In this forum there are mostly discussions on how to cut spending, deflate the lifestyle, etc to reach FIRE asap and without insane amounts of capital.
But more rarely there seem to be discussions about how to use the principles of frugality, working hard and investing to help the endeavor of amassing significant wealth.
Thread's definition of rich: minimum net worth required to join the 1% in the US (roughly 10 millions net worth in productive assets iirc).
So as per the thread's title: what would YOU (considering your skills, attitudes, etc) do to reach a "1%" tier net worth as fast as possible?
Second question: we have a "general model" for ERE/FIRE, but what could be a "general model" for more significant and faster wealth accumulation? Would it even be different?
I thought about adding the use leverage as a multiplicative factor to the "work as much as you can + save as much as you can + invest as much as you can" model.
Before attempting to answer your question, I gotta ask.....what's the point?
This blog/book/forum revolves around the idea of reducing ones footprint/needs/reliance on consumer goods/solutions for much more than just purely financial reasons. For the vast majority of us, it's much simpler and more effective to learn how to need less, than it is to amass a fortune that would put us in the top 1% within the US. IIRC you're Italian, and living in Italy, where *average* household net wealth is ~$280k USD, and median wealth is MUCH lower, with most wealth being tied up in unproductive assets like primary residence. What would you do with $10M USD? My life wouldn't change one bit if I had $1M or $10M, and that's the point of ERE.
Before attempting to answer your question, I gotta ask.....what's the point?
1) i find the subject of wealth accumulation interesting
2) things changed in my life since i joined the forum (although i was never too active) and so did my perspective (which was much more ere-like in the beginning than now)
IIRC you're Italian, and living in Italy, where *average* household net wealth is ~$280k USD, and median wealth is MUCH lower, with most wealth being tied up in unproductive assets like primary residence. What would you do with $10M USD? My life wouldn't change one bit if I had $1M or $10M, and that's the point of ERE.
Yes and that's unfortunate.
I used the US 1% as a benchmark because if you are rich in the US you are rich everywhere pretty much.
In high school, research what professional fields pay the most and should probably have growing wages in the next couple of decades. Pick one of the top ones that only requires a four year degree. Bonus if it's not becoming too popular of a field of study for new college students. For example, analog electrical engineering could have been a better option than computer science since all the techie students wanted to make websites or games, and had done so in their spare time so they had a foundation to start from. There were fewer analog hobbyists and analog electrical engineering is full of engineers who are heading toward retirement. Further, most of the analog jobs in the US are in defense with huge budgets and stability. Doesn't take long to get to a six-figure salary in that field with the big talent gap, even if you start out as a mediocre engineer. Whereas with programming / software engineering, more kids want to do it and you're expected to live and breathe code right at the start of your career.
Anyway, once you get your (soon-to-be) six-figure career out of college, you now have to focus on becoming a world-class investor. Based on the 10,000 hours rule, you can potentially be there in 10 years treating it as a part-time job while working full time. That's a consistent 20 hours per week with only 2 weeks "off" per year, every single week, for 10 years. No easy feat to stick to, especially since you will be spending so much time on it early on with very little payoff. But this is what must be done to become world class at anything, whether a sport or an art or a technical skill. I believe some people on here will argue that you don't need 10,000 hours to become a proficient investor. I am talking about being "world class", not just building a portfolio that others use to get decent returns. This is what's required if you want to be as wealthy as possible.
I don't think it makes sense to try and use leverage as a novice investor. If you're investing actively without the skills, your expected return is about 5% below the return of the market. This is why unskilled investors are just told to buy the market. Further, if you are unskilled, you are not likely to know when is a good time to use leverage to simply buy the market with higher expected returns. Sometimes (during bubbles) the expected return of the market is negative, especially after margin fees and taxes. When you are a pro investor and can reliably get high returns without huge drawdowns, then you can think about slowly adding leverage.
