I often write on Quora.com, where I am the most viewed writer on financial matters, with over 636.9 million views in recent years.
In the answers below I focused on the following topics and issues:
- How can you make money using other people’s money?
- Why are so many Chinese millionaires moving out of China, including their wealth?
- Do great products really sell themselves?
- Why do the poor envy the rich?
- Do you think that being an entrepreneur has the best lifestyle, compared to working for someone else?
- What is offshore banking and why don’t more people use this method to save on taxes and protect their assets?
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Why are so many Chinese millionaires moving out of China, including their wealth?
It isn’t a new thing, and it isn’t just happening in China.
Multi-millionaires and billionaires are usually:
- Mobile and can move easily.
- Politically exposed to some degree, especially in relatively corrupt and/or developing countries. That doesn’t mean they are always corrupt, but they need to manage relationships with government officials. So, we saw that some wealthy people close to Hu JinTao left China after the change in leadership when Xi Jinping came to power
- Able to get second citizenship. When I lived in China, I noticed something striking. It isn’t something you would notice unless you work in law, wealth management or any field where you deal with a lot of wealthy people, or pay close attention at the airport. That thing is that there are loads of China people living in China on foreign passports, and they use the foreigner line in the airport, as China doesn’t accept second citizenships.
- More international and speak languages. So, even ten years ago, studies showed that around half of China’s wealthy wanted to move abroad. Since Covid and more authoritarian policies in China, that number has surely increased.
- People who understand that it is better not to put all your eggs in one basket. Even if you live in the most stable country in the world, which China is not, you shouldn’t want to put all your assets in one country.
Last year, the number of wealthy people leaving China, Russia, Hong Kong, the UK and some other places was high.
This year, the Henley Group has looked at 2023 trends.
The left hand side shows countries where the most millionaires and billionaires are leaving. The right hand side is where they are heading.
This year, China and the UK has more wealthy people leaving compared to during some previous years.
There are more people leaving India, South Korea and Japan as well.
India and Brazil’s new higher taxes, and the UK increased taxes if the opposition gets into power, are probably driving those stats.
You will notice something else. The UAE, Australia and Singapore are high up on the list for wealthy people to move to.
Australia and Singapore are most likely on there as they are favoured destinations for wealthy Chinese.
Populist policies designed to target “the rich” can often backfire.
How can you make money using other people’s money?
Using leverage from banks, individuals and other institutions is one of the most common ways companies grow.
Think about any big company in the world. They all use debt from corporate bonds. Debt is cheaper than giving away a slice of your business through equity.
However, in the 0% interest rate era, other people’s money (OPM) has became a problem.
Money was given out so easily that some founders thought the way to make it big was to:
- Have a great idea
- Get funding
- Then sell or list on the stock market
All too often they are focused on the big idea, wanting to become the next Zuckerberg.
The issue is that that is a one in a trillion chance.
Most successful businesses are started by people who get experience in the domain for a decade or so, and then start their own thing.
This image from LinkedIn focuses on age.
It isn’t about age in isolation but more experience. If you are 60 and new to an industry, it is best not to start a business within the first year!
In comparison, if a founder has built up a company organically and then wants funding, that is different to an unprofitable firm.
In that case, fuel is being added to an already hot fire, as opposed to just a good idea.
Do great products really sell themselves?
This is a typical Apple store:
Whenever Apple launch a new product, people are lining up outside waiting.
Many people go into Apple stores knowing exactly what they want.
Apple also never cold call random people. They also turn away some customers.
And yet Apple’s products don’t just sell themselves.
They spend billions in marketing and I once heard an incredible statistic.
Some of their staff get 40 minutes of sales training every single day!
They haven’t been able to completely automate the sales process. Other big firms haven’t either.
It is naive for people to think that great products and services just sell themselves.
It is true that plenty of companies exist on a referral basis, but they are small.
Even firms that get big in their niche have a good marketing and sales process.
Therefore, from the perspective of an investor or business founder, it is important to deal with firms that have got good sales and marketing processes.
Cash flow is king in business. If a business can bring in revenue and manage expenditure, they have a workable business.
If they don’t know how to do these things but have a great service, they will go bust.
I have also seen firms who have only focused on sales and revenues and not managing expenditure.
Most got burned by not also focusing on managing expenditure and therefore profitability.
Revenue is vanity and profits is sanity.
Why do the poor envy the rich?
It isn’t just ‘the poor’.
Plenty of middle-income earners envy the rich too.
