"striking it rich is merely a well-marketed fantasy"

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JohnnyH
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"striking it rich is merely a well-marketed fantasy"

Post by JohnnyH »

http://www.businessinsider.com/an-inves ... ew-2013-11

From the friends I have in finance, I think this is legit.

The only way to win is to not play (retire).

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Ego
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Re: "striking it rich is merely a well-marketed fantasy"

Post by Ego »

JohnnyH wrote:The only way to win is to not play.
The number of problems for which "not playing" is the optimal strategy is large .... and growing. Success for the average person is increasingly achieved by those who were able to refrain from doing or find pleasure in doing without rather than those who took action, followed the rules and did what was expected of them.

Chad
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Re: "striking it rich is merely a well-marketed fantasy"

Post by Chad »

I find it interesting how low the total assets are for the bottom half of the top 1%.

Also, are we (society) more aware of how the truly rich live now, so even when we are well off ($2-8M or so) we doe not consider ourselves rich?

This is always my question when it comes to the very wealthy:
I find it questionable as to whether the majority in this group actually adds value or simply diverts value from the US economy and business into its pockets and the pockets of the uber-wealthy who hire them.
We have a lot of people who find a way to make money now, without creating anything useful. Considering how big the financial sector is now compared to it's traditional size...

http://www.ritholtz.com/blog/2011/12/me ... -sector-2/

....it would seem the author is correct that many bankers don't add value.

This kind of ties into a thread Seneca started where a former Fed employee suggested QE went almost exclusively to the bankers. I disagreed with the employee only in his extreme view, but agree that more of it went to Wall Street than Main Street. The above charts show the bankers attained these levels prior to QE and then rebuilt them. Obviously, some of that rebuilding is unfortunately due to QE.

workathome
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Re: "striking it rich is merely a well-marketed fantasy"

Post by workathome »

"One of our clients, net worth in the $60M range, built a small company and was acquired with stock from a multi-national. Stock is often called a "paper" asset. Another client, CEO of a medium-cap tech company, retired with a net worth in the $70M range. The bulk of any CEO's wealth comes from stock, not income, and incomes are also very high."

A la "Supermoney"

workathome
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Re: "striking it rich is merely a well-marketed fantasy"

Post by workathome »

It is interesting that even being in the top 0.5% with $2 million only generate ~$80k/year based on the the 4% rule. That's about what many working families expect to earn to sustain a "reasonable" lifestyle.

This does seem to play out to the over-marketed argument + Chad's observation that we all know how the ultra-rich live. Just to live like a average middle-class TV family on investments, you'd need the net worth of the top 0.5%!

Seneca
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Re: "striking it rich is merely a well-marketed fantasy"

Post by Seneca »

Kiyosaki is the one who really opened my eyes to why I was getting so frustrated with the fact we had gotten some big raises at our jobs without the expected result of "fat stacks" of cash hitting the account every month. (EDIT- Only because I read him before the ERE book/blog, MMM etc. Certainly not an original idea attributable to him!)

Kiyosaki emphasizes both how different cash flows yield very different results, and also talks about the velocity of money...with the answer always being equity trumps income.

From these articles (or say, reading my favorite hypocrite Warren Buffett) my answer is not that it's a hopeless game, just that I should figure out how to integrate some of the ideas "supermoney" uses when playing the game. Many of those ideas are the ERE playbook...
Last edited by Seneca on Fri Nov 15, 2013 11:17 am, edited 1 time in total.

George the original one
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Re: "striking it rich is merely a well-marketed fantasy"

Post by George the original one »

workathome wrote:It is interesting that even being in the top 0.5% with $2 million only generate ~$80k/year based on the the 4% rule. That's about what many working families expect to earn to sustain a "reasonable" lifestyle.

This does seem to play out to the over-marketed argument + Chad's observation that we all know how the ultra-rich live. Just to live like a average middle-class TV family on investments, you'd need the net worth of the top 0.5%!
But if the residence is paid for, you only need $1M-$1.5M. Middle class residences usually top out at $500k, so that again shows how having assets trumps income.

workathome
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Re: "striking it rich is merely a well-marketed fantasy"

Post by workathome »

George the original one wrote: But if the residence is paid for, you only need $1M-$1.5M. Middle class residences usually top out at $500k, so that again shows how having assets trumps income.
I still think a lot of [poor] people innocently think if they "get rich" they'll be "millionaires" and drive around 911 Turbos while vacationing all over Europe and "living like a millionaire." Or maybe that's just the fools I grew up with. The lottery-winner mentality.