So let's say, to keep the math simple, you are able to save $75k your first year working, $80k your 2nd year, and an additional $5k real income increase each year after that (constant $ increase = bigger increases as a % of income at the start of your career). Say your first year you only earn 1% on your savings (building up emergency fund, saving for a house, whatever), then you are able to earn an additional 1% per year on your assets as you invest more and increase your investing skills, up to a 10% plateau after year 10 when you are a "pro". Some might say that pros can get over 10% returns, but keep in mind the real total return of 100% US stocks is under 7% when most of the years of that history are when the country was growing into its world dominating status. You also have to keep in mind that as your assets grow so that you are making a six-figure income or capital gains from them each year, you will be getting more and more taken away through taxation. So I am assuming a consistent 10% real return will be world class performance for the foreseeable future of this low interest / low growth world. That would be equivalent to earning a 15% nominal return, having only 13.5% taxes taken out, and deducting 3% inflation.
Anyway, with that math, you will exceed $10 million in assets after 25 years of work. At that point, if you continued to work, you would be able to save $200k from work income, but you would expect to make over $1 million per year from investing. If you were 21 or 22 your first year of work, you could retire at 46 or 47 having reached $10 million which is still plenty early. You could also retire after just 14 years and still reach $10 million after 28 years, since in your late 30s your investment income would be starting to dominate your total income.
The low investment returns in the early years don't even matter much. Changing investment returns to 10% every year and retiring after 14 years only gets you to $10 million one year earlier.
If you didn't get anywhere in your career and only saved a constant $75k every year, but still retired after 14 years, you would reach $10 million after 32 years. Therefore it is important to not rush the 10-year investment learning process at the expense of your career. Give your day job all the attention it deserves to ensure you are in the top tier for raises as long as that doesn't mean you'll be working overtime for no extra pay, which will hurt your progress as an investor.
Basically, work your butt off in your teens and 20s to maximize income while building investment skills. Your 30s is a transitional period when you're still trying to get a good income but you may be heading toward your salary cap, and you're still trying to improve investing skills but you may be heading toward your skill cap there too. Your 40s is pretty much a waiting game as your wealth accumulates much faster than you can spend it and it doesn't make sense to work full time to get to a certain wealth level 10% faster unless you enjoy the work.
Seems hard to me to make it work any other way unless you get lucky (lottery tickets or big options bets).
Too open-ended of a question. In reality I won't do anything to try to become that rich. I've got enough for my needs, a dollop of comforts, and a few luxuries, which in my book (and inspired by YMOYL) makes me plenty wealthy. I don't think that even if I'd optimized every penny I ever earned going back to cutting grass and shoveling snow as a kid I could have brute forced my way into the 1%. To get there would have taken a whole different life trajectory, and considering what I actually knew at the time past decisions were made, I still stand by my choices.
Nothing much to add on the second question. There's a reason only 1% occupy the 1%. I suspect it usually requires something extraordinary, and the extraordinary seems to resist being captured in processes/recipes. Jacob's "process" will get a person to FI quickly and is probably optimal from a practical sense.
Last edited by IlliniDave on Tue Aug 04, 2020 7:53 am, edited 2 times in total.
Under rather modest ROI assumptions, we'll have a household NW of $10M+ when I'm 79. Of course at that point, this will no longer put us in the US1%, because the investments of everybody else inflated too. I don't think "superior investing" is a robust strategy.
To get wealthy, you need some kind of leverage and ability to scale the cash-inflows. Salaries neither leverage nor scale beyond a certain point. However, sales do! IOW, I think the only way to get wealthy is by starting a business and persevering with moderate success. If you don't blow the money, I think $10M (or whatever the number will be in the future) can be done if you're willing to commit 3-5 decades of your life to it. E.g. becoming the local cement king or building a laundromat franchise.
Since my brain is wired towards looking for personal/consumer inefficiencies, I find it difficult think about business opportunities. I classify much of it as "stupid shit stupid people spend stupid money on" as in "nobody is ever going to pay $30 for that when they could just ... " Yet of course they will, it's just inconceivable to me being so focused on eliminating consumer wastefulness.
It would therefore be crucial to look outside the ERE-mindset to see what/where people are capable and willing to pay money for something. For that, I'd start with "Copying" what works elsewhere. Perhaps with experience, one could Create a general system, but I don't know what it is.
I see, well as I'm sure you will get a few bites here, it might be prudent in finding a community which is interested/focused on this topic. Due to its nature, I'm sure most of those places are peddling get rich quick schemes and full of predatory individuals, YMMV.
