I often write answers on Quora, where I am the most viewed writer for investing and personal finance, with over 220 million views.
On this article, I will use my answers from Quora to answer the following questions:
- Most people, at least in developed countries, assume that getting rich is more difficult than before. But is that really true? I speak about how our perspective influences our approach to this question.
- What do people understand in their 30s that they don’t in their 20s?
- What should people know about investing in stocks? What are the opportunities, risks and what is the bottom line?
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 (firstname.lastname@example.org) or use the WhatsApp function below.
The biggest things we shouldn’t forget are:
- Stocks as an asset class do go up long-term. The Dow was at 66 in 1900, 2,000 about 30–32 years ago and 31,000 today.
- Yet individual stocks don’t always go up. Individual industries don’t always go up either. The banks have never recovered from 2008 even though the general market has.
- Despite the fact that the market goes up long-term, there can be long periods of stagnation. 2000–2011 and 1965–1982 saw many markets stay still. The long-term investor shouldn’t be afraid of such periods. It allows you to buy lower for longer! When markets come up, you will make more money than if they had been rising however.
- Dividends are key. Over 35% of many stock market returns have been from reinvesting dividends. What’s more, reinvesting dividends protects you in stagnant or falling markets as well. The UK FTSE100 hasn’t done as well as the FTSE250 or S&P500 in recent decades. Yet look at the graph if you had reinvested the dividends:
As you can see, it all compounds. Over a 30 year period, the person who reinvested the dividends has about 5x more.
Likewise, many people know the Japanese Nikkei market is the only major market which is down on its height.
It is now 28,850. It’s height was briefly 38,916. Even if we ignore the fact that it is highly unlikely that you would have invested 100% at the very peak, you could still be up slightly in 2020 if you bought only once at the peak and reinvested dividends.
5. It doesn’t make sense to be 100% in stocks forever. At a young age that can work and if you are willing to see big volatility. Having a bond market index works long-term, because bonds tend to rise during periods when stocks fall. At least that is the case with short-term Treasuries.
6. US Stocks have beaten most International ones long-term, including emerging markets. Yet every dog has its day. There have been numerous periods where international has beaten US Stocks. It makes sense to own at least 2–3 indexes for this reason.
7. Nobody can consistently time markets. The only safe way to invest is long-term. Time is one of the only free lunches in investing because it lowers your risk and compounds your gains.
8. You should never speculate or panic.
9. Don’t blindly follow trends which are pushed by the media and others.
10. You need to invest a lot of money to get wealthy investing if you start late. If you start early, you don’t need to invest much. The majority of studies have shown that countless millionaire investors have just gotten rich slowly by investing small amounts for decades.
When people get into their 30s, and even sometimes late 20s, they tend to realise the following mistakes:
- Not looking after your health in your 20s, when you don’t seem to need to, is a big mistake.
- It is foolish to care too much about what random people think about you. A lot of people you thought were friends were actually shallow. It is more important to focus on the key people in your life – real friends and family. It takes some people longer to work this one out though.
- Failing to take calculated risks when you are 18, 20, 22 or 25 is a big mistake. When you are in your 30s you are more likely to have commitments that make it important you think through risk more. That doesn’t mean you shouldn’t take calculated risks in your 30s. It merely means that it gradually becomes harder to take bigger risks in some cases
- It is more profitable to learn from other people’s mistakes than your own, even though making your own mistakes is inevitable. What is better still is to learn from other people’s successes.
5. It is best to invest at an earlier age. It is also better to invest in both yourself (self investment) and financial investments from an early age. It all compounds. Compounded financial returns and compounded knowledge
6. The best time to learn languages and new experiences is also when you are young.
7. Procrastination and putting things off is very costly long-term.
8. We usually regret the things we don’t do, and the changes we didn’t take, rather than the things we avoided.
9.Taking career paths due to pressure form society and parents isn’t sensible. Making decisions on whether to buy or rent based on societal pressure also doesn’t make sense. In some cities and countries, renting is cheaper. In others buying is cheaper. The same thing is true of marriage and partners. Many people feel pressured by society to take certain paths.
10. Despite all of the above, it is never too late. You see people who peak too early, straight after graduation. You see others who peak in their 30s. You see older people who are older peak in their 40s, 50s or even 60s. At the same time though, don’t get into wishful thinking. As per the last point, it is human nature to procrastinate. So, if you tell yourself that it is never too late, you might tell yourself that forever.
Of course though, this depends on the individual and what they have learned.
Some people never learn whilst others are quite good at learning from mistakes.
It depends what perspective you have. Take technology. One person, with a negative perspective, could think it deflates wages and leads to more competition, which it can in certain situations.
Another person could see it as an opportunity to do something which previously only the super rich and biggest companies could do – have clients globally without needing to be physically on the ground.