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Re: "striking it rich is merely a well-marketed fantasy"

Post by jacob »

Seems to me that confusing monetary values with attitudes towards money somehow obfuscates the entire point. From my semi-informed understanding, the middle class think in terms of spending-lifestyle; spending money on buying things.

The "rich" (upper class) doesn't think in those terms. They think in terms of power; the ability to do what they want (facilitated by money and being connected). They make money for the sake of control or keeping score, not so they can spend it on nannies and helicopter trips from the Hamptons---that stuff is just incidental. In terms of keeping score, they hate losing it/money---but it's not the dollars, it's the losing. They might make 1M on one day or year and despite that losing 100k the next day/year will feel terrible. In terms of control, it's not uncommon to have the ambition of turning their millions or billions into political influence.

(Try reading some of the accounts of the rollers in high finance, lots of popular books there. You'll see.)

I think the main difference is that the middle class exchange time for money... they're salaried. The upper class or the rich, really, exchange money for more money. That's a crucial difference. The middle class believes in status and titles. The rich-class believes in ... neither! They don't need to prove themselves with silly job titles or by buying stuff. They make them up---or write a check.

If you've adopted the ERE philosophy/principles, you might have substantially more in common with the rich than you think you do.

Spartan_Warrior
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Re: "striking it rich is merely a well-marketed fantasy"

Post by Spartan_Warrior »

jacob wrote:They make them up---or write a check.

If you've adopted the ERE philosophy/principles, you might have substantially more in common with the rich than you think you do.
Both the wealthy and ERErs have in common that for them "money is power". The difference is in the scale of that power. We had a thread here by that very title, and in that thread there was some disagreement in terms of the difference between "freedom" and "power". I personally think that power (as derived from money) is a kind of continuum, on which "freedom" exists. Freedom is the power to do what you want. Control is another kind of power though--the power to make others do what you want. ("Consumption" could be seen as the third and lowest kind of power, the only kind the middle class knows--the power to exchange money for goods and services.)

The powers you describe the rich having I would associate with "control", influencing others. I don't think the EREr with <$1m is ever going to wield that kind of power (except maybe very locally). "They make them up--or write a check" doesn't ring true to the ERE lifestyle IMO. ERErs are good at making things up, but far more limited in their capacity for problem-solving-by-check-writing. With <$1m, check writing only goes so far before you're back to trading time for more money.

If I had to fit the ERE lifestyle into one of the three socioeconomic classes, I would still be inclined to say we have more in common with the middle class than either the wealthy or poor. The poor are poor because they lack the skills to live well on their income. On the other hand, the rich do not need skills at all beyond the "check writing" ability and as far as I can tell most are highly specialized at making money--they live in a 100% money economy. Why would they need other skills besides throwing money around when they're so good at earning money? I've never met anyone with a billion dollar net worth, but I can only imagine if I told them how I wash my clothes by hand with a plunger and a bucket, buy clothes from Good Will and barter for things on Craigslist, they might look at me like I'm from Mars.

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Re: "striking it rich is merely a well-marketed fantasy"

Post by jacob »

In the book (chapter 3), I argue for 4 classes, so ERE doesn't fit on a continuum of the usual three. Rather, the setup is two-dimensional. ERE has the least in common with the salaried middle-class.

My experiences with wealthy people (from knowing some directly and talking to people who know some) rather disagrees with your impression. If you want someone to think you're a Martian for shopping at Goodwill or bartering, talk to a middle class professional. If you talk to someone who _make_ money rather than _earn_, they seem quite enthused about the notion of bucking the system. I think that difference between making and earning is the key difference between the wealthy and those who simply make a lot of money (and save a few mills within a few decades). The latter has spent all their lives fitting into structures. The former have an almost complete disregard for such structures.

