In this blog I will list some of my top Quora answers for the last few days, which focused on many interesting subjects.
If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me or use the WhatsApp function below
In the answers shared today I focused on:
- Is it really true that you need to be a business owner to earn a lot of money, or can salaried employees get rich too?
- Is the way that the media reports on “the rich” and “billionaires” really accurate?
- Did the 0% interest rate environment change how I invested assets?
- Does having a lot of money allow you to live a stress-free live?
Why do people criticize billionaires when their net worth is not liquid?
This quote has never been as relevant as how the media report these things:
A small percentage of the criticisms are valid. For example, in some highly corrupt societies, some billionaires work closely with governments, and a lot of the wealth is corrupt.
But the issue you bring up is an excellent point. To answer your question directly, I think it is because of the media.
The media, and their headlines, confuse wealth and income all the time.
They come out with headlines like:
- Bezos makes $10billion yesterday. He makes more in an hour than his workers make in a year. Often the make isn’t in inverted commas.
- Likewise, when stock markets are down, they sometimes say things like “Zuckerberg’s loses $5billion in an hour”.
A more sensible headline would be “Amazon’s share price is up sharply today. Therefore, Jeff Bezos’ net worth is valued at $10billion more than yesterday”.
Or “Facebook’s stock fell sharply in today’s trading. Facebook’s founder, Mark Zuckerberg, saw his net wealth fall by $5billion”.
In reality, these are just fluctuations in net worth. If stocks rise or fall tomorrow, it won’t affect the income of shareholders (even the biggest ones like the founders) unless they actually less their stocks and therefore convert to income.
It isn’t correct to say you have “made” or “lost” money just because a stock is fluctuating, yet the media often claim otherwise – Bezos loses $7 billion overnight, $18 billion in a month, as market sells off on coronavirus fears.
Let’s put this another way, if you invest $100,000 in stocks tomorrow, you wouldn’t consider that you have “made” $10,000 in a day if the stock market soars suddenly.
It is just a paper rise. Likewise, you haven’t lost anything if your portfolio falls, as a loss and a decline isn’t the same thing. A rise and a profit also aren’t the same thing.
Possibly the biggest reason this is done is to bring about a “them vs us” situation, where the “wealthy” are blamed for everything.
When articles appear online, which conflate income and wealth, it implies that “everybody else” is stagnating, and a few people are seeing their incomes skyrocket.
No mention is made of some basic facts such as:
- The average wealth of the ultra rich has grown more slowly since 1985 than the general stock market. Or put it in another way, an average investor who just bought an S&P500 ETF or index fund, would have beaten the average billionaire in percentage terms but not USD terms
- Following on from that, there is the issue of lies damn lies and statistics. If a billionaire has $2billion invested and person two has $200,000 invested, and the billionaire gets 1% less growth per year than the second investor, the overall gap in wealth will increase. Simple example. Let’s say the billionaire sees their wealth grow by 10%. So, they are now worth $2.2billion, whereas investor two gets 11%, and sees their wealth valued at $222,000. The total gap has widened between them for obvious reasons, despite the second investor seeing their net worth increase more steeply in percentage terms. The media can, therefore, report that “this billionaire has made 200 million this year when everybody else is suffering”. Again, conflating income and wealth.
- This year and last is two great example of the last point. The S&P500 rose by 30% this year and countless stock indexes have risen 5%-20% in 2020. So, the hundreds of millions of people around the world that have bought ETfs and index funds have seen their paper wealth skyrocket, even if their incomes are the same or even fallen. It is just that billionaires have more money to invest on day 1, so a 30% rise as an example sounds like more.
- The average net worth of the top billionaires today is far smaller than in the 19th century. Ford, Rockefeller et al. had $200m-$400m adjusted for inflation.
It would be great to think there are a few “evil” and corrupt people, and if we just get rid of them, everybody else will be better off.
It just doesn’t hold up to any scrutiny. In most developed countries, billionaires have built businesses.
If people don’t like Amazon, Facebook or Google, they can just stop using them or use them less.
That will soon bring down their share price and then these billionaires will “lose” plenty of money.
Also, let’s not kid ourselves. If the environment becomes anti-capitalist and anti-money, then it will start to affect people who are worth (or indeed earning) more than average.
Look at Argentina recently. They have started a wealth tax that will affect people will net worths starting at $2.5m.
I am not saying that all tax rises are automatically bad in any situation, and it is true that in a digital economy there isn’t a level playing field for business, merely that we should be careful what we wish for.
Let’s face it, most middle-class people wouldn’t be impressed if the government started taxing rises in property and stock values (“capital appreciation tax”), as opposed to the normal capital gains tax which is when the asset is sold and converted to income.
