Why do people fail to realize the need to invest and also plan retirement early enough?

I often answer the questions of clients, readers and subscribers on Quora, where I am the most viewed writer globally on investing, YouTube and countless other social media outlets. 

In the answers shared today I focused on:

  1. Why do people fail to realise the need to invest for retirement at a young age, even though most people know, deep down, that they should set something up?
  2. Who tends to be more motivated? Rich, middle or lower income people?
  3. Do stocks move the index or do indexes move the stocks? Or is it more complicated than that?
  4. Do you need to get a degree to become a millionaire?

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.

Why do people fail to realize the need to invest and also plan retirement early enough?

Source: Quora

Most people spend two, three or even five times as much time planning their holiday/vacation compared to investing:

There are many reasons for this.

The biggest are:

  1. People have been taught to assume that life gets worse when you get older. The book below tells the story about how most surveys from younger people assume that life gets worse as we age. What’s the point, therefore, of having all that money, if you will be old, fail etc? Some teenagers and people in their early 20s even think that people in their mid 30s are past it! Many people in their 30s assume those above 60 will lack in energy. Whilst it is true that we are more likely to get healthy problems as we age, times have changed. It is pretty normal now for people to feel healthy in their 60s, 70s, and even above 80. I personally know plenty of older people with more energy than the average 20 year old.

2. Most people find investing boring or complicated, often because of the media, schooling and other reasons. It is a bit like setting up a will. Most people know it is a necessary evil, but few do it quickly.

3. Sometimes people have been let down by big institutions like the banks and then they are “once bitten twice shy”. This was especially the case in the 1980s and 1990s when the services on offer tended to be poor.

4. Some people assume that you need to be rich to start investing, and investing small amounts is pointless, despite the reality of compounded interest rates .

5. Bad spending habits. As time has gone on, marketing from bigger companies has became bigger, and is often linked to fear of missing out on “stuff”.

6. Some people really can’t afford to invest unlike those who fall into category five.

7. A certain percentage of people want to put all their eggs into the basket of their own company or working till they drop because they love what they do. Few consider the possibility of “black swan events” like Covid affecting these plans.

8. Procrastination is a part of human nature. Doing something “tomorrow” or “later” is more reassuring than doing something today. People who are successful learn strategies to avoid procrastination, but eliminating it entirely is close to impossible.

Who are the most motivated people, rich or middle class?

Source: Quora

It is a difficult question to answer for the following questions:

  1. “The rich” just like the middle and lower-paid, aren’t a monolithic group. People have different personalities and values.
  2. There are the self-made and inherited rich
  3. Some people become more motivated after they are rich, and others less motivated, because they have “enough”.
  4. People, and their values, can change over time, especially if there is a major event in their live like the death of a relative or they have children. 
  5. A certain type of middle-class professional gets more cynical and unmotivated as time goes on. Most teachers, doctors and lawyers are bright eyed and bushy tailed on day one though.

Let’s focus on the self-made rich only, rather than the inherited wealthy.

Most are highly likely to be more motivated to become wealthy when they weren’t.

If they weren’t, it is less likely they became wealthy in the first place.

Plenty of people get wealthy by being very focused and motivated in one area.

That could be business, sport or any other area. So, the point is, even if they weren’t chasing money, they are motivated people, often making big sacrifices.

Once wealth, fame and/or success is achieved, people deal with it in different ways.

Some become less focused and motivated. I was watching a documentary a few years ago about some former sports stats who become broke.

One mentioned how many sacrifices he made when he was young.

He didn’t go to nightclubs, bars and other places as much as his friends, because he needed to stay fit.

He felt like he missed out on something. Once he retired from sport he was still relative young, in his mid-30s.

He therefore went through a period of trying to relive his youth which he never really had.

For other people, any form of success, and not just financial, is like a drug.

It tastes and feels good. Such people just want more and more, at least until they have kids or something changes their perspective in life.

Honestly, staying motivated and being driven is very important to our mental health, as long as it isn’t taken to extremes.

Most of the healthiest wealthiest people I know have stayed motivated.

It tends to be good for your mental health to stay active.

Do I need a degree if I want to become a millionaire?

Source: Quora

If we look at the statistics, you don’t need a degree to become a millionaire.

Most degree holders don’t end up becoming millionaires. They do tend to earn more, on average, however.

They are also more likely to become millionaires although we also have to remember the following facts:

  1. There is a certain subsection of any population which isn’t motivated at all at age 16, 18 or 20. Therefore, regardless of how useful a degree is or not, degree holders are more likely to be motivated, as a broad generalisation. Or put it in another way, just because degree holders earn say 30% more, doesn’t mean that a highly motivated non-degree holder couldn’t earn as much as the average degree holder.
  2. As more information is going online, and more people are getting degrees, degrees aren’t a guarantee to high-level employment. Yet ironically, that means they are increasingly being seen as a “minimum” now. Getting a degree in the right subject, from a good university, can still be very useful.
  3. The major benefit of a degree is that it does open doors. In the UK system, as an example, a 1 or 2:1 will be enough to allow you to apply for many jobs, even in those that are outside your degree specialism. One of my friends is a manager at PWC but he studied sociology. I know people who got degrees in art who work at banks. That is pretty normal in some countries. That brings us back to the second point. Where you study, and the grade you get, can be more important than what you study. Getting a 1 from Oxford in Art might make getting that consulting or banking job easier than getting a 2:2 or 3 in banking from a lessor university.
  4. Following on from the last point, if you want to live overseas, a degree is very useful. I have lived in many countries. In 70% of them I have been required to give documentation such as my degree and a criminal records check to make sure I am not a former convict! They didn’t care about the score I received. It was just a tick box exercise.
  5. Above all else, being a millionaire means having more than $1m, Pounds or Euros, in assets. It doesn’t income. There are plenty of wealthy middle-income and middle-aged people, and loads of people who just spend all their high salaries and therefore aren’t wealthy. All you need to become wealthy is a middle-income or better, and good spending and investing habits for the long-term.
  6. It depends how you use it. I have noticed a commonality. If somebody is struggling one or two or even three years after they graduate, there are still many opportunities for them in the job market. Employers will understand, especially if there is a good reason for that gap, such as a tough jobs market. After five years or longer, it gets tougher to secure a decent job. In which case, some turn to trying to start their own business.
  7. An increasing number of big employers are opening up schemes for non graduates.
  8. People who see university as the start of the learning process, and engage in life long learning, do much better than those who stop learning after they graduate.

