I've come to realize that Hacker News for the most part is not a good forum for discussing the market. There seems to be a lot of disdain and calling it a "rigged" system that makes the rich richer. Just look at the comments at the bottom of this thread. That sort of mentality is ill-informed of finance and the market.
The market is not only for millionaires and billionaires. You can trade $6.95 on ETRADE now and can even trade for free with Robinhood. I actually hold about 80% of my holdings in ETRADE and 20% in Robinhood. I use Robinhood for buying smaller chunks of shares (lowering dollar cost average) or more risky smaller trades.
Savings accounts are stupid! They offer fractions of percent interest. Look at exchange-traded funds that track an index such as the S&P 500 or Nasdaq Composite. My personal favorite ETFs are the tried-and-true SPY and QQQ.
I wrote a blog post on Robinhood and leveraging capital using margin on my blog for those interested:
"Savings accounts are stupid, you should leverage into the stock market" isn't a particularly sensible way of thinking about managing your money.
Dumping all your money into the market ignores that fact that there's a dependancy between how likely you are to need the money and how well the market is doing. Did equities just crash 30%? That means the economy is probably in the toilet, and you might be about to lose your job. I bet that cash portfolio is looking pretty good right about now.
Every dollar should have a purpose and be invested accordingly. If you're investing for a 10-year+ horizon, then you should absolutely put the money in the stock market because you can afford to ride out any drawdowns. But if for example you're saving for a deposit on a house, or if you can't afford to lose the money, then cash is probably the right choice.
No, it really isn't. There are much lower risk options than stocks or bonds that are liquid. All of the savings accounts I have seen for quite some time pay below inflation, so you are actually losing money using them. Most people do as you say though.
I thought about mentioning government bonds or term deposits, but I wanted to keep the post simple. My point is that the stock market isn't always the answer.
I don't know what interest rates on savings accounts look like in the US, but in the UK they're competitive with government bonds. Banks often use them as a loss-leader to sell more profitable products like credit cards and mortgages.
I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond. Even the US two year note has a negative real yield right now, so it's hard to see how to get an above-inflation return without taking significant risk. The five-year inflation-linked bond has a negligible yield, and means locking away your cash for a significant time [1].
interest rates on savings accounts [...] in the UK [are] competitive with government bonds.
Looking at the rates for UK government bonds, it looks like those are also below inflation (e.g 5 year yields are around 0.6%). If there were any savings accounts paying above inflation, I think exchange rates would be shifting accordingly in the absence of capital controls. I suspect that savings accounts representing a poor RoI is therefore a global phenomenon.
The only thing which I can think of that the parent could be referring to is the money market. I think I'm as lost as you as to what he is getting at.
I'm really talking about retail savings accounts: most banks in the UK pay give 2%-3% on deposits up to a cap, with no interest paid on funds deposited above the cap. However, it's often possible to get around the cap by opening multiple accounts. You can stash amounts into the mid tens of thousands like this, but for higher values it gets a bit trickier.
These are retail products. It's true that an increase in the yield on government bonds would move the exchange rate, but the kind of institutional investors that move money in enough bulk to affect an exchange rate have little interest in retail deposit accounts.
> I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond.
Why are you looking for a single, magical asset class with superior risk-adjusted returns? If you invest in a diversified portfolio of stocks, government bonds, real assets and cash, you'll find it earns a solid rate of return with less volatility.
> No, it really isn't. There are much lower risk options than stocks or bonds that are liquid.
Yes, what you want is the repo market, or the eurodollar market. But wait, see what happend on these market during the last crisis ? If you really want a risk-free market, what you want is tradind the fed funds market, except :
1. You can't since you aren't a bank.
2. The interest rate is shit.
3. It's basically what you already do when you have your money on a bank account.
There is no such thing as a free lunch, if you want something safe and liquid, it's not going to pay well.
> The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?
It would be instructive to re-ask this question as "what would you do to pay for a $400 dollar expense in 6 months". I suspect the answer would be different. There's very good evidence to show that people are bad at planning for nebulous future risks, especially compared with current needs/wants.
Robinhood should add a direct-deposit option which automatically buys shares of indexes in a preset mix once sufficient capital has been deposited, I suspect that would materially help.
In Australia this actually happens in a rather structured way; Superannuation, or defined contribution benefits as it is usually called in Europe. Your employer (full or part time) is required by law to contribute 9.5% of your salary (over the top) into a regulated fund with your name on it (i.e. the funds are no longer accessible to the company). In your younger years this is normally put into a growth focused investment (stocks etc), when you get closer to retirement most employees elect to move to a more cash / hard asset class (bonds, property, and sometimes corp bonds). The real pity is that most super administration companies charge whopping fees and most employees stick with the administrator chosen by their company.
Alas, the superannuation is mostly restricted to fairly expensive options, ie high fees. That's because providers have to clear some regulatory hurdles keeping competition down. You can't just tell the government "Yeah, I'm using vanguard index funds for my mandatory 9.5%."
At the moment, Host Plus might be the best option (read 'cheapest option') for Australians. Not sure if that's still the case.
You can set up a self managed super fund (SMSF)[0], you do become the trustee of your own super fund and you do need to follow super regulations but it does give you the ability to a large percentage if not all your super money into a low fee index fund.
Yes. But that only makes sense for people who already have a sizeable chunk of super---since there are fixed costs for an accountant to sign off on your investment decisions.
>There seems to be a lot of disdain and calling it a "rigged" system that makes the rich richer
Based on current evidence world over, it does appear the case. I know of no one either famous or even within my social circles who's become rich solely by investing in the markets alone. Unless one has deep domain expertise within a sector or has information to which they're privy, it is unlikely one will earn returns that significantly outweigh the market in the medium to long term. So, yes, it is not hard to imagine that equity wealth is concentrated among an elite few who also have an incentive to not let newer members in to improve their own returns.
The market does not exist to make anyone rich. The math never works out. Desperate and clueless people delude themselves into thinking otherwise, and more reasonable people use the market as a glorified lottery ticket.
All of these people are missing the point. The only people that could ever meaningfully participate in the market are those for whom 6-10% returns on their income vs. 2-3% are meaningful. Everyone else needs a larger return, the stock market cannot and never will offer the kind of return on investment that a job or business can offer.
Stock markets encourage liquidity of capital. They are instruments by which hungrier, but still large investors can take money from their more well-heeled contemporaries without having to resort to ugly political action.
There are only two financial investments that really make sense from a personal point of view, mortgage loans and retirement. Mortgages make sense because it's an accessible form of leverage, take the leverage out of the picture and everyone would rent. Retirement makes sense because it's the only other scale people operate at where single percentage point differences in return make a real difference. Otherwise we'd just put all our retirement funds in a savings account.
I'd say you need a few million in the bank before financial investment starts to look better than hunting for business deals. Sure, financial investment is less risky, but savvy players can de-risk by studying the market.
You would be very, very surprised how few people are trying to pick stocks that they will hold for years and want to beat the market. Despite that being the generally agreed point of "investing" over speculating. I'm including active investors as well as individuals in this, short termism is very prevalent, partly because people chase the fund that outperformed over the last X months.
There is a small extent to which the drawbridge does get pulled up. Successful funds can close themselves to new business simply because they have too much money / clients for either their investment or client relations capacity. If a fund owns 4.9% several of its key investments then you can't admit new money without altering the balance of the fund and thus affecting the existing investors.
"Mr. Mercer told the audience he was daunted by the prospect of speaking there for an hour, “which, by the way, is more than I typically talk in a month so it’s quite a challenge.”"
If you have a major win in the market, you likely have an edge. Publicizing your egde will only draw the attention of pesky competitors trying to reverse-engineer your strategy.
> it is unlikely one will earn returns that significantly outweigh the market in the medium to long term
Do you need to beat the market to become rich? What about just earning the market return (SPY, VTI, or similar), over a 30 or 40 year time period? I know plenty of older folks who 'got rich slow' this way. Granted, historical returns might not be there for millennials in the next few decades, but it's still the best bet there is.
You need to be in the market to maintain buying power with stagnant wages and increasing costs. Most people do not have $400 for an emergency so they aren't participating in the market.
And if you have to borrow to buy a house/car or buy health insurance, then you are paying those richer than you to exist, their rate of return will continue to be higher than yours, and wealth inequality will continue to rise.
People don't have $400 for an emergency but they have smartphones, Jeezy shoes or various other random unnecessary crap. People don't have $400 for emergencies because they choose not to. Look at Black Friday sales -- people seem to have $400 to fight over TVs or game consoles. Even the really poor in the US seem to find money to buy TVs or subscribe to cable/satellite TV. Visit any public housing complex in America and there is a large number of homes with Satelite dishes. I am not saying there's anything wrong with that but I am also saying that people do make choices.
I am not a particular fan of Warren Buffet, but he's a billionaire and lives far more discretely than your typical 5 figure "millionaire" who's driving a leased BMW and drinking Grey Goose at the club.
Certainly there are actual poor; that's not in dispute, but the middle classes typically just prioritize things differently -- which contributes to their station.
This. We (especially you US citizens) have never be that rich ever in the whole history of mankind. Yet people keep complaining life is tough. I don't get it. But who wants to live his grandparents' life ?
I wonder if you realize that the market return people are trying to beat is effectively the average return over some period, and therefore you're saying that on average people don't get above average returns?
Also, as others have said on this thread, using compounding it would be possible to do extremely well without beating the market.
Just to address a few comments, I meant it's hard to beat the market i.e. have your investments grow faster than the benchmark index. That's a different matter than 'growing rich' or 'doing well'. Sure, you can and in fact, after burning my fingers, all my investments are in index funds too.
But, my point referred to the original comment that the system isn't rigged. There's a high probability it is and because of how capital and information flows work, there's a select few who will benefit instead of a wider majority.
"More than half of Americans, 52 percent, are currently not investing in the stock market—either by buying individual stocks or mutual funds, or through a retirement account such as a 401(k) or IRA, according to a new Bankrate.com survey. Among the non-investors surveyed, 53 percent said they don't have the money to invest and 21 percent said they don't trust stock brokers or financial advisors."
They could still be investing, just not in the stock market. Buying a larger house (with the goal of taking on renters), buying a rental property, or just a plain savings account, which is a proxy investment in Treasuries.
I wish I could buy a house just to live in. A rental property would be a dream. However, buying a house still requires an initial investment and good credit, which is tough to get when you make $10/hr. Then you have to be able to afford maintenance, disaster insurance, and an emergency fund if something happens to your job. You've got to get a house in an area with enough housing demand that you can rent it out, which is getting harder due to the fact that most new jobs are only being created in a handful of cities like SF, Houston, and NYC. This creates a lot of demand in those areas, which makes buying a house there out of reach for most normal people. And even if you manage to get a good house in a moderately okay area, the value of a house depreciates on a long enough timeframe. All this means that real estate investment is only truly available to those with preexisting capital.
That seems to suggest that 27% or roughly 1 in 4 Americans cite not having enough money to invest in the stock market. To be clear that is different from saving money or returning it to real estate investments or into a family business. I'd say that falls in line with expectations given unemployment rates and median wage vs cost of living statistics nationwide.
Robinhood being free of commission and having no minimum is a good start for the larger pool of people without much to put up. Personally I started with $500 from student loans and a scottrade account. I wish Robinhood was around when I was starting. You could start investing/trading in theory with just $1.00 but there is the problem that many S1 stocks are not too great. However a good $45 stock that goes up and down by $3 over a 2-4 week period is accessible. Even if not, $45 to $48, then back down to another stock at $45 in the range can lead to similar results. However one must not get into the trap of only wanting that particular price point, it's just an example. With Robinhood I would have been able push out to higher amounts sooner due to the lack of commission fees.