I don’t think billionaires should be treated any worse or better than anybody else that has wealth in this instance.
Is it true that it’s very difficult to earn money if you don’t have your own business?
It isn’t true in isolation. Most people who are millionaires have a salaried job (mid-income, upper-middle and high-income).
Now sure, wealth and income aren’t the same thing, but there again, some high earners have salaries rather than business-income.
The majority of businesses also go bust in just a few years:
That doesn’t mean starting your own business is bad. If you can get it to work, your income can rise exponentially quicker than for a salaried employee.
The top 10% in most societies are dominated by both salaried employees and business owners.
Once you get inside the top 1% and especially 0.1%, you find more business owners.
Yet you also face more risks and challenges. Look at this year as an example.
So many business owners have gone under, and government schemes have benefited salary workers more than small and medium businesses.
So, it is harder to make “loads” of money unless you start your own business.
That is because those few jobs that pay a lot of money, like executive-level positions, are very competitive and can take decades to achieve.
But that doesn’t mean you can’t earn a lot as a salaried employee.
In a low-interest rate environment, how did it shift your investment strategies?
There has been a low-interest rate environment since 2008 in most parts of the world.
2020 has just seen rates fall again, and bond rates are also low. Therefore, this year marks a continuation of a 12-year trend.
In this context, it is better for people to have:
- More assets in stock market ETFs, if you are long-term at least and won’t panic if there is a crash, and less in bonds.
- Less money in cash in general, apart from an emergency fund in case something happens.
With that being said, I don’t think “rules” like the 60%-40% portfolio are dead.
Look at 2020. Whilst it is true that stock markets took only a few months to recover from the crisis, apart from the UK and some other markets, short-term government bonds outperformed other assets during the worst of the falls.
That gave people the chance to rebalance from bonds to falling stock markets, which in turn increased returns once markets recovered.
Some medium and long-term bond funds have also seen reasonable gains this year.
In essence then, I don’t think loads of things have changed. Stocks have always beaten bonds long-term, and beaten cash by a bigger amount.
The difference now is that cash pays below inflation, so even ultra-conservative investors want in on the markets.
This “search for yield” was one reason why emerging market property soared in value after 2008–2009.
For me then, it didn’t shift my strategy dramatically, it just made me realise that cash is there for emergencies rather than to hoard.
Does having money make people resistant to stress?
The short answer is no. The longer answer is more complex. Money gives people more power and options.
What it can’t buy you is an stress-free life. It can increase your options to reduce stress, but it can also increase your stress.
For example, one wealthy could decide to retire early at 50, but another person could decide to keep working even harder after earning the first million.
For that person, money is likely to increase stress, even if the stress is in a good way – for example to expand a business.
For such people, more money will lead to more stress, even if it is positive stress, competitive and so on.
Having more money also opens up some issues such as:
- More complex tax and business affairs
- You can be targeted more than the average person for business and other scams as you are more likely to be known
- More success in business leads to more clients, and therefore demands
- Some people close to you, like close childhood friends, might ask for money and other favours, which can be uncomfortable for some people.
- What to do with all the newfound choices. Work less or more? Expand business or scale back and take it easy?
- In some countries, you are more likely to be sued if you have more money, , especially if you are a business owner.
- Expectations. Your own expectations and those of others. More people will automatically expect you to give back more to charity and others. That is fine but expectations can cause stress for some people.
This all leads to some wealthier people thinking they have became a victim of their own success.
The grass can always look greener on the other side, no matter what your situation is.
And let’s not forget that money can’t ensure that you escape some of the worst things in life, like illness and death of relatives.
Yet we also have to remember that poverty and lack of money is one of the biggest causes of depression, stress, anxiety, ill health, divorce and therefore more financial problems.
So, in answer to your question, money doesn’t automatically reduce stress, and certainly doesn’t make you resistance.
It can increase or reduce your stress depending on how you handle your affairs.
It gives you the choice, at least, to reduce stress, but not eliminate it.
In the article below I discuss:
- Is it possible to be financially free without being a millionaire? If so, what are the options?
- Why do people take financial risks? Or perhaps everybody needs to take financial risks because taking no risk is impossible?
- Why is it possible for people earning 50k to seem like they are rich?
- Which country has done the best in terms of the economy with coronavirus? South Korea? China? New Zealand? The answer might surprise you.
- Most people believe that debt is bad, but is all debt really bad? If so, why do many successful people, businesses and governments use it? Clearly risks remain when taking out debts, so should most people avoid it entirely, or use it strategically?
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