Some rich people envy the super rich.
It is just one of the more negative aspects associated with human nature.
Envy exists beyond money as well.
It is easy for people to wish they had more time, money, friends, opportunities, experiences and many other things.
Plenty of rich old people will envy young people who have no money but loads of time and energy.
Being grateful for what you have is more effective for your own happiness than being envious.
It is also better to learn from those who have more than you have.
This book looks at the commonalities between millionaires.
The book was written during a time when a million was worth much more than now.
One of the commonalities found is that wealthier people are more likely to have an abundance mindset.
In comparison, too many have a ‘zero sum’ and scarcity mindset.
I have found it myself. Wealthier people are more likely to see the benefits of co-operation, being open-minded and so on.
For others, hearing expressions like ‘money doesn’t just grow on trees’ persuades them that if one person or group is winning, they are losing.
So, the envy often comes from a scarcity mindset.
Do you think that being an entrepreneur has the best lifestyle, compared to working for someone else?
If you make it.
Most businesses don’t make it, as per the graph below from the Commerce Institute:
The reason it is ‘the best’ lifestyle is you have choices.
Once established, you can work when and where you want, assuming you are in the services industry.
An online business owner, for instance, can easily change their residency and place of work and automate more to work less.
If you work for somebody else, you can only make a lot of money if you are highly skilled and (usually) work long hours.
- Management consultants
- Some engineers
They can still be let go with one month’s notice, and due to ageism, can’t always find decent new positions in their 50s and 60s in some countries.
Moreover, as they aren’t building up recurrent or residual income, they must invest to retire, as those investments will create income.
Or they can wait until their pension is due, which is an indirect investment, but often can’t be accessed until later in life.
A business owner with a residual income business should also invest privately to spread risk.
However, he/she is less likely to go down to zero earnings than somebody on a salary at least once they are established.
The benefit of the lifestyle, then, is more choices and security IF you succeed.
The lifestyle isn’t good for people who don’t like risk-taking and working hard with no guarantee of success, as that is inevitable in the early years.
What is offshore banking and why don’t more people use this method to save on taxes and protect their assets?
Offshore investing and offshore banking means you are banking or investing outside of your country of residence.
You can’t save on taxes in most countries unless you offshore yourself.
For example, if you are British and live in the UK, you can legally open offshore bank accounts and investments.
What you can’t do is “hide” money from the tax man and hope to get away with it.
It is a misconception, often due to the media, that offshore is where loads of dirty money is.
Most tax evasion and avoidance are onshore, in places like London and Delaware, not in the Cayman Islands.
This is 2023, not the 1970s. We now have the CRS and automatic exchange of tax information.
Where offshore does work well is:
- If you move offshore. Taking the last example, if that British person moves to a low or zero tax jurisdiction (UAE, Monaco etc.), they can often reap tax benefits. US citizens often need to renounce citizenship to reap this benefit, as over 5,000 do annually.
- As you say, for security and diversification. We have seen what has happened in Zimbabwe, Argentina, Lebanon, Venezuela and many other places. We have also seen some countries make it more difficult to send money overseas, for example, China and Nigeria, and banking crises even in places like Switzerland. That isn’t to mention Ukraine, Belarus and Russia, where international investing has become more complex. Therefore, having assets in different countries often makes a lot of sense, even if there isn’t a tax benefit.
As to why more people don’t think about these points, the main reasons are:
- Waiting until the problem is there. How many people do you know who have life insurance or trusts, even if they need it? Maybe not many. Likewise, few people think their country will be the next Ukraine or Lebanon.
- In places with a lot of volatility in the last few decades, such as Latin America, most people want to diversify their wealth. In more stable places, in comparison, plenty of people assume it will always be stable in their country. This is known as recency bias. We assume the recent past (since World War Two for many of these stable countries) will always reoccur. Remember, Europe and Japan weren’t always stable.
- Sometimes there are rational reasons not to invest internationally. An example of this is for American residents, as it becomes complicated.
A final positive about good offshore jurisdictions is portability.
Remember, one reason the industry started was due to British expats working overseas during the time of the empire.
They were moving around, and the local financial institutions didn’t always want non-residents as clients.
These days, I have run out of the number of people, especially clients, who tell me their local financial institutions closed down their accounts when they moved overseas.
Expats move around a lot in many cases. Accounts need to follow you, otherwise you can get into a mess, including unexpected taxes, if you are forced to sell assets.
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Adam is an internationally recognised author on financial matters, with over 694.5 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.