Very much in line with IlliniDave and Jacob, I have absolutely no desire to reach that level of wealth, nor put in the work/time/effort required for it. Heck I have a hard time justifying getting to the first million, and all that would require would be another 2-3 years of work....
It's just too easy to live an amazing life on a small fraction of what the average American spends. Having median wealth in America is like being in the top 10% in many part of the world, knowing how to live on a fraction of this, instantly puts you in a very wonderful position to live a life focused on things outside of accumulating 1's and 0's in a bank account or NW statement.
You had many of the same thoughts I have. If my household continues to have a 1-1.5% withdrawal rate and we don’t die sooner or later 10 mil will happen. I remember the song, “If I had a million dollars “ when it was released in the early 90’s that a million was a lot more than it is now. We would be driving Priuses not K cars.
I have a family member that is the proverbial cement king. His goal was to escape poverty (which I would argue was lower middle class) and he seems emotionally stunted still too single minded for someone almost 80 years old.
I feel like I live a better life than many people in this country that spend several multiples more than I do. It’s a function of LCOL location, cooking good food at home, and working to solve problems with tools other than money.
But more rarely there seem to be discussions about how to use the principles of frugality, working hard and investing to help the endeavor of amassing significant wealth.
Just using basic math(s) it's clear that increasing income or the rate that assets are created is the only way to achieve this. If you're trying to accumulate $10m then you aren't going to get there by frugality, apart from the obvious point of not spending everything you make, which is unfortunately what some celebrities, sports stars or lottery winners actually do. There is no way that 'working hard' on its own will make much more money as you will run up against the limits of what is humanly possible for one person. And investing your way to success would rely on an enormous amount of luck and timing. Otherwise everyone would be doing it, and the prices of the assets you would need to invest in would increase accordingly.
Second question: we have a "general model" for ERE/FIRE, but what could be a "general model" for more significant and faster wealth accumulation? Would it even be different?
I'm inclined to agree with @Jacob that owning your own business is the only realistic way of making this happen. With this model you don't rely on just your own capital and your own hard work, you can leverage on OPM & OPT - which is usually pronounced "opium & opiate" and stands for Other People's Money and Other People's Time.
Since we started our own business I've never made so much money in a single month. Even after paying out all our costs I've been left with a huge amount of cash some months. OTOH I've also never lost so much money in a single month either, and in those months I still had to pay all the costs! Maybe one day we'll have an asset we can sell for a seven figure sum. Or maybe we won't. That's the risk you take, and the success stories are survivorship bias coming into play.
FIRE assumes the ability to live a good life on less than an average income will continue for the foreseeable future. Per "the hedged nature of ERE", Jacob asserts that if the world gets into serious trouble with limited resources & economic decline, ERE people will deal with this better than the average person, which is true (scenario #2): http://earlyretirementextreme.com/the-h ... treme.html
What a high net worth and high investing skill hedges against is an economic decline scenario where wealth inequalities continue to become more extreme and a 3% or so withdrawal is not sufficient to save yourself or your children from a lifetime of work with worsening conditions. There is no guarantee that wealth inequality will mean revert, that the 40-hour workweek will continue, and that "first world" countries will continue to look like what we think of as first world. Amidst worsening conditions over several decades or generations, the ERE mindset will allow you to deal with life better than average and more efficiently than the average person who sees life as much more terrible than it had been 50-100 years ago, but this could still be not a very nice way to live in absolute terms despite relative efficiency. I'm not saying how likely this decline is, just that it's a possibility.
So if the distribution of what we see as upper class / middle class / poor class goes from something like 20% / 50% / 30% in America's recent past to 1% / 9% / 90% in the future, and every class lives a rougher life than they had in the past due to collapse / resource constraints (e.g. the 90% live in crowded dorms and are forced to work 80 hours per week), I would wish I had worked a few extra years or spent more time building investing skills to get a family trust fund going that can last several generations, rather than seeing my wealth eaten away by poor returns and inflation.