To me, a $45 start anyone working can figure out. Part of the problem if you ask me is the normalization of the notion of "you can't", etc. I've been reading Mass Flourishing and The Complacency Class this past week; the "you can't" notion, the loss of risk aversion seems to be the key driver. However I think it's also where we put of value regarding information. Instead of watching a sports game or the Bachelor, read a few books about investing and trading which you can get at a library; worldcat.org can help one find such libraries that hold those collections. However many would scuff if they were told to make that trade off.
I'm going to contest that. Its absolutely ridiculous to claim that someone who makes any amount of money per month cant spare $45 of that. Maybe they use the $45 they COULD spare to buy slightly better food, which is a valid way to spend 45 bucks. But its ridiculous to believe that a person can't downgrade SOMETHING and save $45 a month.
I know a guy who lived off of kraft prepared meals and milk for 2 months to get out of some debt and launch a business at the same time. He spent a dollar a day on "nutrition". Maybe not the healthiest 2 months of his life, but don't tell me that you cant sacrifice to save 45 bucks.
Its like saying you can absolutely not sleep an hour a day less to do something productive youd really love to do.
That's the problem. Science fiction told us we would have robots doing all the work for us but most left out the part about 1% owning all the robots. That's not sustainable.
Savings accounts are stupid if you are investing tens or hundreds of thousands of dollars in free cash, after establishing an emergency fund of several months' income.
Savings accounts are not stupid if your life savings accumulated over many years is only $2,000 or $3,000 and you never know when you'll need to tap into them for an emergency.
The accusation of it being rigged goes far beyond brokerage fees.
It has to do with earned income tax vs capital gains tax, sales taxes, out-of-balance property taxes, educational opportunity, legal recourse, inheritance, etc.
P.S. I agree with your conclusion, even if your argument is weak.
Except for people living paycheck to paycheck because they're on welfare making minimum wage. In other words about 20% of the population, if they're smart with their money, can participate in the market.
Sorry, anybody can participate, even people living paycheck-to-paycheck. For example, instead of buying that $5 Starbucks, save up and buy a share of $SBUX which is currently at $54.53.
I don't think you understand the concept of paycheck to paycheck. Although it may be the case that some people living paycheck to paycheck spend outside their means on luxuries like brand name coffees, there are also those people for whom paycheck to paycheck is forced on them due to external factors. Now I didn't downvote you but I think those who did did so to hint that your perspective could use a reality check.
Last year alone I went to Chile, Sweden, Romania, Czech Republic, Germany, Belgium, and Ireland. Don't make assumptions about people and things you don't know. Have I traveled more than you?
Gambling always favor the party with more capital.
The current market is cultivated more as a place for gambling than meaningful investment avenue for advancing economies. That's where the sentiment come from.
No one is complaining the access to the market is lacking. Rather, all are forced to join a market that has obvious flaws that the rich and powerful are not interested in fixing. And if not join the market, you stand to lose for sure.
Saying anybody can participate is as ridiculous as Republicans saying poor people will have "access" to health care without any concern of its affordability.
You live in a bubble. You should go talk to some real people.
you're getting downvoted for your comment being irrelevant to the discussion. If most of your income is salary, you will be paying a much higher effective tax rate than if most of your income is capital gains. The latter correlates with being wealthy.
> If most of your income is salary, you will be paying a much higher effective tax rate than if most of your income is capital gains.
Correct only for individual incomes above $165,000. Current long-term capital gains rate with ACA surcharge is 23.8%, and according to https://www.taxact.com/tools/tax-bracket-calculator.asp the effective income tax rate for a single individual goes above that at $166,000. Having any family or other dependents introduces new deductions, and so does contributing to an IRA or 401(k), extending that runway.
This also ignores the fact that planning to generate stable income via long-term capital gains is akin to planning on generating stable income by consistently winning the lottery.
1) the lottery has a negative expected value, investment does not. In the long run, this is a qualitative difference.
2) That is federal income tax, you've missed state, medicare and social security, and are also completely discounting the fact that the capital gains rate is bounded from above by the income tax rate.
3) most importantly, 165000/year isn't very much money. It is plenty to generate personal wealth. Most of the actual income in america is made well in excess of 165k/year, and much of that income is in the form of capital gains.
The article you linked concludes that "the wealthiest 1 percent are an outlier: 36 percent of their income comes from capital gains". As the graph suggests, that number quickly decreases to 10% and 5% when the group encompasses the wealthiest 5% and 10%.
So for those three groups the income not subject to capital gains tax constitutes 64%, 90% and 95%.
This is before the capital gains are even broken down into long-term vs short-term (which are taxed at plain old income tax rates).
I am still not seeing what led you to believe that the effective tax rate will be significantly lower.
> That is federal income tax, you've missed state
Mmm, okay. Well, I am not a CPA and not sure about other states, but California makes it easy by treating any capital gains (long-term or short-term) as income, so (at least for CA) the effective tax rate of someone relying on long-term capital gains will be pushed up, not down.
I agree though that if some other states have favorable treatment of long-term capital gains, the numbers would look different.
> medicare and social security
Both are subjects to wage limits, and at $166,000 (which will be a higher value once the state tax is incorporated) we're well past those limits.
> the lottery has a negative expected value, investment does not. In the long run
But a capital gains requires a sale, which means the position has been exited, and there's no long-run. True, it might be a partial sale of an asset, and in some case the proceeds of a sale are invested into another position, but at this point you're pretty much betting the new assets will increase in value and be a candidate for a sale. Hence my lottery comment.
I'm not saying you don't have a point in your original post, but you should absolutely not use the stock market as your savings account. There's a reason it's recommended that you have 6 months of living expenses liquid.
Yes, you're very likely to gain much more by investing in index funds. But "the market can stay irrational longer than you can stay solvent." If there is a stock market crash, that's likely to coincide with personal issues, like losing your job.
Even if you can weather the market, having to pull out money at the bottom of the market will destroy your gains.
> There's a reason it's recommended that you have 6 months of living expenses liquid.
Do you mean cash equivalents? Public stocks are liquid.
Personally I think the 6 months advice is too conservative. If everyone calculated the damage inflation tax did to their savings account each year, probably more people would be willing to take a bit of a risk and invest their savings (or a greater portion of it).
You're right, public stocks are liquid and I meant cash equivalent.
There's a lot of variance on how much is recommended in an emergency fund. Most seem to say 3-6 months. I know if I lost my job I could cut down my living expenses and stretch it out. But if I had to move for a job, had an extended gap, or had to take a lower paying job I might have to dip into those investments prematurely. Having to cash out at the bottom of the market burns years of investments where it would have been better if you just held onto cash even if your interest rate is a pittance. Just like putting money into 401k is more than negated if you have to cash out early.
Everybody has different risk tolerances and the amount needed in an emergency fund varies depending on a bunch of things (if you have debt, variety of incomes vs a single paycheck, gap between expenses and earning). I've never seen anyone actually do a study or source why they chose 3-6months--so it's really hard to argue for or against. I'd be curious if anyone has done a study.
It hurts to have money just sitting there, but I'm not trying to eek out every penny. I really don't think all those extra risks are worth it. Keep your living expenses low and it won't be that much money ;)
I get that. That's why you diversify your assets and hold a bit of cash as well. But 6 months is a bit extreme.
It's not as if a diversified portfolio is going to drop to zero during a major recession (unless the government collapses, in which case cash might not be useful either). It might lose around 30%, depending on how you diversify and how extreme the recession is.
Completely agree that the market should not be where you put all of your money without having liquid reserves. I'm not advocating that.
Howerver as a long-term (> 10 yrs) strategy and assuming you also keep a pool of capital in a checking and savings account ETF's are the way to go if you just want to fire and forget.
"Love that I'm getting down voted for saying anybody can participate which is a fact."
'Anyone' can chose to play poker against people who are much smarter than them, who count cards, who use computers, who have 20 years experience and are buddies with the casino owners.
Now maybe that game would not be theoretically rigged, but one would be pretty stupid to play it.
Please leave these out of comments on Hacker News. When we do so, the quality of the discussion is improved dramatically and we lose no information at all.
That is untrue. Not participating in the market is impossible because of inflation. By 'not participating,' you are participating as inflation is still happening. You're essentially shorting inflation by not participating. So even not investing is investing -- that means you're holding cash which is itself an investment.
I'm no expert, but I'd like to think that there is no free money. Unless you are hiring a professional with proper track record who will be actively investing (lots of fees involved), you are taking large risks; anything above what banks/government bonds are willing to give for inflation (+ small opportunity cost) - is mostly gambling.
I think, many people think stock market does nothing for poor, because:
5% of 1,000 = 50
5% of 1,000,000,000 = 50,000,000
No amount of compounding will help the poor and any loss will be much much worse.
I like the investing accrediting idea and wish it applied to stock market as well, but I guess some people might not like reducing of their choices (https://en.wikipedia.org/wiki/Accredited_investor)
> you are hiring a professional with proper track record
The statement is somewhat of an oxymoron. A professional with a proven track record wouldn't be interviewing to manage your money - with the current cost of the capital they would raise a small hedge fund, stay out of public life and keep most of their track record to themselves, being occasionally portrayed as "reclusive" billionaires, e.g. Renaissance Technologies.
I concur, though, using a financial advisor is good for diversification and as a second set of eyes on private or any convoluted deals, but anybody asking for your money in order to bring untold riches is manipulating people.
It's hopeless. I don't know where this victim mentality comes from. I won't even put a political label on it because I truly don't understand how people can think this way.
It's like complaining that top 10% of good looking people get 80% of all the good acting jobs.
Or that the top 10% of people with athletic prowess win 80% of sporting events.
Or that the top 10% of good chess players win 80% of tournaments.
Or that the top 10% of engineering graduates grab 80% of the good jobs.
Or that the top 10% of people with great grades get 80% of the good jobs.
And, while doing this, blaming those people for one's lack of success in the respective fields.
Well, yeah, the top 10% of the people who are genetically better swimmers will win 80% of the swimming competitions. Me? I suck. Because I am not anywhere close to that genetically optimized group. I can get much harder and improve but I am simply not good enough. And that's OK. I don't know where this idea that we are all equal in every respect comes from. There are people far more capable and far less capable than every single one of us in just about every single human activity and the top 10% within any category will do better than the 90%. That's just the way things work.
Wealth is that same. Some people have money because they are lucky and otherwise dumb as a brick. That's not the case for most people who have money. They've taken risks, worked hard or worked smarter than others (or all three of these factors). And, no, they are not trying to oppress the rest. The gifted swimmer who laps me at that open water meet doesn't even know I exist. Blaming him or her for my shitty standing isn't aligned with reality at all.
Yet, I don't think these realities are going to convince people attached to this rich-hating ideology to reconsider their position. I don't understand where it comes from.
I am speaking only of the US here. I don't know about the circumstances elsewhere. Here in the US, opportunities for advancement have never been better. Not by a long-shot.
Actually, social mobility in the United States is declining (https://en.m.wikipedia.org/wiki/Socio-economic_mobility_in_t...) at a time when the difference between the top 1 percent and the bottom 1 percent is obscene. There are people in this country with tens of billions of dollars while others are going bankrupt due to medical bills or working paycheck to paycheck, unable to save for retirement.
But it's not even that the top 1 percent doing well that is the problem. It's that the top 1 percent is doing extraordinarily well in a time when the rest of the country(with the exception of a handful of cities in the US) is seeing a decline in quality of life. A rising economy should benefit everyone, but it seems to only be benefiting the capital owners right now, which is making a lot of people very angry.
My point. My only point. Is that the rich have nothing whatsoever to do with what you are describing.
They don't have a secret club where they meet to conspire on how to keep people poor. No, they do what they do every day: Focus on their businesses and investments.
The reason we have the problems we have are far more complex than simply blaming the rich.
Part of it is that we've "bred" the drive to succeed out of most people. No, this wasn't some fantastic conspiracy. I think it happened naturally due to how the US has developed.