Another way of seeing it as that the wealthy treats money as a resource. They use money to build stuff and then sell that stuff for more than they paid. Their building is value-added. The rich middle class uses money as a tool. They don't value-add (because that's not their day job) and so they get the economic/market rate only.

If we compare further, another way of identifying the middle class and also the working class mindset (to an extent) is that they talk a lot about "paying bills" as this being a severe restraint on what they can do. That's what I meant when I said that the wealth simply write a check. The availability of money is mostly a non-issue as it's not coming in on a monthly basis, rather it's already there in the form of assets.

Finally, the lower class and the wealthy have something in common that they don't share with the middle class. Notice how every social relation in the middle class revolve around transacting money. "Can you walk my dog?"---"Here's $10 for walking my dog! No, I insist." Middle class people will rarely if ever do something for each other that can be construed as a service without paying somehow. It makes them feel uncomfortable. Conversely, the lower class will not take money... rather they rely on each other: "I help you today. That's what neighbors do." They stand up for each other. Similarly, the wealthy will make deals with each other _based on existing relations_ or relations they build. Those deals usually involve a lot of money too but it's nothing like the middle class who seem to prefer no relations at all/strictly money when it comes to working with others. The middle class is so steeped in "working for pay" that it's hard to conceive any other way.

[I guess from a sociological standpoint, the educated middle class is thoroughly divided and conquered, thus they can have money from the upper class because they will never use that money to directly compete with the upper---they'll spend it cars, houses, and index funds, but they'll never use it to broker a deal to create a more powerful structure; exception: start-ups, but how common are those? Not very! Despite their collaboration the lower is safe because they don't have any money to begin with.]

(Here I talk about wealth-builders, not wealth-inheritors. I will exclude from this discussion those people who received their wealth via inheritance, i.e., undeserved wealth. They may or not have what it takes. If they do, they will eventually earn the right to hang onto it and grow it further. If not, it'll be lost soon enough.)

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Ego
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Re: "striking it rich is merely a well-marketed fantasy"

Post by Ego »

Spartan_Warrior wrote: Both the wealthy and ERErs have in common that for them "money is power". The difference is in the scale of that power. We had a thread here by that very title, and in that thread there was some disagreement in terms of the difference between "freedom" and "power".
viewtopic.php?f=18&t=4080&hilit=money+is+power

Felix
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Re: "striking it rich is merely a well-marketed fantasy"

Post by Felix »

I think one of the reasons for differences in opinion with regards to "money is power" stems from the idea of power relationships (structural or otherwise) in a market economy vs. parties being modeled as being on a level playing field.

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Ego
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Re: "striking it rich is merely a well-marketed fantasy"

Post by Ego »

Felix wrote:I think one of the reasons for differences in opinion with regards to "money is power" stems from the idea of power relationships (structural or otherwise) in a market economy vs. parties being modeled as being on a level playing field.
I agree. It has to do with the way we are taught to think. Winner/loser. Black/white. Powerful/powerless.

It ignores the fact that there is another way. As JohnnyH said above, don't play. Or, find ways to play where everyone wins.

On the other side, you can only lose what you cling to.

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Re: "striking it rich is merely a well-marketed fantasy"

Post by Spartan_Warrior »

@Jacob: That's interesting, thanks. Like I said, my opinions aren't even really empirically backed, so I'm not surprised if they need reevaluating. I guess I'm just envisioning myself in those shoes. If I were one of the big finance CEOs pulling in $14 million a year, I'd probably be very, very unconcerned with mastering other skills beyond my day job. It simply wouldn't matter. Doing hobbies for fun, definitely. Worrying about hobbies/skills that also save/make money, not a chance. Cooking my own food? Why bother when I can have a master chef cook me a meal for less than two minutes of my salary? But I do see what you mean with regard to thinking outside the box of the earn/spend cycle.

When you think about all the variables involved, the entire trichotomy of poor/middle class/wealthy seems to break down. And I certainly agree that ERE doesn't fit fully into any of the traditional classes, so all this is hypothetical. To me the ERE lifestyle seems to fit in different categories depending on the variables you look at. In how it uses money*, I would agree it's most like the wealthy (store of value and source of income). In its level and style of consumption, without judgment and objectively speaking, it's most like the poor (craigslist, Good Will, no cars, mobile homes, etc). In terms of income while working, most of us seem to be somewhere in the middle/upper middle class. In terms of income while not working, most of us definitionally aim to be low income/"poor".

