I often write on Quora.com, where I am the most viewed writer on financial matters, with over 401.4 million views in recent years.
In the answers below I focused on the following topics and issues:
- Why do rich people not retire early?
- What stopped the 2008 Global Financial Crisis becoming another Great Depression?
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Source for all answers – Adam Fayed’s Quora page.
Why do rich people not retire early?
There are numerous applicable reasons.
Firstly, plenty of wealthy people do retire early. Many of these people get bored and come back though.
I remember Kevin O’Leary speaking about this. He retired in his 30s for three years and aimed to go to every beach in the world.
He got fed up and came back. I have heard several stories time and again.
There are only so many parties you can go to, places to see, and experiences to go on. It isn’t easy to find something which matches running your own business or having a truly stimulating job.
As most wealthy people got good enough at something to warrant people to pay huge amounts for their services, this usually means there was also some passion in this area, to begin with.
Then you have the question of purpose. Everybody has met a certain kind of rich kid. Spoiled. Lazy. It is almost like having an overgrown baby sucking on a golden baby bottle.
The first generation, who created the wealth, usually struggles to accept such an existence, where you feel lazy daily.
For this reason, even people who retire from paid work, often join charities and continue to do some work.
With that being said, it makes sense for everybody to at least be in a position to retire young.
We never know when:
- Our health will fail
- We will stop loving, or even liking, what we do. Things in industries can change. Plenty of people wants to retire early due to hating their job.
- Even our priorities might change.
I have also seen countless people who thought they didn’t need to prepare for retirement because “I want to do this forever “, who had to change course after an unexpected heart attack or stroke.
The lack of preparation for such an eventuality meant that many people in this situation end up in a bad way financially.
Therefore, it is better to at least be in a position to retire early, even if you never decide to use the option.
What were the measures that stopped the 2008 financial crisis from turning into another Great Depression?
Stimulus and co-ordinate actions by governments and central banks. However, in some ways, the crisis was this generation’s 1929.
During the Global Financial Crisis (GFC), many people were worried about seeing a repeat of the Great Depression which meant:
- Huge deflation
- GDP falling by around 10% per year and not recovering for a decade
- Mass poverty
It is true it wasn’t that bad in most countries, except for Greece and a few economies in Europe.
It didn’t take the US, France, UK, and most other economies 10 years to get back to pre-crisis GDP levels. Nor did it take about 20 years to get unemployment back to where it was.
There have been plenty of great things happening in the last fifteen years, including growth which has continued in most countries, low inflation until recently, enhanced technological advances, and so on.
However, the GFC has had long-running effects which can still be seen today and probably will for at least another decade.
Those effects include:
- An increasingly authoritarian China. People think it was only when Xi Jinping came to power in China that the country went in this direction. That is only half the story. Before the crisis, the reformist faction of the Chinese Communist Party was in control. It seemed China was only going in one direction. Then after the crisis happened, this faction became sidelined, and China thought “our model isn’t so bad after all”.
- Rising populism. There wasn’t much populism in the West, or East, in the aftermath of the crisis. People were scared. They wanted solutions. Once it became clear that the chance of depression was unlikely, we started seeing radical policies. Those included an attempt to put a 75% tax on France, restricting immigration, the election of populist leaders, etc.
- QE and 0% interest rates. Assets have always outstripped inflation in the long term. That was the theme of Thomas Piketty’s book – an economist who backed France’s aforementioned 75% tax. His basic thesis is that wages have historically risen by 2% or so after inflation. Some assets have risen 4%-7% above inflation. This gap compounds over time. This shouldn’t be surprising. In a capitalistic system, it has always been useful to know how to use capital! After all, what is the only difference between a millionaire accountant or teacher you know who is 60, and a broke one? Probably the millionaire invested decades ago in appreciating assets. Yet the response to the GFC, which was a stimulus, has meant the gap between wage and asset inflation has only become wider. Not every single year it hasn’t. Global stocks went down in 2018 by around 6%, and have so far in 2022, but I am speaking about the general trend. Are we now moving back to “more normal” levels of interest rates? Maybe, but it seems 2%-3% is more likely than 5% in most countries unless inflation gets bad.
- The last point has also increased populism because younger people can’t buy a house as easily, which is important for starting a family in some countries.
That doesn’t mean it is all bad news. I am an optimist. Wherever there is an opportunity, there is a threat and vice versa.
It is just the fact of the matter that the GFC has had long-running effects. All the winners, and losers, from the last 15 years, have been affected by the GFC.
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Adam is an internationally recognised author on financial matters, with over 666.9 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.