery winners who blew the lot . Some say this has now reduced as the jackpots have gotten bigger and more are given advice compared to before, but the figures are still high. One of the biggest ever lottery winners might have ran out if he didn’t die a few years after his win – Lotto winner blows £40m before his tragic death – other victims of Lotto ‘curse’
3. Many boxers like Tyson, and singers/musicians, have gone bust too, and needed to rebuild.
4. 14% of the world’s millionaires are said to be teachers with about 50% being middle-income.
5. Rugby and tennis stars can also go bust. However, on average they have gone bust less than some better paid stars, such as footballers, NFL stars and basketball players.
Therefore, what can you extrapolate from these stats?
Well two things
- Unless the financial education given to young, and indeed old, rappers is significantly better than the other stars, they will end up in a similar position. This is likely to affect the impressionable the most. In other words, the young stars with loads of hangers on, and they just can’t say no to them.
- Wealth and income aren’t always linked. They can be, but not if somebody spends 100% of whatever comes in.
Ultimately, most people who earn a lot of money at a young age, especially in their teens and 20s, are less likely to keep hold of it and keep growing their wealth.
You even see it in business. Those that got rich later on are less complacent.
Often the mistake entertainers, and others who earn a lot at a young age, make is thinking the cash will keep rolling in. Or that it will be easy to cut back if the cash stops rolling in.
In reality, if you get used to spending a certain amount of money, it isn’t easy to cut back.
Should someone have to suffer to gain wealth?
It depends how you define suffer. One thing I would say is that most people do want to get rich or at least wealthy, regardless of what they say.
Actions speak louder than words. Most of the people who criticise the rich, want to be rich themselves.
Many of the politicians posing as radicals now in the US, like AOC, started (and failed) to run their own businesses.
Therefore, it is a crowded and competitive space. So, there is no easy way to get wealthy, unless you inherit it.
Do you need to have an Einstein IQ to get wealthy? No. Do you need to work 20 hours a day? No.
They can help, especially if you want to get super-wealthy, but there are many people who work hard and are smart.
What you do have to do though, is be willing to do things that others aren’t willing to do.
Examples of this include
- Investing from a young age to compound. Many people do know that even small amounts invested over 50 years can really add up. Not many people are self-aware enough at 18, 20 or 22 to do that, and keep it up.
- Taking big, but calculated risks. That could mean emigrating for better opportunities, starting your own business or getting paid on results and not time.
- Not giving up too soon. Many people will be persistent and work hard. Fewer will keep going for 10–20 years if they aren’t succeeding.
- Doing things in business that make you feel uncomfortable but are profitable. In the 1970s, 1980s or even 1990s that might have been cold calling and door to door sales. These days, there are more efficient ways. Nevertheless, uncomfortable tactics aren’t as easy to copy for obvious reasons. Other people don’t want to take the pain for the gain.
- Sometimes just being yourself, and having some people hate you and others love you. Few people are willing to put themselves out there completely.
Remember making hard decisions might feel painful short-term, but it leads to a better and easier life long-term.
Whereas, taking no pain right now feels best short-term, but not long-term.
It’s a bit like going to the gym and taking your health seriously.
It certainly doesn’t feel as good as the opposite route short-term, but it pays off in the long-term.
There is a lot of politically correct advice saying things like “do what you love, follow your passions, and you will work harder and do better at it”.
There is some utility in that advice, but many people follow their passions.
So it still sometimes needs to be merged with something else – the ability to make sacrifices.
If you aren’t speaking about self-suffering, then other people, like random members of the public, don’t need to suffer due to your wealth building efforts.
Why do people want a lot of money more than their needs?
There are numerous reasons for this. Two reasons are choice and security:
If you only earn enough for your needs, and you spend that money, you better hope that one of the following things doesn’t happen:
- You don’t get sick
- You don’t experience than unexpected event like Covid in your country
- Your government becomes unreliable
A great example was the lockdown. After the lockdown, many people wondered where their next pay cheque was coming from.
They needed to rely on governments to bring out schemes like the Furlough Scheme.
The UK had one of the most generous schemes, until recent changes:
So, if you live well but below your means, and invest the surplus wisely, you don’t need to rely on others (friends, family and governments) in these kinds of unexpected situations.
It therefore gives you choices that you otherwise wouldn’t have. Those choices include early retirement.
If you want to have even the option of early retirement, you need to create enough surplus for both your immediate and future needs.