I read an article recently about how China is outpacing the US in the rate of business creation by a staggering margin. The level of investment in China on new ventures is mind boggling. That means they are promoting a culture of entrepreneurship as well as supporting it.
This gap you describe is only filled with effort as well as intelligence. When unions create an environment where a guy inserting a screw into a hole gets paid $50 an hour, what do we expect that will lead to? And, when they create an environment where buying a robot to do that job requires the company to continue to employ that person at the same pay rate even when you don't need them. Well, again, what do we expect this will lead to?
Unions have resulted in huge job losses in the US. Until that mentality changes they will not come back, despite what politicians might claim.
I don't have the time to cover other scenarios, the above are not the only drivers. Nothing prevents anyone in the US from making as much money as they want other than themselves. That's the only limitation. You have to be willing to make the effort and take some risks.
And it doesn't have to cost almost anything. I mean, look at the people posting videos on YouTube making gobs of money on ads. Most of the people in that middle class gap everyone refers to are walking around with iPhones or other smart phones.
That's what's funny about this whole ideology, people on Welfare with iPhones. On the assumption they have access to a phone or a camera, anyone can make videos on YouTube and make money. Is it easy? No, of course not. Will it require lots of effort? Damn right. Will some fail? Most will fail. Yet, it's there, it's possible and it is within reach.
I don't understand, do people want to be handed wealth without making an effort or an investment?
>Wealth is that same. Some people have money because they are lucky and otherwise dumb as a brick. That's not the case for most people who have money. They've taken risks, worked hard or worked smarter than others (or all three of these factors). And, no, they are not trying to oppress the rest. The gifted swimmer who laps me at that open water meet doesn't even know I exist. Blaming him or her for my shitty standing isn't aligned with reality at all.
Yeesh. This is factually incorrect. You are saying "this is what you think the world must be like, given that's the pyramid in many other places."
But you are just badly mis-caliberated.
The top 0.1% control most of the wealth, and the top 0.01% control a disproportionate amount even amount the top 1%.
So what? I can still make millions and so can anyone else.
The top 0.1% of anything control the most coveted aspects of that thing.
Really? And this is a revelation how?
This manner of victim thinking is defeatist. One thing has nothing to do with the other.
Here's a perfect example of a guy with a very simple idea that, as of 2012 (can't find current data), developed a SIX MILLION DOLLAR business. With a freaking paperclip. No code. No computers. No need to learn Python or ever touch a server. A freaking paperclip was his development tool. Here, read it:
I'll repeat what I said a few times now: Opportunities in the US have never been better. Anyone can reach for the stars. Yet, it does require taking risks and being willing to work hard and smart in order to succeed.
You keep repeating that the wealthy don't matter, I suppose because you are saying that on your own you can be wealthy. Then you provide an example of an individual who did.
Again, you are incorrect, vastly so. Firstly, measuring people who succeed is absolutely incorrect because it ignores the survivor bias. For that one guy who made it on shark tank, there are many others who failed on a per episode basis.
Similar patterns appear in real life, and are possibly more stark.
Secondly, not everyone is going to be an owner or an entrepreneur - some are not cut out for it, some are more interested in being professionals or doctor.
You are arguing that it's possible, and that looking at failure is being defeatist.
What me, science, and the rest of HN is saying is: " sure it's posisble. That's not what everyone is talking about."
Most people don't and won't make it. Most people will not, even after a good effort reach an average standard of living and retirement similar to what America once promised.
Social mobility has decreased, your examples are influenced by a survivor bias. The point of showing the wealth distribution is not to show what the wealthy are doing, but just how few people manage to even make it to comfortable and well to do standards.
Todd: Most of society is never going to make it. Even the ones who try won't. A very small number will get lucky enough to cross that barrier.
Most people can't shoot a hoop from mid court and make it. Why? A multitude of reasons.
I don't understand your point. What do you want? Equality? Everyone should be able to shoot a hoop from mid court and nail it?
Everywhere that idea has been tried ended-up in misery and even greater inequality, with the ruling class truly oppressing the population.
I also find this statement perplexing:
> reach an average standard of living and retirement similar to what America once promised
America promised no such thing. Opportunity. That's what the US offers. What anyone does and can accomplish with it is up to them. You have the opportunity to succeed or fail.
People seem intent on blaming anywhere from 0.1% to 10% of the population for the ailments of everyone else. And, in the process of doing so ignore all other factors. This is the only reason for which the middle class is eroding, no other reason at all. Not education, not policy, not regulation of our industries, not trade deals, not currency manipulation, not technology, not productivity, not anything else, just those rich bastards sucking-up all the oxygen. That's just wrong at the outset.
Let's just agree to disagree. It's Monday. Time to work.
> The goal was to be able to have a fair game on the court.
OK. That also means no advantages for anyone. Cut Welfare, cut support programs, cut grants, cut subsidies, etc. Fair means nobody is favored in any way.
To take the "shooting the hoop" analogy further, it also means that if someone is out of shape, doesn't exercise and isn't willing to make the effort to get up every day and work hard to be able to make it they fail.
And that's the root of the problem I have with some of this narrative. Those who can't make it or fail blame the athletes who do make it for their ailments and call out for "fairness". What they really want is something for nothing.
> This is both illogical (if it was just an opportunity, then in theory no one had to Come from England to america did they) and moving the goal posts.
I don't think you know what "opportunity" means to an entrepreneur. You can take opportunities to the bank. In sharp contrast to that, ideas are worthless.
> America promised a particular type of opportunity (the American dream), and the fair possibility for people to attain it.
Pure fabrication on your part my friend. Show me one document that says the US ever promised "a fair possibility to attain the American dream". No such thing.
And, even if it were, what's fair anyway? One of the most overused words or concepts.
Let's explore "fair" for a moment.
When I launched my first business I had to work 18 hour days 7 days a week to make it go. All self-funded BTW. I did that for about 18 months. I then worked about 16 hour days 5 to 6 days a week for another couple of years, still in the garage. Three years later it made sense to move it out of the garage into a 10,000 square foot industrial building. I was finally able to only work 12 hour days. I don't think we took a non-working vacation in ten years.
What the hell is "fair" in this context for someone who looks at what I achieved through that effort? Should I give them half my money so they can live without working? Or half my money so they can start a business and compete with me? Or half my money so they can have a lifetime pension and retire at 50 years of age?
No. "Fair" means that if you want what I have you either work harder or smarter than me, or both. You, and anyone else, have the opportunity to do so, just like I did. I am not special at all other than I am willing to do what has to be done. That's it. I could have chosen to stay at my prior job earning $120K a year and go sailing every weekend. I chose to work over 16 hour days for three years and risk hundreds of thousands of dollars to chase after a personal dream.
As a wise man told me: "Having a business gives you great freedom. You get to choose which 20 hours of the day you want to work. Most people don't want to have that freedom yet are quick to envy or critique those who do have it."
Want it "fair"? Stop complaining about rich people and get to work. Nobody is stopping you.
Look I'm very happy you succeeded and made it. I don't envy you, or covet your success.
I do disparage your lack of information on developmental statistics and societal behavior.
Matter of fact the most regret is not having a reading/article list ready at short notice, to help with this discussion.
It would help by showing, for example:
1) Even people who argue for welfare are arguing for actual fairness.
1.1) studies show that child development (which relates to scores) is influenced by maternal and grand maternal nutrition levels, and so poverty results in disadvantaged kids without any fault on their part.
This kills the fair concept you hold. Which is why I'm for fairness in this area. I want it to be fair, and I don't think kids who are suffering through no fault of their own, should be disadvantaged by unfairness masquerading as "fairness"
2) reduction in social mobility means that yes, even if you work hard, you will tread water. So not all entrepreneurs make it. Many many more fail.
And lots of people work 18 hour days, 7 days a week and still tread water.
3) evidence for the American dream, other than the fact that large chunks of my family made it and lived in an America where this was accepted and the reason people were attracted
4) bias, systemic, gender, age and racial, and how they persist despite laws, despite efforts to rub it out (and it has improved since this fight stil started.
The world is inherently unfair. People are losing even after putting in as much effort as you.
The fair, is in that someone gets to compete on the same platform as you. That they enter the court without handicaps.
I agree with your initial sentiments, but your fianancial advice has me wondering how old you are.
If you're not old enough to live through what happened in 2001/2008 then you have some serious blind spots.
And I don't mean just alive in 2001/2008, I mean riding high on your investment choices thinking you're a genius only to have everything come crashing down.
When things come crashing down again (and they will) you won't pull your money out because you'll think it's just a dip on the way back up.
If you're young enough, that's all you know, small dips that rise to new heights.
If you're older, you've seen dips that go back up, then dip lower, then go back up, and lower, etc... and each step of the way you think, don't sell now it's going to go back up. That later turns into, don't sell now or I'll lose money.
And finally, you've ridden it all the way to the bottom with no cash. Let's hope in this down turn that you still have a job.
Sorry, if that sounds a bit dark, but I've seen this before and you should be careful with how you invest your money. Cash or equivalents should be a component of your portfolio.
I keep a few years of expenses in cash equivalents. Once you achieve that you become immune to market swings and job turnover.
Most people don't know what the word capital means. The gap is massive for real reasons not just access to trading platforms. The bottom 90% shouldn't have to give a shit. An electrician should be able to specialize in their field and trust that their retirement is taken care of by financial pdofessionals. Same as a financial professional should be able to trust an electrician to wire their house correctly for a fair price that will last 40+ years.
An electrician isn't, or shouldn't be, dependent on what so called "financial professionals" tell them. It isn't rocket science. Save a portion of your salary. Build up an emergency fund. Invest in passive index funds. Don't try to game the market. Don't get into debt. Don't assume someone will take care of you. This used to be common sense (save the index fund advice).
In fact, an prudent electrician is probably better of than a lot of students nowadays with worthless degrees and a mountain of student debt.
Thanks for posting this. Sums of a lot of my feelings when reading the more ill-informed comments related to markets. Btw, Interactive brokers I personally prefer. Etrade and likewise others I find be too much oriented for beginners.
Robinhood I tried once but hate that it's only for the phone. My terminal is much more capable of trading than my phone.. though I get why Robinhood was designed like that... to appeal to those who are more phone oriented.
"Savings accounts are stupid! They offer fractions of percent interest. Look at exchange-traded funds that track an index such as the S&P 500 or Nasdaq Composite. My personal favorite ETFs ... (and on and on)"
If you had had your savings in the market in 2008 and didn't sell it, it would still be worth more now. Moreover if you were investing regularly then you would have been buying the super cheap stocks available in 2009.
Mid 30's. Also you really don't know what you are talking about. If you bought nearly anything after Nov 21st 2008 and held, you'd be way in the green since then.
Let me give you a even more conservative example. SPY which tracks the S&P and it is very conservative (in terms of stocks), is up 151% since Nov 21st 2008 way above pre-2008 levels. Not to mention all those beautiful dividend payments you received.
> If you bought nearly anything after Nov 21st 2008 and held, you'd be way in the green since then.
You can always pick a crisis, and say that hold equity after crisis or before crisis, and wait for years, everything is green. Just pick a correct time period. The chart is obvious to naked eye, and an elementary schooler can make that argument correctly.
You ignored the fact that who caused the crisis and who are hurt the most. Whatever you said is an camouflage over a much more profound issue.
The fact that less rich or powerful can still grow matters much less than the relative ratio and wealth and power distribution.
The fact is obviously that the world's current market structure make rich become richer, powerful become more powerful. And let's pray that does not eventual causes society and economy breakdown.
"Also you really don't know what you are talking about."
Savings account (and other) rates are not low like they are because of chance or happenstance or a computer bug ... they are that low for a reason.
People are terrified. Smart, big money is terrified. Policymakers (at least thoughtful, informed ones) are terrified.