So, the answer to your question is no, but getting a degree might open up some doors.

Just fewer doors than it previously did.

Generally, stocks move the index. Can the index also move the stock?

Source: Quora

In some situations the index can indirectly benefit some stocks. Take big tech and FAANG.

I made the argument a few years ago that even though big tech looked overvalued on some measures, the move towards index and ETF investing would help push valuations higher.

Putting it in a crude way, the more people buy S&P500 and Nasdaq index funds, means a lot of money is indirectly going to names like Amazon, Netflix and Facebook.

Of course, that situation won’t last forever, and I have no doubt that eventually today’s winners will be tomorrow’s losers.

That has been the history of markets. Big firms eventually get knocked off the very top places on the index, and get replaced by new ones.

Further Reading

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:

  1. With stocks at record highs, is a crash imminent? Ironically, I answered a question from 2016 or 2017 on this topic, but many people are asking the same question today.
  2. Is it really possible to double your money, or better, whilst taking little or no risk?
  3. Does money really change people?

Here is a preview of one of the answers:

This question was asked during 2016 or 2017.

It is timely in 2021 though, as it was in the first half of 2018, 2019, early 2020 and from mid-late 2020 onwards.

At the time this question was asked, people were terrified of Trump, Brexit and many other things.

I don’t know the exact date this question was asked, but the Dow was probably at about 20,000.

It is now at 31,000. The Nasdaq was at about 6,000 and is now at more than 13,000.

This once again shows that nobody can time markets, and trying to do so isn’t profitable.

Moreover, let’s not forget that

  1. There have been two significant corrections since this question was asked. In late 2018/early 2019, stocks fell about 25%. People forget about that now. They fell about 5% in 2018 for the year. In 2020, stocks fell about 50% at one point, but rose 10%-20% for the year.
  2. So, there was not one but two significant crashes.
  3. The crashes didn’t harm investors. They benefited from lower prices for a few months. Even if they didn’t add more during those periods, markets are much higher today than in 2016–2017.
  4. Crashes, and especially all-time highs, aren’t unusual. There are regular corrections and crashes, whilst markets usually hit record highs numerous times a year, or every few years. Occasionally it takes longer to hit record highs. Take the Dow as an example – Closing milestones of the Dow Jones Industrial Average – Wikipedia. What’s more, it is quite normal for markets to hit record highs 10, 20 or even 70 times a year. Not every year, but it isn’t unusual.
  5. What markets crash and soar is unpredictable. Look at last year. Markets soared about the second European lockdown and the disputed US election, and even before the vaccine was announced. They have also soared in recent years during the North Korea stand-off and Trump surprising election win in 2016.
  6. The media have regularly said that markets would crash on the events mentioned on point number 5.
  7. Anybody who is diversified in international and local ETFs, alongside bond market funds, doesn’t need to worry about a crash, if they are long-term.
  8. People who keep money in cash, waiting for a crash, usually wait even longer once one happens. I had a friend who said he would get in during the next crash. The Dow fell to 17k-22k for days in 2020, even though it only stayed at 17k-18k for a short-time. What did he do? He decided to wait for markets to dive again! It never happened. Now the Dow is at 31K and he is “looking forward” to a possible “crash”, bringing the Dow back down to 25k. He doesn’t even see the irony.
  9. Even people who say they won’t panic during a crash often do. Often they start sentences with “I know I shouldn’t time markets, but this time is different because…….then they rumble about 9/11, covid or any other reason why this time is different. In the end, they always regret it. However, there are always a certain percentage of people who never learn. Some of the same people I know who didn’t want to invest during 2016 due to the US Election, and were amazed at the new heights they hit under Trump, didn’t invest in 2020 because….of the US Election! Once again, they were amazed at how markets behaved.
  10. Even if there is a crash, and the recovery is slow, like in the 1930s, this benefits younger and even relatively young investors. Imagine if markets had stayed low for 10 years after Covid? What a buying opportunity. Markets were stagnant from 2000 until 2010. Again, a buying opportunity.
  11. People lose far more from worrying about crashes, and panic selling once it happens, than the crashes themselves.
  12. I have yet to meet anybody who has beaten the market from timing it. I don’t even know anybody who knows somebody who has.

The bottom line is this. Market timing doesn’t work. Markets aren’t predictable in the short-term. They can act in the opposite way to how people expect.

The history of markets has been like a volatile rollercoaster which usually goes up, but sometimes goes down and crashes, only to recover and hit fresh highs:

Also, don’t forget that a loss and decline aren’t the same thing.

If you press the sell button during a crash, then that is a problem. If you don’t, then that isn’t an issue at all.

All of this doesn’t mean that a crash won’t happen this year or next.

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