*But I still maintain that while ERE uses money in a similar way as the wealthy, the powers that we derive from that use are fundamentally different. If money is explosive power, then ERE provides just enough tactical TNT to clear a roadway for a person to go where they want in life. The wealthy, on the other hand, have nuclear weapons! That's the difference between freedom and control, and I think it's pretty fundamental--maybe not necessarily in terms of engendering different lifestyles (though I think it could be argued that having that kind of power would change the way you think about things, solve problems, etc, in a sufficiently different way from others who lack that power), it certainly seems enough to make a difference in kind. I don't think ERE can be considered wealthy without redefining what wealthy is. Absolutely, there's crossover, but more than with the other classes? I still feel like I have more in common with my blue collar redneck neighbors than with Jamie Dimon. But maybe I'm lacking experience with the latter.

I saw this article earlier that seems to relate (both to this discussion and the original topic):

http://www.fool.com/investing/general/2 ... d-you.aspx

JohnnyH
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Re: "striking it rich is merely a well-marketed fantasy"

Post by JohnnyH »

It's not the money or the wealth that angers me but the corrupt domination of the legislature and tax code... I realize 95% of the 99% probably only care about the toys, sadly.

workathome
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Re: "striking it rich is merely a well-marketed fantasy"

Post by workathome »

I was thinking out outsourcing life itself once because I made too much money. Like breathing, spending time with my wife, chewing my food, looking at things, etc. Why bother? Too rich!

Spartan_Warrior
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Re: "striking it rich is merely a well-marketed fantasy"

Post by Spartan_Warrior »

Workathome, if that's sarcasm directed at my post, you'll have to clarify. There is a vast and obvious difference in kind between the activities of breathing and, say, learning to cook satisfying meals for yourself every day. Like I said, if Jamie Dimon has always had a passion for cooking and wants to cook every day, he is free to do so. He's also more or less equally free to pay a gourmet chef to cook 10x better than he or I ever could hope to, again, for about two minutes of his salary. I don't have that option, so even though I personally don't enjoy cooking (or hand-washing laundry and dishes, or mowing my own grass, etc) I do so anyway, essentially to save money, in order to lower the amount of time I have to trade for money, so that I have more time for activities I do value. I don't have a choice in this; paying to outsource these things would be a lot more than two minutes of my salary, and I am not willing to sacrifice the time. Is the difference becoming clearer?

My point is that a rich person learning to cook their own food, etc (or perhaps better to say "doing X, where X is a money-saving behavior they don't personally enjoy") makes about as much sense to me as that "Extreme Cheapskates" guy who biked 40 miles around town to collect $7.50 in spare change. Some people (maybe those who think biking 40 miles for any reason is fun) would think this is reasonable. To me, it's an inefficient use of his time. My time is worth more than $7.50/hr. For that guy with the $14M salary, learning to cook and all that seems about as inefficient.

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Re: "striking it rich is merely a well-marketed fantasy"

Post by Spartan_Warrior »

Also, for the record, I am not speaking from a position of resentment. I agree with JohnnyH. The real injustice is how much influence and power all that money buys--which actually relates back to my only real point: that I don't think the lifestyles of the wealthy have much in common with that of ERErs. Let me know when ERErs can buy politicians, then we'll talk.

workathome
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Re: "striking it rich is merely a well-marketed fantasy"

Post by workathome »

Not at you, just a personal observation. I was making enough income for brief periods a couple years ago ($10-$20/minute) to justify outsourcing a huge part of my life. I was wasting a lot of money with that justification, to the point of learned helplessness. While in reality the vast majority of every-day things actually take less time to do myself, and get done much better when I do them myself. My brain is only economically productive for so many hours in the day anyway.

I also started thinking is stupid ways, justifying missing out on potentially enjoyable parts of life (e.g. "I make too much money to garden!" or "I don't need to learn how to do X! Think how much money I'm losing by spending time learning X!"), so taking to an extreme, the abstraction "I'm too rich to live!"

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