Nobody has any idea how all of this turns out. The 8 year melt-up in stocks is the result of hot, hot money dancing in and out of the market, desperately trying to eke out a return - all the while knowing that there will be a terrible, desperate scramble for seats when the music stops.
In your model of the markets that you are sketching out for us ... who is the sucker ? Who is it ? Not quite sure ?
"Also you really don't know what you are talking about. If you bought nearly anything after Nov 21st 2008 and held, you'd be way in the green since then."
Apparently it's likely you who 'doesn't know what he is talking about' given that you displayed as much to us in your rebuttal. ---> Stating that 'the market is up' since a historical low is more than meaningless. You should know that if you're offering advice on stocks via a blog.
I believe that a retail trader can 'make money' on ETrade about as much as the average joe (or even intelligent joe) can beat Deep Blue at chess - which is not.
This is not some deep insight, it's fairly well known.
Let's assume you bought SPY (very conservative ETF index) right before the crash at its high of 156.33 (Oct. 12th 2007 ). If you just held and did nothing, you'd be up a hefty 81%. This is not including dividends or even better a DRIP which would compound dividends and automatically bought more on the way down lowering your dollar cost average.
Funny how my evidence that directly refutes your claim is getting down-voted.
> I believe that a retail trader can 'make money' on ETrade about as much as the average joe (or even intelligent joe) can beat Deep Blue at chess - which is not.
If you bought at the worst time possible right before the crash and just held SPY, you'd be up 81% not including dividends. I'd say an "average joe" can manage that.
I think you make a good point, and I wish I'd taken advantage. My brother, who makes $12/hr, took his entire savings in March '09 and invested in commodities. He saw massive growth, while I bought toys and had fun. I made no money, and learned a good lesson.
Did you read their comment? He assumed you did the opposite of buying low: "Let's assume you bought SPY (very conservative ETF index) right before the crash at its high of 156.33 (Oct. 12th 2007)" Note the "at its high". Even if you miraculously had horrible luck and bought into an index at literally the worst possible time, you would have still made money.
This holds for practically any index out there. I personally hold VFINX. These are the returns for VFINX if you bought at the yearly highs and the yearly lows, per year:
2006 | 1.95x | 1.70x
2007 | 1.53x | 1.72x
2008 | 2.82x | 1.67x
2009 | 3.50x | 2.16x
2010 | 2.34x | 1.90x
2011 | 2.12x | 1.79x
2012 | 1.87x | 1.65x
2013 | 1.65x | 1.31x
2014 | 1.34x | 1.16x
2015 | 1.23x | 1.13x
2016 | 1.28x | 1.10x
2017 | 1.07x | 1.00x
That's right: the far column is the absolute worst case scenario, what would happen if you were miraculously horribly bad at choosing when to invest. Even in the worst case scenario, investing at the worst point in the worst year, $90 would have turned into $153. Investing at the best time would have given you $315! As long as you don't instantly sell the fund you'll come out on top.
This isn't rocket science, it's not some complicated stock pick, it's not hard to buy, and it's backed up by a hell of a history: index funds with low expenses give you a good return, no matter who you are. I know one person with $400 in VFINX and I know one person with several million in it.
And if you bought in 2007, before the recession, at the absolute worst possible time, you would still have nearly doubled your money in the last ten years - a 1.72x return.
Warren Buffet put a bet on this ten years ago, against a series of hedge funds, and as of now, with just months to go, he's winning. Not "winning against the worst", not "winning against the average"... the index fund - VFIAX (the Admiral class of VFINX) is beating every single fund handily, even though the bet started at a time advantageous to the hedge fund.
If you, or anyone else could, they would be Trillionaires.
By picking an arbitrary point in time - and comparing it to another arbitrary point in time (say, 'today'), you create a straw-man argument.
"Even if you miraculously had horrible luck and bought into an index at literally the worst possible time, you would have still made money."
Yes, stocks went from some low point, to a higher point today.
When you say 'this holds true for every index' - well, a broad ranges of indexes roughly encompasses the entire market.
Ergo - you're really just investing in the stock market, not indexes.
Unless you know something very specific about VFINX - and have research that other people do not have on the constituent companies, then you are just throwing darts at a wall. If you made money, great, if not, then it's the same thing.
What someone who doesn't have specific information is doing when they play the market willy nilly, is simply riding the overall market. And like other asset classes, it goes up and down.
There are historical averages for markets, and in the long run you can expect to earn just a little under that.
Interest rates are at an historic low, and we have bubble-like conditions in the market - if the Fed increases by a couple of basis points, much of that gain will go away.
Most people have no savings at all and are just swimming in debt or are living paycheck to paycheck. If you have any money to put into the stock market at all, you're better off than the vast majority of the people.
Are there any forums in the vein of hacker news that are just for discussing financial topics? I love hn for the tech stories but agree that it's not as good for markets and investing.
Dollar cost averaging doesn't really work. (There were a few studies about this. It's relatively easy to backtest these strategies with historical market prices.) Ie splitting up a lump sum buy into multiple buys.
(But buying shares as your money trickles in eg from wages instead of waiting can be a good idea, if the transactions costs are low enough.)
Trading on margin!? In the most topped out market ever. You do realize that you pay interest on your margin. And when the market drops (the most likely outcome these days), your losses are magnified.
W. Buffet recommends that investors not buy on margin.
Also... ETFs are newish and rather untested at their current saturation levels. You are blindly buying a stock based on it's capitalization. This defeats the purpose of the market, which is to crowd source the balancing of supply & demand.
ETFs create a pyramid scheme out of the market. It will work for a while, but near the top (now) you better get your money out.
I think you should read what top hedge fund managers are doing these days. You will be hard pressed to find one that is all in + margin to the overall index fund. Many have significant short positions and a lot of cash.
Your blog post is just another link in the pyramid scheme nature of the whole thing. (I can do it.. so can you!)
> These days, with computer trading, that 40% drop may happen faster than 100 ms
There are circuit breakers that trigger at 7%, 13% and 20% right? Now, I don't know if they are tested against HFT these days, but I would suspect they could rollback trades if needed. Also, there is Rule 48[1] to help.
Hey. I just realized I was maybe too harsh on all this.
You are right, investing is better than a savings account. However, be careful these days. Read what other top investors are doing. barrons.com & marketwatch sometimes say what other top investors are doing. Many are keeping some cash. Good to have when the market drops. Many have short positions.
The best returns come when you buy after a correction & sell high.
ETFs do well when the market is marching upwards. Maybe one more year of that but it can't go on forever. 1.1 to a high power starts to consume everything in the universe.
I revised my post.. have a read. What you are doing may seem great.. but it really is not a great idea. I highly suggest you roll back & get off the margin. Put some money into gold perhaps. (IAU) Keep the margin for sure bets if you can find some.
Not that it changes my opinion, but I am no longer using any margin (took some profits). My Robinhood post was originally from Nov 17th 2016, but I updated it on Feb 6th 2017.
Sure no problem, updated. I'm not trying to hide anything. For the record I am bullish and don't think we are doomed and on the verge of a market meltdown. Perhaps a deserved minor correction.
"That sort of mentality is ill-informed of finance and the market"
Uh, no it's not.
"The market is not only for millionaires and billionaires. "
Yes, it most definitely is.
And most people who 'know finance' - know this.
The market is 'rigged', or rather, you are at such a disadvantage that it's effectively rigged and doing retail trading is essentially a losing game.
Unless you are pursuing a broad diversification strategy (i.e. buying gold, commodities, real-estate funds etc.) in order to preserve your wealth, you really are not going to win.
Retail trading entities, like ETrade are kind of a scammy thing - not directly per se - but they're selling you as fish to sharks (i.e. hedge/big funds).
If you want to make money playing stocks - you have to 'know more' than the person on the other side of the trade.*
Large funds and hedge funds each have massive, massive advantages including economies of scale, market-making, 'near insider trading' (i.e. they 'interview' insiders and ultimately gain info that's not public), colocating, computing power, the ability to move markets with trades, lead trades, the hire some of the smartest people in the world etc. etc. etc..
Unless you have near-inside (or inside) information on a specific stock - you're basically playing poker against Deep Blue and expecting to win.
Imagine you're playing poker and they are playing 10 hands, have memorized the deck, know 'all the best moves', are using a computer, and they 'take the dealer out for free drinks every night'.
You think you can beat them?
On the whole, I'd argue strongly that the best someone can hope for in trading in long run to ride the alpha of the market overall - and that's it. (Or again, to pursue some very broad strategy without having to pay a private wealth manager fees)
Did you read the story about how DraftKings works? Basically about 5% of the players make all the returns - they play almost professionally, or with data, or take it very seriously and buy data, know the strategies etc.. But DKings needs those Sharks to make the market. And they feed them fish (i.e. you and I), casual players.
Though stocks generally grow with the economy, and underlying trades there is actually an 'investment' - you're really not investing at all. You are speculating about the future surpluses against other people doing the same. Playing the stock market is more like gambling than investing - in Poker you know you're 'playing against others'. Because on E-trade one is theoretically 'investing' one does not think one is playing against others, but that really is the case.
You can try to play 'value investing' but there are just too many people with much more power playing that game as well.
Finally - I would strongly recommend that readers do not take the advice on your blog and borrow on margin for 6%. If you're borrowing at 6%, then you have to get returns > 6% in order to make this profitable. In other words: in order for that to make sense, you have to beat most of the best big fund managers in the world and be a 'truly world class investor'. What are the odds of that?
>On the whole, I'd argue strongly that the best someone can hope for in trading in long run to ride the alpha of the market overall - and that's it. (Or again, to pursue some very broad strategy without having to pay a private wealth manager fees)
Wouldn't there be no such thing as alpha in the overall market, as alpha is the returns outside of the average? Solid points though.
I'm aware that most hedge funds are considered excellent if they average 6% annual return.
However did you look at my table for QQQ returns from the last 11 years? Only two years did not average more than 6%. If you bought QQQ on 1/5/2007 and held until now you'd be up a whopping 205% over 11 years. That's also not including the awesome QQQ dividend yield, or even more compounded with a DRIP (dividend re-investment).
Hey, if you bought MSFT yesterday at 2:09 pm and sold it at exactly 2:29 PM you could have made a 2% return in just 20 minutes! So amazing. Now just do that every day and you could make 1000% in a year! ... is the logic you keep using.
Nope. The difference is you don't need to time the market when investing over long periods of time. Timing the market requires luck. Investing for 10+ years doesn't.
"You can trade $6.95 on ETRADE". Yes. Right. By the way, the fuel cost the same per gallon for a Lamborghini than for a used Toyota. Why not buy a Lamborghini then?
Unfortunately the ultimate rebalancer of wealth historically has been revolution and war. It's why the descendants of Roman plutocrats don't own the world now.
We've lived through a relatively peaceful and, more importantly, politically stable period in the developed world since WW2. And inequality continues to grow.
The problem now is twofold:
1. Capital is essentially beyond borders; and
2. The diminishing loyalty to the nation state.
(1) is the real problem with modern "trade" treaties like the TPP (that and they're used to enforce policies on smaller countries like the US stance on IP). They're not really about trade anymore. It's about freeing the movement of capital, which is a huge problem.
To put (2) in context, you have to remember that income taxes in the US 100 years ago were essentially done on the honour system. There were no computers. There was no accountability. Now we live in an age where the wealthiest people, who owe their wealth to the political stability in the countries they've made their wealth, are essentially unwilling to contribute to funding those same states.
What's more, the wealthiest individuals and corporations play off states against each other, demanding ever-more concessions to attract business. And when those concessions go away they move onto the next sucker.
It all just feels like something will have to give in the next century or so. We do have crumbling infrastructure in the developed world. Someone or something has to pay for it.
Look at places like Puerto Rico, which spent like crazy (way beyond its means). The wealthy have abandoned it and what's left to do? Bail it out by the Federal government?
Unfortunately it just seems like capital is too mobile.