These days there are small and medium sized companies, and for that matter freelancers, who are making more money than before for that reason.
Likewise, investing used to be for the rich and comfortably middle-class.
These days, due to the internet, it is available to most people, even those that want to start off small as young people.
Yet undoubtedly those trends have also affected those “middle of the road” banking/investment providers.
We are also living longer than before, and staying healthier for longer, which means we are working for longer if we enjoy our jobs or businesses.
Global GDP and GDP per capita has been rising dramatically since 1945.
The media only focuses on India and China, when it has been happening in most countries.
All of this means that more people are becoming rich, and often from nothing, than ever before.
So, the fact that more people are becoming rich and/or wealthy, and in more places, even as a proportion of the population, shows that it is easier.
Yet some things have become more difficult. Leaving school and getting a job at 16 or 18, working your way up and retiring, has became more difficult.
In advanced, high-income countries, life has became more competitive for many parts of the population, as globalisation and technology has benefited richer people and the developing world.
Those that have adjusted have done very well. Those that haven’t feel left behind.
Yet often that has been the case throughout history. There are always new winners and new losers.
New opportunities and new threats. I personally watched this in the financial industry.
When I came into the industry it was still possible, just about, to get a decent amount of clients from old-fashioned techniques like cold calling.
That stopped in large parts. Some people talked about “the good old days”.
Those that adapted to new realities made more money than ever before, with less stress and cost.
The same happens in all industries.
My answers on Quora.com have received over 219 million answer views in the last few years, making me one of the most popular writers on that social media platform.
In the answers below I focused on:
- What are inverse ETFs in 2021? What are the best inverse ETFs in 2021 or beyond? I explain below why the answer is……none of them!
- If you invest $1,000 a month into the stock market every month, how long until you can become a millionaire? You might be shocked by the answer to this one, and the maths behind it!
- Are technology stocks more volatile than normal stocks? Is this volatility a problem if you are a long-term investor? Also, should we make a clear distinction between individual technology stocks and the Nasdaq as an index, which is tech-focused?
Here is a preview of one of the answers:
I will give you some maths/statistics later on which will shock most people…..even some people who have read a lot about investing.
Before doing that, it has to be mentioned that the answer depends on the following variables:
- How the stock markets perform? You can’t control this one and nobody can predict this for sure.
- More specifically, which years market perform after you get started. More on that below.
- If you are looking at $1million in nominal terms or real terms after inflation.
Let’s take the S&P500 as an example. It has given investors about 11.1% since 1950, adjusted for dividend reinvestment.
That is over 7% per year adjusted for inflation.
Yet some periods, like the 1990s and 2010-present, are better than that, and some are much worse.
There have been some decades where it has given 0%. Other decades where it has done as much as 16%-18% adduced for dividend reinvestment.
Let’s imagine the S&p500 did exactly 11.1% every year.
It won’t happen but just let’s do this as an exercise.
It would take you about 21.5 years in that case to become a millionaire in nominal terms, 27 years to reach 2 million, 31 years to reach 3 million.
It will take you 40 years to reach 8 million and about 42.5 years to reach $10 million.
The speed in which you would accumulate wealth at the later years would accelerate due to compounding.
Of course, if inflation is running at 2% per year, it will take you longer to reach those thresholds.
However, as mentioned, that won’t happen.
So let’s look at two different example scenarios to illustrate a point:
Example scenario 1.
You invest $1,000 a month consistently with no lump sum injections.
Years 1–5 you get 0% per year.
Years 6–10 you get 2% per year
Years 11–20 you get 17.7% adjusted for dividends reinvested.
In this case you have reached millionaire status in 20 years. 1.5 years quicker than the constant 11.1% example given above.
Example scenario 2
You invest $1,000 a month consistently with no lump sum injections.
Years 1–10 you get 17.7% adjusted for dividends reinvested.
From year 11 onwards you get 2% per year
Do you know how many years it will take you to become a millionaire in this situation……37–38 years.
Yes 37–38 years.Almost a decade longer than in example scenario one.
If you don’t believe check out this calculator – Compound Interest Calculator
Here is example scenario one:
As you can see $990,000 is achieved after 20 years, which means $1m will be under the same scenario in just over 20 years.
Here is example scenario two:
As you can see $990,000 is achieved after 36 years, so $1m should be in the 37th year.
The reason is simple. In scenario two, the highest returns came in the early years when the account was worth less.
The lower returns came when the account was worth more. In comparison, in scenario one, the poor returns were at the beginner, when the account wasn’t worth much in any case.
And yet everybody seems to panic when markets are stagnant or falling……they worry about investing during a time like 2000 until 2010 which was “a lost decade”.
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