In other words, a big enough investment pot to pay for your lifestyle in the future.
At the opposite end of the spectrum, you have people who don’t care as much about security.
They would prefer to not build up private wealth, and instead spend 100% (or even more if they don’t mind debt) of whatever comes in.
Sometimes this is habit. Other times it is to impress others as this saying shows:
Either way, it is human nature to want more of what feels good, or is perceived to feel good.
For some that is security, for others consumption, and for others status.
The first reason (security) is certainly less shallow than the last reason.
As a final comment, many people assume that price = quality, so they are missing out on something if they spend less.
In certain limited situations that it true, but often it is just price branding and marketing.
The same thing, “fear of missing out” (FOMO), also means that many people have talked themselves into the idea that “I might die tomorrow so what’s the point in investing or saving”.
Do you think it’s a good strategy to buy index funds and hold long term?
It is but only if you:
- Are willing to be long-term. Remember, even indexes like the S&P500 can have periods of stagnation lasting 5 or even 10 years+
- You are in 2–3 indexes and not just one. Getting back to point 1 and stagnation, the S&P500 and Dow Jones had a lost decade from 2000–2010. Bonds did better in that decade, which proves the importance of having some diversification in your portfolio.
- Avoid very niche picks like a Latin American ETF or Nigerian index fund. That doesn’t mean these niche positions won’t sometimes “win”. There have been numerous years where they have. However, they are defiantly riskier than broader-based indexes like MSCI World, Total Bond Market or the S&P500 which is indirectly a global index even though it is in the US. Many US firms make the majority of their earnings overseas these days. Take Apple as an example. Only about 40% of their revenue comes from the US:
4. You don’t panic during a market crash. In March until May, Fidelity and some other brokers reported that 35% of DIY investors panic sold. So many DIY investors buy high and sell low for emotional reasons. What’s more is many pledge that they will buy and hold, but then they can’t deal with crashes. Often this is due to the media – “this time is different” – and so on. Other people don’t panic, but decide to invest less during periods of heightened geopolitical tensions like in 2016 and 2020.
5. If you rebalance sometimes from stock towards bond index funds and vice versa.
6. You don’t try to predict future returns based on various analysis. You just invest and forget about it.
So the best option is to buy for decades, and keep buying every month.
If you do this into both stocks and bonds for that period of time, your risks are very low.
They are great tools but most people that use them aren’t using them correctly.
Often they say they are, but when you dig further, you can detect behaviours which are based on emotion.
I have lost count of the number of people who have said they will just invest and forget, but then get wobbly feat every time there is a major world event – be that Trump’s election, Brexit or Covid.
Nobody can be sure if they will stay calm until they have been through their first major downturn.
It is easy to buy and hold during periods like 2009–2017 and the 1990s.
It get’s harder during periods like 2018–2020, when there have been two major downturns, despite overall higher valuations.
What mentality prevents most people from becoming successful in business?
The biggest ones are:
- Risk aversion. Being too petrified to take chances
- The opposite end of the extreme – not being worried by any risks including “ruin risks”. In other words risks that could bankrupt you.
- Thinking it is all about the idea when it is about execution.
- Not caring as much about expenditure as revenue. A simple example. If person A generates $200,000 from free techniques, that is superior to somebody who generates $1,000,000 of revenue, spending $900,000 in the process. It might not be as good for your ego, but it is more effective
- Not pivoting and diversifying when you have the chance. Most people wait until a crisis to do that. A great example is covid. Those people that went online years ago have benefitted from this year. Those that reacted well have often saved their business, but they were still reactive. Those that didn’t react well or at all have gone out of business in many cases.
- Not having private investments because quote “ i can make 30% a year from my own business”. You can until you can’t. Many people said that in countries like Tunisia, Egypt and before covid! Again, people wait, and then react to events. It is better to be ahead of the game and ask yourself the right questions such as “what would happen if there was a revolution in my country?” Could I deal with revenues which are 80% lower? People don’t ask themselves questions if they think it is unlikely to happen
- Not being willing to do what others won’t
8. Not being willing to take yourself out of your comfort zone.
9. Overcomplicating. Ultimately, if you keep costs relatively compared to your revenues, then you can have a workable business.
10. Finding reasons not to do things. It is always possible to think negatively or positively.
11. Focusing entirely on competitors and therefore not trying to break some industry norms.
12. Caring too much about what others think and trying to be all things to all people.