While recent times has had many additions to the list of richest people in the world with newly created wealth, there's no reason to assume that something will change to the fact that the wealth divide will (in general) stay for generations onwards; if both world wars didn't mess it up, then nothing short of an apocalypsis will.
I remember reading that some months ago. It's interesting but I take a different message from it.
And that is: wealth is ephemeral. Social status is far more enduring.
The Florence data looks at the surnames of top taxpayers. The truly wealthy are somewhat beyond individual earnings. But social status is a useful (arguably essential) advantage in securing certain work and opportunities.
This is true in England too as England has had a fairly rigid and enduring class system for a thousand years.
The 19th century was an impressib era for wealth creation with the industrialization of the United States. Look at the likes of Rockefeller, Carnegie, Vanderbilt, Astor and th like. Most of those families survive today in some form. They are probably rich still but nowhere near the likes of Rockefeller who was the richest man in the world when he died. I'd say the larger legacy is again the enduring social status.
Primate social structure is fascinating in comparison. Alpha males and females tend to beget more of the same. Why is that? Is it strictly environment or is there more to it? I don't know.
Unfortunately the ultimate rebalancer of wealth historically has been revolution and war. It's why the descendants of Roman plutocrats don't own the world now.
The Early Roman Republic made a distinction between Patricians (aristocrats) and Plebeians (commoners). The former were very wealthy while the latter were definitely not. By the time of the late Republic and the Roman Empire, this distinction was entirely meaningless - there were rich and poor of both of these hereditary classes.
Revolution, by definition, excludes reforming an existing system which is what happened to the Republic. Arguably, the Patricians relented to the Plebeian demands because they needed soldiers to fight in wars. However, usually when one refers to redistribution of wealth through war, one usually talks about victors taking the wealth of the losers.
I never cease to be surprised at the propensity for pedantry on HN about the irrelevant, which is to say that nothing you've said has anything to do with my point.
My point is pretty simple: history has a habit of erasing wealth. War and revolution are the ultimate forms of wealth redistribution. And by revolution think the Russian Revolution.
Modern Russian history is fascinating in this regard. In just the last hundred years (the Tsar was deposed in March 1917) they've moved from oligarchy to communism, revolution, blood shed, fanaticism, rebellion, the (relatively peaceful) breakup of an Empire, a total wealth reset, and are now back to oligarchy again.
Maybe we should ask everyone claiming about the rigged system what they really want: income evenly distributed to all workers ? More taxation for those who earn more than the average ? Central economic planning so everyone get's the same information regarding where the profits are ?
Frankly, sometimes some people need to take a refreshing trip into North Korea instead of perpetually complaining about the downsides of capitalism.
Elimination of rent-seeking and all sibling offenses.
Someone can buy a property in a growing region and then sit on it and do nothing while it gains value. The fact that it is doing nothing may even drive the price up more, because it reduces supply in that region by not making itself available.
The owner is allowed to refuse to sell at any price, which again means they can make money just by sitting on their scarce asset.
Same for corporate stock really. And for things like gold and bitcoin.
A better system imo would require active bidding on scarce resources. If you are not generating wealth with your resource, someone can take it from you by outbidding the amount of taxes you are paying for it. This forces people to apply their capital and makes it harder to just sit on scarce resources and accumulate wealth.
> A better system imo would require active bidding on scarce resources. If you are not generating wealth with your resource, someone can take it from you by outbidding the amount of taxes you are paying for it.
But its easy to game this system by generating token wealth. For example, if you make it mandatory to keep your houses non-empty, then all you need to do is register a token business and rent your house to that business for a token amount. All you stand to lose is a few hundred dollars of registration fees etc.
In some cases, its hard to even know how to generate wealth from the assets (gold, rare paintings...). How will you force people to ensure that they generate wealth from gold, so that its price won't skyrocket during inflationary times?
Finally, wealth generation is relative. How can you measure wealth generated in non-monetary terms? Sure, you can "develop" your one acre plot by building more apartments there, but what about the wealth lost by losing a great scenic view of the bay? Why should everything be measured in terms of money?
I think you're completely missing the OP's point, which is a hypothetical scenario in which all scarce resources like land are effectively leased from the government to the highest bidder, in which case you can keep your houses as empty or full as you like (or bay views as pretty as you like), but if someone is willing to pay the government higher annual fees for the use of the land (or oil, or spectrum) then they get the use of it instead of you.
This system comes with its own problems (no incentive to invest in developing a resource if someone can slightly outbid you for its use after you've invested all that cash in improving its potential yields in the long term) but ease of evasion though fake companies and difficulty of establishing how much a resource should yield aren't amongst them.
Yes exactly. I'd rather the entity doing the leading not be the government, but I do not know what other entity could. For purely digital resources you could use a blockchain. But digital resources tend not to be scarce.
If you are operating in a market that hasn't been too distorted by taxes and regulations, there are strong economic incentives to use all resources. Vacant properties are a straight liability, better to rent them out. If the owner is sitting on an unused property waiting for appreciation, they are taking on risk. If everyone already magically knew the future price would be much higher, then current prices would already converge to that amount (discounted to NPV) and the owner could sell now or later.
1) Re-defining the original meaning of the share of stock. Current paper that is stripped of voting rights, various classes and super-classes of stock based on who happens to be the shareholder just seem keenly intent on making the corporate governance process more opaque. If you want the exec to have 100x votes over anyone else, print 100x as many shares.
2) Double taxation of dividends. Distributions by REIT, MLP or a pass-through LLC/LLP don't get taxed at a corporate level. Convert that entity to a corporation and keep the same process, and what you used to call "distributions" is now called "dividends" and gets taxed twice.
3) Slow dilution of existing stock pool via new options and companies printing new shares of stock. If they want to award some shares to their execs, they should go out and buy them in the open market. If they want to raise cash for acquisitions, the debt markets are eager to accommodate. Dilution is the ultimate "trickle up" benefitting current management at the expense of the small shareholders.
1) Minimize the startup costs of a decent life: education and housing. Bring college costs back in line with what students can realistically earn. Establish and promote affordable vocational training for people who don't genuinely want the intellectual part.
Build abundant housing in cities with economic opportunity. Protect owner property value less, and renter budgets and financial security more. End this insane system where if you're young enough to have "missed the boat" on education and housing being affordable, you're starting out life with enormous debt, enormous rents, or just no realistic access to the modern economy (intellectual work in major cities).
2) Shift the relationship between wages and expenses such that more people can have a decent standard of living and security and retirement at the same time. Probably via productivity growth. (Yes, there is an argument that some people will always raise their expenses to the level of their income and beyond. We can still do better. And blaming people's spending a few hundred extra dollars a year for the fact that their incomes are a few tens of thousands too low is not that helpful).
3) Dampen the effect of your parents' station in life on your own, especially with respect to K12, college, and getting your first professional job. (Probably by having the state expand some of the boosts that upper-middle-class parents give their own children, such as high-quality K12 and affordable college, to kids at all income levels).
> More taxation for those who earn more than the average ?
Progressive taxation is a good thing.
> Central economic planning so everyone get's the same information regarding where the profits are?
no. but tax subsidized effective public services where a natural monopoly is exploited by the market for private profit gains. public infrastructure. free good education. universal health care with access to mental health and addiction help, no private prisons.
This is beeing paid for with higher taxes on higher incomes or small taxes on market transfers. In the long run this pay for itself due less crime, lower health costs and more productive workers.
> Frankly, sometimes some people need to take a refreshing trip into North Korea instead of perpetually complaining about the downsides of capitalism.
There a lot of countries that look, not without some substance at the USA and think of a third world country in how it treats ports of their citizens. They could be turned into productive elements of society instead of beeing permanently marginalized.
Looks like short term profit won over longterm planning. Maybe the competition avoids these mistakes.
Rich people are really clever about getting non rich people to take their losses, so don't count on it. E.g. Bail outs and QE spread the pain away from those who took the risks, avoiding such moral hazards.
Since the 1980's the US has gone on massive borrowing.
When the US borrows, it prints TBills. TBills are what backs the dollar. Very crudely - more TBills = more liquidity.
Also, things like 'quantitative easing' have flushed markets full of liquidity, lifting stocks up - relative to all other forms of capital. Or in other words, it shifts value from other places, into the pockets of those who have most of their wealth in equities etc..
This is the tip of the iceberg.
'Very wealthy people' are usually very smart and hard-working, and about 1/2 of them 'made their own fortunes'. That's all well and good - but the system in America hugely favours capital.
and because of that the people with better strategies will accumulate a much larger share of the market.
Most investors have poor returns because they defer to their self-defeating cognitive biases, they don't take the time to understand investing, and they often naively believe they have a simple "system" which will outsmart the market.
> Most investors have poor returns because they defer to their self-defeating cognitive biases, they don't take the time to understand investing, and they often naively believe they have a simple "system" which will outsmart the market.
The article you cite directly contradicts this. It claims that investors who have the best returns are those who specifically don't take the time to understand investing, and that there very much is a simple "system" that works, namely, forget about your investment account entirely, or at least let it sit dormant for a few decades and do nothing.
More to the point, your comment smells like justifying the wealth disparities, and counters the WP article ("If you start out with wealth, you don’t have to be a financial genius to tap the miracle of compounding and end up with real money.") with... nothing but a vague claim that smart investors can make a lot of money.
My point is that buy and hold is actually a more sophisticated investment strategy than one might think. For one thing, knowing enough about investment vehicles to pick the right buy and hold is straightforward only if you know what you're doing. And secondly, uneducated investors are usually convinced their clever strategy they made up on the spot will beat the market - they just refuse to believe in buy & hold. And thirdly, cognitive biases that destroy investment returns are fairly well documented in the book "Thinking Fast and Slow".
The article completely supports my point, in showing how awfully the average investor does compared with the buy and hold investor.
Buy and hold is infinitesimal in comparison to day trading options and directives, where fortunes can be amplified exponentially in minutes from insider trading or narratives from news publications which have an effect on the reactionary "dumb money" of the common public traders.
They can also be lost just as quickly when the market doesn't conveniently act like you think. If the system was rigged in the way you suggest, hedge funds would do much better as an asset class than they actually do (after fees, they've significantly underperformed an S&P 500 index fund). WRT your claims of rampant insider trading, when the SEC sees heavy option volume before public news breaks, frequently, someone goes to jail.
Buy and hold is an above average investment strategy. Many people panic sell in lows, and impulse buy in highs. They believe, implicitly, that they can market time.
Wealth disparities will always exist as long as information takes time to distribute and is not public. This is, I think, what the GP means when an "average investor" thinks he has information or a system that the market doesn't and trades on it. If that trade succeeds, it reinforces his behavior. If it fails, something else must have gone wrong but he keeps letting his system drive his money until he can't take the losses (or he makes a bunch of large trades successfully and quickly retires).
It's the equivalent of poking the market with a stick with a pavlovian response when there's several academic fields that would explain a great amount for you instead (which was expensive before the internet).
The only alternative that makes sense to me is to follow Peter Lynch's advice and buy what you know. Do this with money you can afford to lose.
When Apple released the original iPod I begged my Dad to buy me one and raved about it. Based on my excitement, he bought several thousand shares of aapl and still holds them. The gain on that single investment is greater than all the income he earned in his lifetime. You cannot expect to make these kinds of investments. Take a sliver of what you have and put it behind something you believe in. Put the rest in index funds.
Edit: I meant to tie this comment back to the original title about wealth disparity. Point being, my Dad has created generational wealth from a single lucky investment. It's just luck and a system that let's you keep your winnings.
If it makes you feel any better, I heard about Bitcoin when it was under $1, thought it was a cool idea, didn't have any disposable money to buy any, and promptly forgot about it.
If it makes you feel any better, I heard about Bitcoin before you could even buy it, and I had a fairly powerful (for the time) quad-core machine I could have done a bunch of mining with.
