I often write on Quora.com, where I am the most viewed writer on financial matters, with over 289.3 million views in recent years.
In the answers below I focused on the following topics and issues:
- When does one become ready to invest in stocks? I explain why some people will never be ready
- Can you retire off $2,000 a month in the UK?
- What should you do when you are terrified of a stock market crash? I tell the story of one of the giant’s of investing – Sir John Templeton. What does it say about him that he invested during a period when Hitler was rising and the Great Depression was all around to see?
- Is investing in stocks or cryptocurrency more risky? In fact, I explain that the risk can’t even be compared.
- Can middle income, or middle-class, people really get rich (or wealthy) investing, or is investing a rich person’s game?
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This might shock you but……you will probably never “be ready” to invest in stocks.
I watched a good video a few days ago. It featured an expat living in East Asia:
What did she say which was so interesting? If you wait before you are ready to emigrate, you probably never will.
It is human nature. We are reassured by what is familiar. Psychologists call it normalcy or familiarity bias.
Unless our parents were investors, none of us felt familiar with investing at age 16 or 18k, when we likely made our first part-time paycheque.
Unlike something like a house or apartment, which is more familiar as we all grew up in one, we just aren’t familiar with investing in stocks and ETFs.
But nothing great comes out of the comfort zone:
The first time I traveled independently at age 18 I felt uncomfortable. The first time I started my own business I felt uncomfortable.
And the first time I invested I felt uncomfortable. That is a reason to do it., alongside the obvious benefits.
You can make yourself less uncomfortable by getting demo accounts, but it isn’t the same as doing it in real life.
The only people I have ever met who feel truly comfortable on day one have done a lot of reading so know they can reduce their risks down to close to zero by:
- Being ultra long-term
- Being diversified – not putting all your eggs in one basket.
- Reinvesting dividends
- Buying the whole stock market and not individual shares. This is partly linked to being diversified.
- Never panic selling when the market is down.
100% of people who have invested like this historically have made money.
Yet it is so easy, even in this case, to get into analysis paralysis.
Many people have heard of this man. Sir John Templeton. One of the biggest names in investing for a long time.
He died in 2008, but his name lives on due to the firm he founded. What few know, including me until recently, is how he got a big break.
Templeton accredited some of his success to investing during the period when Hitler was coming to power, and the Great Depression was going on, in the 1930s.
There was huge deflation, negative growth in GDP and the stock market for a few years, and big unemployment lines:
Then with WW2 in full swing, I doubt many people would have considered it a good move.
Yet as Buffett explains below, somebody who invested $10,000 in 1942 would now have over $50million (actually about $65m as markets have gone up since the video was made.
Even adjusted for inflation, it shows the huge power of compounded returns over time.
Yet what events have happened since 1942? Well:
- The fall of the Berlin Wall, the USSR, and countless countries.
- The fall of the US from the gold standard
- The Vietnam War and others like Iraq.
- 1973 oil prices hitting $8 a barrel from $2 and the associated recession
- Various huge spikes in inflation and one or two deflationary periods.
- Numerous stock market crashes such as 1987, 2000, 2008, and 2020. Countless crashes have occurred which has caused stocks to fall 50%. Even more, has resulted in -25% falls.
- Do you know what happened 100x more than the aforementioned crashes? People predicting crashes and “this time is different – markets won’t recover this time”.
- Countless pandemics like Covid, Aids, and many others.
- One almost worldwide government shutdown during Covid.
So, if you fear a stock market crash just do nothing and just keep investing. That is the hardest thing, but it is the rational thing.
Investors don’t lose out due to crashes. They miss out due to not investing because of market crashes, or panic selling when there is a crash.
Look at last year. There was a huge crash and the markets came back. In 2008 when it took 2–3 years.
Ironically, your long-term returns might be even better if there is a crash, because whilst it isn’t sensible to wait in cash to time the best moment to enter the markets, we all have paid a salary or own businesses.
Therefore, we need to invest at regular intervals. That means if markets take years to recover, you are buying cheaply for years.
Most of the richest people in the world came from working and middle-class backgrounds.
Only in some places where inherited wealth dominated, like some parts of Europe, is it 50%-50%.
If you mean is it possible to get rich, or wealthy, on a middle-class income, then the simple answer is yes.
This man was a UPS driver for years. He made a maximum of $14,000-$15,000 a year:
Theodore Johnson died with $70million, after a friend told him about investing, which is why he got into it.
Yes, you read that right. $70million. Now sure, when he started investing, 14k-15k a year was worth 50k-75k in today’s standards.