If it makes you feel any better, there's a good chance you'd have mined thousands of bitcoins, gotten bored and forgotten about them, and lost the wallet file eventually :)
Another thing that kills off many investors is failing to understand the time value of money. For example, there was a recent reddit thread about a person saying she was climbing out of debt by paying off the lowest interest rate loans first and deferring the high interest loans until last.
I had to read it several times as I thought I was misreading it. I have many other anecdotes on that point, but that one takes the cake.
There's an effective strategy called the snowball strategy. You pay off your smallest debts first, disregarding interest rates. This works because it takes advantage of psychology - you make progress by eliminating debt items faster.
It is not the strategy with the optimal use of money, but if you feel defeated because you seem to be making no progress then you are less likely to have the motivation to live frugally, and thus actually do worse overall.
It can be more important to encourage yourself than to actually optimize your cash depending on your personality and situation.
Such would be a notable example of cognitive bias interfering with rational fiscal decision making. I mentioned earlier about such biases resulting in poor investment results.
I recommend again "Thinking Fast and Slow"'s section on how cognitive biases interfere with sound money management. Being aware of them can be very helpful in countering one's own unhelpful tendencies. Interestingly, the book details how professional money managers fall victim to them, even when they are made aware of such biases.
This is one aspect where computer algorithmic investing can do better. One can dispassionately program out such biases.
Of course that's true, but do you honestly think individual cognitive blind spots and biases are a bigger factor than the structural and systemic issues?
All that article is saying is that the best strategy is buy and hold. That's nice but nobody is going to get rich off that advice or accumulate any significant share of the market.
Except for a lucky few (who get all the attention as if they've cracked a secret code to producing wealth), no one really gets rich from investing.
There are two ways to get rich: (1) be smart and work your tail off, or (2) get lucky.
Path #1 involves a bit of #2, but not as much as some people might believe. Also, "working hard" doesn't mean going to work and putting in a lot of time/effort day after day; it has more to do with constantly seeking to improve skills that are of value to the world, expanding your network, and doing more with less.
That last bit is important: too many people do improve their earning potential significantly over time, but never feel "rich" because they imperceptibly scale their lifestyle and spending patterns to match (or surpass) their increased earnings.
At the end of the day, investing should be regarded as a way to simply stretch the money you do make farther (on a long-term scale). That's not to say it can't significantly contribute to one's wealth over time, but without extraordinary luck, investment returns are usually more of a slow and steady multiplier to your own earnings.
If you're investing to become rich, you might as well play the lottery.
3. Investment returns on the surplus that #2 and #1 make available.
It's a three-legged stool. Take any of the legs away and it fails to work.
I'm at the point now where most years I make more gains in net worth from the market (#3) than I do from #1 and #2 combined. If I had held all of the surplus in cash and bonds, I'd have way less than half of my current net worth. Way less.
You can get rich from investing without being lucky, just not quickly. 7% returns become very big money over time if you let them ride for a few decades. Of course you have to have some primary income source to be able to save to invest money, but if you can earn 50k per year and save 10k per year in your 401k, you can easily retire a millionaire.
Honestly, how would you know? Most people don't talk about their wealth. I'm not aware of ever having spoken with anyone worth $50MM, but it's possible that it's happened.
Of course, you're absolutely right that net worth that high is exceedingly rare. This is much smaller than "the 1%".
They absolutely do mingle with peons, they just don't tell the peons.
One anecdote was when one of these guys went on a UK game show. People in the market who knew him were laughing their heads off at the thought of him doing word and number puzzles.
Also, I think they can be approachable. Often they're looking for investments to make, or charities to donate to. Or they have political opinions they want heard.
What they don't want so much though is yet another guy who wants their money, so if you do have something to bring to them, it had better be good.
You don't get rich (in an acceptable timeframe) by investing. You stay rich by investing (if you do it well), and you keep a good annual yield coming in by investing well.
> You don't get rich (in an acceptable timeframe) by investing
In realistic terms, you don't get rich in an acceptable timeframe by any means. You could found a billion dollar business or you could lose your shirt. You could win the lottery or waste a few bucks. You could marry or inherit money, or you more likely could not.
There is no reliable path to wealth except investment long term. And even that is infeasible if you aren't fairly high income.
Maybe not, but buy-and-hold of low-cost index funds and dollar-cost averaging investing has historically resulted in above-average investment returns and easy paths to retirement.
If your goal is to get rich or a significant share of the market then just be like Buffett: brilliant at risk estimation and a real eye for spotting value in the market. Of course, that experience takes years to acquire.
Person, no. Family or institution very much yes. All it takes is for something to never sell stocks an always invest dividends as cheaply as possible, then wait. Sure there is going to be pressure to use that money for something, but someone can seed an organization whose only goal is to grow.
Suppose a long now charity whoes goal is interplanetary colonies once it hits 10% world resources it starts spending dividends.
I know lower middle class people that have, if by rich meaning their stocks are well into 7 figures. Few, however, have the patience to stay the course for decades, and fortitude to gut out the various crashes.
And in the 80's people were still getting pensions too. I got my first tech job in '86 and it featured a stock purchase plan and a pension. No tech job I've had since had a pension.
The problem with richest having a lot of stock is that if the market goes down they will look for a way for other to pay for the broken dishes. In Spain we see that the person responsible for the security of our financial system CNMV is under investigation for not taking the measures for protecting people from false information, see for example http://wolfstreet.com/2017/02/18/spain-central-bankers-finan...
Same claim can be made about land appreciation in major metropolitan areas (e.g. NYC, SF Bay Area, Los Angeles, Seattle, etc). We need to figure out how to balance out gains in this recovery.
Aren't tech salaries close to 2x compared to 10 years ago?
Capital vs labor is a big issue but the non knowledge worker vs knowledge worker divide shouldn't be ignored either. Knowledge workers also employ similar capital leverage compared to the capital class through its employment.
I'm not sure that compares to the issue above. Labor value is almostly[0] purely a supply and demand issue. Knowledge workers are in higher demand, so they get paid more.
That's far too simplistic imo. Combine supply demand with the fact that when capital (including knowledge capital) provides leverage for companies to increase profit margins, that enables them to post higher wages according to supply demand.
Look at skilled manufacturing. Employers basically refuse to pay based on supply demand even more than software etc.
I don't understand your last point. Are there employers who are leaving critical-to-them skilled manufacturing positions unfilled because they won't offer a competitive wage?
Boston area seems to be +50% to +75% in 10 years, like role to like role. That's a CAGR of 5% to 6%. It only takes a CAGR of 7.2% to double in 10 years.
It would be easy for someone who was 2-3 years into their career to now be making double at 10+ years' experience, a couple promotions, and a 50-75% overall salary inflation figure.
Starting salary for a beginner SWE in 1995 was $55K, 1999 was $75K, now it's $120K. It sounds good, but it turns out to be only 5% per year, every year. Still beats inflation by quite a lot.
> The median net worth (income + assets including homeownership – debt) of white households was about $117,000 in 2013. For African American households, the comparable figure is just under $2,000.
This is astonishing to me. That's median, not mean!
A question i have been largely fruitlessly asking in several such threads before: How do i invest in U.S. stock market being a non-American (Russian living in EU)? Without paying too much in taxes, that is.
There are a lot of index funds (especially ETFs) domiciled in EU countries that buy US stocks. Here is a list of EU-domiciled US stock market ETFs sorted by size:
You can (and should) generally buy these using a local broker in the country you live in. For tax reasons it's generally better to buy a EU-domiciled fund instead of a US-based one, but that depends on the country you live in. Here in Germany buying a US-domiciled Vanguard fund would be tax hell, but the Irish ETFs are usually very good for the US stock market.
Where can i read trustworthy info about market->exchange->broker->client relationship? Specifically, what happens if the broker decides to scam his clients? What are the potential ways a broker can steal money/stocks of his clients and run away? Did it ever happen in reality? What are the safeguards protecting from that?
Also, how do i protect these investments from my wife?
I think I will get downvotes for this but I have an honest question.
Why does it matter if the rich become richer?
I am by no mean a rich guy, I just don't see how it can impact my life or be bad for other people if a few of us have a lot of money (doesn't matter how they get it. I'm not talking about money from illegal activities).
They still have to use it, thus contribute back to the economy.
The problems start when the rich get richer faster than what it takes for the poor to get a little less poor. This is what is described as 'divergent behavior'. In the long term there is no equilibrium to this, and we revert to pre WWI Europe levels of inequality.
What happens then to reduce inequality is anyone's guess, but in the XX century the Russian Revolution, World Wars, and the Great Depression have been very effective.
Other than that one could make the point that for someone who is already very rich, getting marginally richer doesn't do much while lifting someone from abject poverty is something that has a great effect on that person's life (in other words utility is probably sub-logarithmic).
Because lending to them (as the Gov and Banks do) causes their wealth and US money supply to increase while your income remains relatively constant. That causes things they value (healthcare, education, real estate) to increase in price faster than the majority of people can afford to buy them.
So yes their wealth and buying power affects you and everyone else economically.
Strong incentives for them to rewrite the rules to have lenient taxation of their stuff (land, real estate, investments, cash accounts) and more aggressive taxation of your stuff (W-2 and 1099 income), thus creating barriers to entry to economic mobility.
There's more truth to this comment than the snarky headline suggests.
Look at what industry pays the most. It's finance. Why? Because people who work with moving the world's money around tend to know a lot about the rules of taxation, the structure of markets, where opportunity will be, and so on.
FTA: "Wolff’s data shows that while stock ownership has increased over the past few decades, in 2013 (his most recent data point), less than half — 46 percent — of households owned stocks, either directly or through their holdings in some sort of fund (e.g., a retirement account)."
Yeah, in many countries the number would be close to zero. German pension funds are only allowed to hold 10% of their value in stocks, so the rest goes into bonds and other low-risk investments. This is why Germany always want high interest rates in the Eurozone.
Except that's precisely the opposite of a rational market participant position. Hoarding cash is almost always a losing position, even now. As long as we don't have deflation, any cash is losing value.
Usually really rich people have more known downside risk from taxes. Lots of municipal bonds, treasury stuff and cash. If the money is tied up in company stock they often live off lines of credit.
Remember that top X% of wealth isn't the same as income.
I was hoping for an answer that values a well functioning society for themselves and their nearest higher than any extra returns on stocks. That's patriotism.
..
I spoke at Dartmouth once, and a woman stood up after I spoke, I write in my book, and she said to me, "Professor, you've convinced me this is hopeless. Hopeless. There's nothing we can do." When she said that, I scrambled. I tried to think, "How do I respond to that hopelessness? What is that sense of hopelessness?" And what hit me was an image of my six-year-old son. And I imagined a doctor coming to me and saying, "Your son has terminal brain cancer, and there's nothing you can do. Nothing you can do."
So would I do nothing? Would I just sit there? Accept it? Okay, nothing I can do? I'm going off to build Google Glass. Of course not. I would do everything I could, and I would do everything I could because this is what love means, that the odds are irrelevant and that you do whatever the hell you can, the odds be damned. And then I saw the obvious link, because even we liberals love this country.
And so when the pundits and the politicians say that change is impossible, what this love of country says back is, "That's just irrelevant." We lose something dear, something everyone in this room loves and cherishes, if we lose this republic, and so we act with everything we can to prove these pundits wrong.
I think Trump will go down in history as one of the worst presidents ever elected. Still happy that my retirement account is doing well, though. The two facts are almost totally independent.
>I would disagree. My portfolio of index funds is up almost 20%. The last 4 months have been fantastic returns.
Well I suppose it all depends on what you consider fantastic. We talking 6 figures or 7? It's still chump change compared to what that 10% made.
The DJIA gained 3000 points in 3-4 months. It took 3 years for the previous 3000 points up to Nov 8 2016. Just a PSA, in 08 it went from 14k to 6k in about a year.
When I retire? I've always had a buy and hold mentality.
When the market crashed in 2009, I lost almost 33% of my portfolio value. However, I had no intention of using that money for decades.
As a result, I was 100% in the market when things picked up a few years later. When the market was going up 20-30% a year, I made up the lose within 2 years. Overall the market is up 3.5x since the bottom. Annualized return even pre-crash have been 7%+.
I retired early and have stocks, real estate, and cash. I'll reduce holdings when my cash runs low. Until then, I'm making no changes come hell or high water. I'm not financially savvy and would probably sell at the wrong time anyway. I have more cash than I need (3 - 4 years worth), but I'm fiscally conservative and the extra buffer eliminates stress.
There is no optimal point at which to sell...there is no evidence the market exhibits any sort of path dependency whereby selling could consistently yield an optimal outcome. Going as far back as the inception of the S&P 500, it has returned 9% a year (including the dividends)...when plotted logarithmicaly, it appeals like an almost strait line.
Timing the market doesn't mean pin point, cracker jack timing. Just not bay of pigs timing. I pulled 25% my 401k out in 2008 into bonds and a money market. Saved a good 15%. Then re-invested towards the bottom. Not perfect bottom to get back in. Not perfect top to get out. But 15%.
False. Timing the market means trying to make investment decisions because you think the market is "high" or "low" or that it will move up or down in a certain time-frame. The only remedy for that is dollar-cost averaging over a long period of time.
I've been able to make sizable returns by not buying when things were overpriced and then buying when they are under priced. This doesn't mean all of my money, but enough that it's worth the time.
The Brexit was a fantastic opportunity, I got in way late and still bought in at a 10% discount.
Historically when the market looks like this there's going to be a correction in the near term. With the pace of this bubble I'll be able to buy good companies at a massive discount.
The whole point of "timing the market" being bad is that you can't know what the future holds, so while you can try to model things to determine whether they are under or overpriced, unless you pick stocks like Warren Buffet, you are best off dollar cost averaging into index funds because you will net net come out ahead when you factor in fees.
>"Historically when the market looks like this there's going to be a correction in the near term. With the pace of this bubble I'll be able to buy good companies at a massive discount."
Past performance is not an indicator of future results.
My tolerance for volatility and loss is higher than the traditional investor. Beyond Burton Malkiel's random walk there's Modern Portfolio Theory.
There are three pools of asset-classes that I consider:
Bonds - Historic low rates, soon to increase and drive down the price of existing bonds on the market. Bonds should cheapen 3-4 times this year thanks to Yellen.
Equity Market - Market PE and PEG values are above the level that historically precedes a correction. Two dynamics may be contributing: The first, domestic corporate equity investment is up due to the low T-Bill rates (a risky return in equity looks a lot better when government bond rates are effectively nothing). The second, foreign investors (specifically Chinese/Russian) trying to diversify away from government corruption. This phenomenon is well-documented in desirable housing markets (Toronto, SF Bay Area, NY, London, etc.) but harder/impossible to identify in the stock markets.
The second phenomenon does make the argument for a regime change, but only so long as the US Dollar remains strong relative to the rest to their home countries. Guess what the White House policy is going to do?
Cash/Cash Equivalents - A near zero interest rate with low volatility. Cash, from what I can tell, is the only thing priced normally from a discount perspective. I can afford to accumulate more cash at a -3% effective rate while letting the rest of my holdings appreciate. When everyone else is bleeding I'll be there with my liquidity.
I mean I say this in joke form but I mean it in all seriousness. Using stop loss orders is a sign of someone who doesn't know what they are doing.
They just aren't suitable for markets anymore. Well they haven't really been suitable for the past 10 years but atleast now the major markets are finally no longer allowing retail investors to use that order type.
I'm not buying your conclusion that stop-loss orders don't work and a sign of somebody who doesn't know what they are doing.
Sure, assuming there is a flash crash your stop-loss will convert to a market order and if you are using a big name brokerage you order will get filled (maybe delayed, and most likely at a lower price than institutions, but it will get filled).
What is your background if you don't mind me asking? Do you work in finance or in the market?
Ridiculous. I was living in Midtown Atlanta making $70k and reliably maxing out my Roth, plus contributing to an HSA and 401(k).
Saving money doesn't require you to be in the top 10%. It certainly does require disposable income above and beyond what can buy the bare necessities, but as you pass that level it increasingly requires restraint and discipline.
I don't understand. Anyone can invest in the market. There's no minimum income barrier. In fact, the bottom 90% should be investing in the market for the long term through 401k and IRA plans. Putting your savings into a relatively safe index fund is a responsible way to save for retirement.
The problem arises when you don't have any money to save. Also there is often a barrier to getting an account for an IRA. Scottrade is $500. That's a lot of money for a welfare recipient. Also at least in the US, we test total assets for access to social programs (http://www.heritage.org/welfare/commentary/passing-the-asset...). If you have too much money, the state expects you to deplete those retirement funds, with the various fees and taxes, before you're eligible. If all of your savings is in the IRA, well, I guess starve or steal?
The comment I replied to specifically referred to the top 10%. The bottom 90% definitely aren't all receiving welfare. A $500 minimum for a Scottrade IRA account should be easily achievable for most in the bottom 90%.
By income or by wealth? If you make more than six figures you are in the upper income bracket regardless of how much you save or what your regional cost of living bracket is.
You are overgeneralizing. Far more people have made money in the rally, such as myself, than there are billionaires in the world. Yeah, maybe it's only the upper-middle class and above who benefit the most, but that is still a lot of people.
Exactly. I've seen this article and similar ones pop up on Hacker News and Reddit before, and lots of people make comments similar to those in this thread. Literally anyone can invest in the market.
I've done quite well in the market since Jan 1st alone. Blaming big money and then not even participating in the market is a stupid comment. Stop blaming others for your financial situation, take control of it.
Last I checked Stock Market it open to all for trading and investing. This is another article that has twisted the facts to basically hating on Donald Trump's success so far.
Sure, let's repeal Obamacare and tell the poor to invest in the stock market to get enough money to get medical treatment, I'm sure that's gonna work out great for them.
Stocks and most other financial instruments will - on average - not give meaningful returns over the timespans that sigificantly would alter social mobility if you can't invest significant amounts of money, or have insider information of questionable legality.
Anything that significantly can alter social mobility must affect early life. Things like giving access to better education for your children, or living in neighbourhoods and circumstances that give access to better contacts and networks can affect social mobility, as can other more context related factors. Since stock markets only give relatively high returns over several decades, as it is quite volatile over shorter periods of time, it's not a reliable source of social mobility.
So while financial markets can improve your pension and retirement, effects on the much more important social mobility metrics is rather tenuous, except in very rare cases.
Don't complain about what others have achieved. In the US you have the opportunity to reach for the stars (literally). If you want it bad enough, with a little luck and hard work you can get there.
There will always be far more wealthy people than poor or middle class. Why? Because, outside of inheriting wealth, making money is very hard. Some get lucky and it seems to happen easily. That's not the norm. Becoming wealthy is hard perilous work. It requires incredible focus, dedication and discipline. In some cases it can cost people their family and health.
I don't like a culture that vilifies the wealthy or creates divisions along these lines. In a country like the US most people aren't rich due to a lack of opportunity, oppression or some grand plan to keep people down. No, most people are not rich because they either don't have what it takes or are not willing to invest the time, effort and sacrifice required to get there.
If 80% of the value is held by the richest 10% it is because they made money and continue to risk it in investments such as the stock market. I have friends who lost hundreds of thousands of dollars on investments in just a few months. Nobody talks about them taking those kinds of risks. They do talk about the new Ferrari they bought with the proceeds of the 1 out of 100 investments that actually panned out.
Funny how you never see articles during market crashes to highlight how much wealth that same 10% lost.
Or how they pay the bulk of all taxes collected.
This ideology is not aligned with a sensible reality.
> In the US you have the opportunity to reach for the stars (literally). If you want it bad enough, with a little luck and hard work you can get there.
Not true. The US ranks very poorly compared to other advanced economies when it comes to income inequality and social mobility [1].
Also most of the examples you give prove exactly this: Mark Zuckerberg was just a kid in a Harvard dorm, and so was Bill Gates (one of your "examples"). Ted Turner went to Brown, and all almost every person in the list you gave went to a very good school, if not Ivy League. And yet most Americans claim that they can't afford college [2]. It is naive to claim that "most people aren't rich due to a lack of opportunity", because that's exactly what's happening.
For a bright kid that's $200 and six months of a concerted effort to learn.
Now all he or she needs is some kind of an interesting idea.
Build a minimum viable product. Perhaps do all of this with a friend.
Apply to YC.
If all goes well, have access to hundreds of thousands of dollars and some of the best business coaching anywhere on earth. And millions of dollars past that if the idea generates interest. And hundreds of millions to billions of dollars in revenue in the future if the idea turns into a product that gains traction.
Please don't tell me there are no opportunities. All you need is a few hundred dollars, time and dedication and a reasonable support structure from which to explore (a friends couch or a bedroom at your parent's home). And, yes, a good idea and some luck.
This has never been possible in the history of humanity until modern times. A few hundred dollars, an idea and hard work.
Perhaps the reason the US ranks where it does is because people are not interested in making the effort required to improve their station in life. I know plenty of people like that. They talk, talk, talk and never take a risk of any magnitude or make the effort to turn talk into action. And they never go anywhere.
I'll give you a very concrete example: I have a good friend whom I've known for thirty years. He is a gun enthusiast and knows the subject very, very well. For as long as I've known him he has been talking about manufacturing accessories for other gun enthusiast. This is an extremely lucrative segment yet one I am not interested in. However, wanting to help him out I've offered him full access to my entire CNC shop along with workstations with the requisite CAD/CAM/FEA tools. Free of charge. All he has to do is buy raw materials, steel and aluminum, design something and machine it. I'd even have one of my machinists help him get started.
In other words, I am placing, at his feet, with no conditions whatsoever or desire to take a piece of the action, hundreds of thousands of dollars in high end manufacturing equipment, software, tools and support. No preconditions. A complete factory. We can even do electronics assembly for him. For free.
He can make as much money as he wants and I don't take a dime. I'll even do small production runs for him and not charge him a dime to run our machines and use our tooling just so he can have an initial inventory to sell.
That has been a standing offer that I have repeated with some frequency for the past fifteen years. What has he done so far? Talk. Just talk. He is a great guy and a good friend but he simply does not have what it takes to take that leap, even when everything is laid out for him.
BTW, I've had this discussion with him in person. I've asked him why it is that given the opportunity in front of him he just won't pull the trigger an try to turn his talk, his ideas, into a business. The response is always very circular and fuzzy, it boils down to the difference between talking about something and actually doing it. The latter is easy, the former is not.
Opportunities in the US have never been better. Blaming it on the rich is just one of the myriad excuses out there to justify not making an effort.
BTW, most people would feel rich if they made somewhere between $10K and $25K a year depending on where they live in the US. I am not necessarily talking about creating a Facebook here. There are plenty of business opportunities out there that can get someone to that $10K to $25K a month range without having to have a Masters degree from Stanford and wealthy parents. In fact, most of the very successful people I know ($1MM+ in income) never even went to college and clawed their way to success from nothing.
I'll give you an example of the latter. Friend of mine, emigrated to the US (legally) with very little to his name. Barely spoke the language. Barely graduated high school in Israel.
He bought a beat-up piece of shit car. Slept in it for about six months. Got himself a grunt job at an air conditioning installation company making shit money. Worked that for about a year. Saved up some money. He worked for me for a while doing electronics assembly work (which he learned with us, he knew nothing coming in). Did that for a while and saved some more money.
He eventually decided to go off on his own and start a courier business (letters and small parcel deliveries). This is before the internet, nothing was easy.