Yet it still wasn’t a huge salary. So, how did he manage it? Well, he invested very smart, long-term.
He wanted to make a difference when he died, so he gave it to charity.
He isn’t alone. This man was a janitor called Ronald Read who accumulated $8million:
This lady was a secretary and accumulated $6m-$8m:
You might think these are one-offs. However, stats show that 14% of the world’s millionaires are teachers, and about 50% are middle-income professionals.
The reason is simple. Income doesn’t always rise exponentially with time. Wealth can.
Buffett was once asked why he was so rich. He said three reasons:
- Being born in America at the time he was, which gave him business opportunities.
- Good genes. So, he has lived a long, healthy life.
- Compounded returns, which have been aided by those compounded returns.
He didn’t make his first billion until he was about 55. Now he has $100 billion.
He would have had more if he hadn’t given so much to charities since the mid-2000s, when he started to donate to the Gates Foundation.
Same with many of these people above. Plenty of them probably only had $1m at say 60, but the extra time allowed them to accumulate more.
So, leveraging time is one way to get wealthy, although not the only way.
Let’s compare like for like. In other words, an individual stock vs individual cryptocurrencies or a basket of cryptocurrencies vs the entire stock market like MSCI World or the S&P500/Total Stock Market Exchange.
Individual stocks can be risky. As Lehman Brothers showed, they can go down to zero.
Yet not only has this never happened with the entire stock market, but it has always gone up over time.
So, investing in the entire stock market has been tried and tested for well over a century.
The stock markets have been going up in places like the US and UK for over two centuries.
That means they have survived:
- Two world wars and other smaller conflicts.
- Radical politicians changing regulations
- The Great Depression in the 1930s.
- Various smaller recessions than the 1930s.
- Pandemics including the Spanish Flu, Aids, Covid-19, and countless others.
- Changes in consumer tastes
- Interest rate changes. That has meant super-high interest rates, 0%, and anything in between.
- Tax changes, including changes to capital gains taxes which weren’t favourable.
- The collapse of the USSR and other countries.
- Various other conflicts and panics around the world.
Unlike most coins, they also pay dividends. Dividends have not only contributed a huge proportion to total returns as per the below data, they also ensure that you aren’t just hoping for the person coming after you to pay more for the same asset as you paid.
Jack Bogle, the founder of Vanguard, explains it well here. Most coins don’t pay a dividend, coupon, or have business earnings to back it up.
So, they are only worth as much as the next person is willing to pay for it. The price could increase, or decrease, but 100% of that is dependent on hoping the capital value will increase.
That is speculation, not an investment. I would listen to former Bitcoin bull Nassim Taleb’s take on Crypto and risk:
Even bulls call it a very speculative investment. So, for sure, crypto is riskier.
Last year was very revealing. When markets fell hard what happened to Bitcoin? Like Gold (2008 and the 2020 crisis), it fell, until it was clear that the world wasn’t going to end.
People went to the USD and government bonds until things calmed down. Stocks fell by less as well. So, it isn’t a safe haven.
That last point also is another thing to consider. Most stock investors eventually have a mixed portfolio with bonds and maybe REITs.
In comparison, plenty of crypto investors go all in
At current exchange rates that is 1,454.50 Pounds a month. Many British pensioners live off less than that.
That doesn’t compare favourably to some other European countries:
However, UK pensioners have the following things:
- Free healthcare at the point of use
- No mortgage on a house
- Free bus passes , TV license and other benefits
- Local knowledge, just like everybody else in the population, about where to find better value goods.
- Private pensions in some cases
If somebody from overseas, in comparison, retires in the UK, it is far more difficult to retire off $2,000 a month.
It is possible, but not easy without some of the things mentioned above. For one thing, it wouldn’t be possible to retire in London or any of the more expensive places.
The UK isn’t really a retirement destination unless you are from the country, or have lived locally for decades.
That is one reason why some British pensioners emirate to places like Spain, Portugal, and even some up-and-coming destinations like Bulgaria.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 289.3 million answers views on Quora.com and a widely sold book on Amazon
In the article below, taken directly from my online Quora answers, I spoke about the following issues and subjects:
- How can expats living in Africa invest? I explain the differences between some of the richer African countries, and the rest.
- Is Singapore richer than the US? If so, why is the currency “weaker”?
- Is 200,000 Yen a month a good salary in Japan?
- What are the best paying expat jobs, and where are they located? I explain the concept of the “hardship location”.
- What are some of the best places to live for a “peaceful” life, apart from obvious ones like New Zealand and Iceland?
To read more click on the link below.