He beat the pavement for a month until he landed a small client. He had to be available 24/7. He would do his day shift making deliveries. At night he'd park his car in the parking log at his client's office with instructions to wake him up if they needed a delivery. He did that for a few months. Got a couple more clients. Continued to drive during the day and sleep in the car at night in a client's parking lot. Months went by like this.
Fast forward to today: He owns a good size courier/logistics company. He employs dozens of people. Has a small fleet of cars and trucks. They deliver locally, nationally and internationally, handling everything from small parcels to containers full of product. And yes, he makes millions.
Virtually no education. No money. Language challenges. And yet, today, he is wealthier than most US natives who have all the opportunities laid out in front of them.
If you want to blame the rich for everything, be my guest, it's a complete fabrication but hey, free country and all that.
Fair enough. You might be absolutely right. That's very much part of my point.
The top 10% are there because of a million reasons. You identified one of them. Perhaps they are some of the most confident people out there.
Success is hard. I suck at so many things yet I have managed be have success (after many failures and going bankrupt twice) because of grit, determination, being open to taking stupid risks and a saint of a wife who put up with my entrepreneurial bullshit for years. I'm not in that 10% but we do very well.
My trips up and down the scale (if such a scale exists) have taught me so much about human nature. It is so much easier to blame everyone else for one's own failures (or lack of motivation, risk taking, etc.). I've always said that in business I am and will always be my own worst enemy. The psychology of enduring the torture business can be is crazy.
The first time I lost everything I did not, for a minute, stop to blame everyone. I licked my wounds and figured out how to start from scratch again. Not a dollar to my name. Maybe that's why I don't appreciate victim mentality, I see it as very weak and have nothing but contempt for it.
Mark Zuckerberg is a particularly bad example, since he was the son of two white-collar professionals, went to an elite private school (Phillips Exeter) for two years, and then went to Harvard. He was probably eligible for little to no finanical aid, so it's likely his parents paid for almost all of his education. Zuckerberg's father also hired a professional software developer to privately tutor him.
There are obviously exceptions, but from what I've seen most tech billionaires have these kinds of backgrounds.
Sure, always a way to find someone else to blame for everything.
People who are successful never make these kinds of comments. Because they don't matter. They are irrelevant. Success in the US is decoupled from a privileged standing in life. People from all walks of life can be successful.
And, BTW, being a billionaire isn't the milestone. Most people would feel wealthy with incomes in the $10K to $25K range (depending on where they live in the US). This does not require PhD parents and two years at Harvard. In fact, most people who start businesses making, say, $1MM+ a year probably don't have more than a high school education. Yet, they do have a lot of grit.
The victim mentality of blaming the rich might be fulfilling to some but it is utter bullshit. I am not talking about the rest of the world here. In the US, this is pure nonsense. The opportunities available today in the US have never been better.
> People who are successful never make these kinds of comments.
I have no idea what qualifies as "successful" to you, but I consider myself modestly successful and I make these kinds of comments. As a mid-level engineer at Google, I make > $200K yearly and own a home in one of the more expensive markets in the country. I'm sure that isn't impressive to millionaires, but it places me in the top 10% of earners and allows me to live quite comfortably.
Yes, I acknowledge that I got to this point with a lot of hard work. I went to a state school in the Midwest. I held part time jobs for the first few years, and for my final years of college I worked a full time job at night and went to school during the day. After graduating I landed a decent job, but pushed myself further by also picking up freelance work on the side. I was very conscious of the gap in skill that I perceived between myself and "real engineers". After a year of this, my skills had improved to the point where I could land a job at a west-coast startup. Luckily for me, this startup had a few big names attached to it that piqued Google's interest: after only 6 months at this startup a Google recruiter contacted me, and I leapt at the chance to interview. It had always been my dream to work at Google, so I took the opportunity seriously. For months, I'd leave work and head to a restaurant nearby to eat and study. I'd order dinner then do coding practice problems in a notebook until the restaurant closed. I'd go home and spend a little time with my fiancée, then after she went to bed I'd type my work into a compiler, fix any issues, then do a few more practice problems, going to bed around 2 or 3. Eventually this lead me to a state where I felt comfortable interviewing, and luckily I did well enough that I received an offer.
The point I'm trying to make with this long-winded story is that I am familiar with hard work, and yet in spite of that I attribute quite a bit of my success to luck. "The victim mentality of blaming the rich" is not something that only poor, lazy people do. Even I feel that inequality is partly a result of those with money and influence pulling the ladder up behind them.
> Even I feel that inequality is partly a result of those with money and influence pulling the ladder up behind them.
And that's where you are wrong.
Look at it this way: You do very well. Are you actively trying to undermine those below you? Are you out there impeding the guy making a living driving for Uber from succeeding? Or the gal who wants to learn programming to get a better job? Or your co-workers?
How exactly do you, someone who by most measures is doing very well, conspire to impede others while growing your empire and sucking-up 80% of the opportunities at your level.
I've been an entrepreneur all my life and I've made high seven figures along the way. I can't remember a single instance where I ever thought of pulling the ladder up behind me. I was too busy making sure our competitors didn't eat us alive. And so were all of my friends doing similar things. I barely had any time for my family, let alone conspiring to be part of some evil master plan.
Look, folks with money are people, not some caricature fabricated in these victim mentalities. If this evil-ness applies to them it has to apply to you and me. Because you are rich by most standards. You have the potential to put away a million dollars or more simply by working where you work. How many people in the US can do that? Will you turn evil? Are you evil? No. Of course not. Don't apply caricatures to others while you would not, even for a minute, apply them to yourself.
As a general position I deplore negative views of reality. Things are not that bad. In fact, in the US they have never been better. Opportunities abound. I mean, just look at you. It took hard work to get where you are. Most people would not do as you did.
Is there an element of luck? Maybe, but the saying that says "luck is opportunity meeting preparation" applies in your case, doesn't it? Would it be right to vilify you because you are in the upper n%? No, of course not. You worked for this moment and you deserve it. If others want it they need to work for it, not sit on the sidelines bitching that you and others are pushing them down.
Given the range of opportunities in the US I contend one of the reasons for lack of mobility is this lack of drive. People are content playing with their iphones and bitching about the latest political figure on Facebook while some of us are working our asses off and doing very well for it.
As a general sentiment, I think we need (as a country) change to an entrepreneur and business friendly mentality. We need to teach kids business and entrepreneurship starting in elementary school. We need to stop vilifying the very things that drive economies. We need to have agencies like the SBA do a better job of empowering startups (they are horrible).
Schools are permeated by people who know nothing about business and entrepreneurship and, in a good deal of cases, vilify them. This has consequences. And we are looking at some of them. As a child I had the opportunity to attend high school both in the US and in South America. The contrast between the two school systems at the time (don't know now) was incredible.
In Argentina I was being taught accounting, business, marketing, economics, etc. Here, well, nothing of the sort. Another big difference I remember were what I would call the "militant teachers". It isn't uncommon in the US at both high school and college levels to have teachers and professors who use class time to pontificate about their own twisted views of reality rather than teach what they are there to teach. Kids are affected by this. And our teacher's unions pretty much guarantee these people can't be fired, which is exactly what should happen to them.
Once again, some of what's wrong in the US is the result of what we are going to our kids in school. If we want to change both our internal wealth balance and our economic standing in the world we have to start with our kids and what they are learning in school.
My fear is that, to some degree, it might be too late. We don't have another generation to "save" us. China is at or past the inflection point. We have lost so much focus over the last several decades that we've fallen behind significantly in many respects. And, while it is still true that there are tons of opportunities available to everyone in the US, it would be much better if we changed our focus away from Ivanka's clothing line or the latest political scandal and laser-focused on everything we have to do to make things better for everyone.
> I can't remember a single instance where I ever thought of pulling the ladder up behind me.
It's really not that. The problem is that you believe personal success and failure are something that entirely depends on you. That is not the case.
You, 'rebootthesystem', were probably not taken off the shelf by God, put inside a body on Earth and left to your own devices. No, you are the product of genetics, environment, upbringing, entourage, opportunities, and so on. Each person grows up to have certain motivations (or lack of motivation) without a choice of their own.
You couldn't have been another person than the one you are right now. The choices you make aren't really choices - if you rewind the tape you'd do everything all over again, given that quantum physics doesn't intrude too much.
Your life is fairly deterministic, so you are just the sum of your past, thus it's unfair to say that your achievements are anything but the work of luck. The opportunities you were provided (like education, for example) differ significantly from what you would've had in a Bangladesh slum.
Sure, we can use other people's achievements as motivators for ourselves, but that's biology more than anything else. There's no such thing as self-made man; every person is the result of past events.
Listen, as an immigrant I can only laugh at such statements. Such nonsense. Most successful immigrants have piles of stories of other successful immigrants who came to the US with nothing, in some cases not even the language, and built success through sheer determination and grit. This country was built that way. Not by people blaming the rich for all their ailments. You are free to believe whatever you want, even if it is a fantasy.
Not everyone can be an entrepreneur. Some people are just wired that way. Seemingly, most people just aren't wired that way.
It used to be that that was fine. You could work in factory doing honest manual labor, and still provide for a family and buy a house. That's not possible anymore, without taking on a mountain of debt. When you look at the stagnation of wages compared to productivity[0], it's not strange that people think "where did all that money go?", and then look at the increasing inequality [1] and decide where to lay the blame[2]
Yes and no. If by that you mean starting and running businesses, of course, you are right. I view entrepreneurship as a way of thinking rather than the act of starting and running businesses.
When given a choice I always like to hire people who have started and run a business, even if they failed. Why? Because what I am after is that manner of thinking.
I don't care if I hire a software engineer who doesn't know Python or can't solve gotcha Google interview problems. These are things that can be learned. What someone can't learn is what I call the entrepreneurial mentality.
Having someone work for you, in any capacity, who truly understands business is far more valuable than any knowledge that can be acquired by reading books or doing tutorials on YouTube.
What you gain is someone who will truly work for the business and understand their roles and responsibilities from a very different perspective.
I see entrepreneurship everywhere. Even as an employee, the things that will move someone up the scale within the company or across their industry are entrepreneurial in nature. Taking care of your customer (your employer). Making sure they are satisfied with your product (your work). Marketing yourself. Being an advocate for your employer's needs. Striving to innovate and make a better product (meaning, improve your skills). Having the best product (becoming an expert in the field). Etc.
Entrepreneurial thinking in the workforce would turbocharge our companies. The exact opposite of this is a unionized workforce. This is particularly true of government unions. Here you have a workforce that is almost as mentally dead as possible, not interested in improving themselves, not ever working towards improving efficiency and generally not engaged at all. One visit to the DMV paints that picture in no uncertain terms.
Actually the interesting bit of the Zuck story for this discussion is not that he's now in the top 10 of world wealth.
The interesting bit is that Zuck, being the son of a well-to-do guy who wasn't astronomically rich, ended up handing a couple of richer twins tens of millions of dollars, all thanks to how the legal system is set up.
I just did, above. Not going to respond to every comment. They are all the same. It's easier to blame the wealthy. In the US opportunities have never been better.
Shifting one's economic standing is a contact sport requiring effort. Most people are not interested in making the effort or taking the risks.
"The richest 10 percent of adults accounted for 85 per cent of assets. The bottom 50 percent of the world’s adults owned barely 1 per cent of global wealth."
The market is not only for millionaires and billionaires. You can trade $6.95 on ETRADE now and can even trade for free with Robinhood. I actually hold about 80% of my holdings in ETRADE and 20% in Robinhood. I use Robinhood for buying smaller chunks of shares (lowering dollar cost average) or more risky smaller trades.
Savings accounts are stupid! They offer fractions of percent interest. Look at exchange-traded funds that track an index such as the S&P 500 or Nasdaq Composite. My personal favorite ETFs are the tried-and-true SPY and QQQ.
I wrote a blog post on Robinhood and leveraging capital using margin on my blog for those interested:
https://justink.svbtle.com/leveraging-capital-using-robinhoo...