A more altruistic and optimistic reason: there isn't enough wealth being put towards solving real world problems. Many "normal" people would see building up as much wealth as possible in order to change the world for the better as superior to not trying to build wealth simply because you have enough. If the world gets better over your lifetime rather than worse, and you end up with more than you wanted to pass on to your children, you can donate the rest to help them live in a better world.
Since we started our own business I've never made so much money in a single month. Even after paying out all our costs I've been left with a huge amount of cash some months. OTOH I've also never lost so much money in a single month either, and in those months I still had to pay all the costs! Maybe one day we'll have an asset we can sell for a seven figure sum. Or maybe we won't. That's the risk you take, and the success stories are survivorship bias coming into play.
I read an article recently that showed most entrepreneurs are earning at levels equivalent to the salary they could achieve. The majority aren't looking for huge wealth but rather freedom from working for someone else. At the extremes it changed, the bottom decile earnt less than the bottom decile of workers and the top decile earnt a lot more. This chimes with my experience and what I see when looking at my peers.
I guess you would have to look at yourself and decide whether you would be better at growing a business or climbing the greasy pole. I don't think there is much overlap between these two groups.
Good question. I’ve been thinking a lot about this recently. Probably being locked indoors with nothing to do with all the pennies I scraped up having a big part to do with my mental malaise.
This kind of $1M, $10M kind of talk almost exclusively comes from people who have not crossed these boundaries yet. I mean seriously how many times have I heard a person without $1M saying “you know a million isn’t that much anymore.”
Sadly I learned by doing and realized it isn’t what it’s chalked up to be. Maybe like losing one’s virginity. It’s a big deal up until it’s done. Sadly, you waste a lot of energy and innocence getting there...to a point where you can look back and realize what you really need out of this game.
Once you build a machine that puts a roof over your head, food on the table and wheels under your feet, you may just start to understand the marginal value of money beyond that point.
I think that’s why I love this forum. Keeps me coming back. You don’t need as much as you dreamed about before you got “rich”. Nobody explained that to me before I had consumed twenty years of the best years of my life on a single minded paper chase. I only need a small fraction of my SWR to be happy. Unless a “safety factor” generates happiness.
Sadly older mentors tried to tell me this when I was young and struggling to build wealth. Old guys would just smile as I’d talk my war plan over with them. I think they just rolled their eyes and remembered the consumption of their own youth. The closest one came to warning me about what I was about to do said “Sclass, the money is actually the easy part.” He’s dead BTW.
I’m starting to see my friends die. My health slowly declines down the shallow incline of midlife. Money cannot buy that back. Last weekend I hired two guys to trench a drain line for me...what would I have paid to have the fortitude to do it myself?
For the record I started two businesses, gambled in stocks, broke laws and inherited along the way. All beyond salary work, frugality and 401k investing.
No need for 10 million like others said. But the "easiest" for me would probably go in real estate with high leverage.
Once you have a large portfolio setup, delaverage it slowly to lower your risk over time and build up equity. In the mean time live from the income.
You can do this all with OPM (other peoples money).
Admittedly my personality and high leverage/risk don't go well. But if you would place me back in my early twenties with the knowledge and experience I have know, I would give it a shot this way.
Last edited by rube on Tue Aug 04, 2020 11:27 am, edited 1 time in total.
This is from someone whose already spent her adult life earning her nest egg. If you asked in my twenties, the answer probably would have been the same. The career was interrupted by a ton of irresistible detours that were well worth it. My net worth could be triple or more of what it is now without them.
I've had a house - and been isolated in it. A good group to belong to is worth more than that.
1. 3:55 Rich people Don't Care What they look like in Front Of People Who Aren't Rich
2. 7:53 Gender Dynamics Are Just As Complicated In Super Wealthy House
3. 11:38 That Lack of Empathy is Actually,Scientifically A Thing
4. 15:04 Most Rich People Don't Actually "Feel" Rich
5. 18:38 Work Addiction Amongst The Wealthy Is A Very Real Thing
6. 21:53 Money Doesn't Buy You Happines,But It Can.
I'm not yet at $10 million, but then I'm a household of 1 rather than 2. By Ukraine standards, where I am now, I'm definitely top 1% in wealth. My spending is still low, like $24K/year. More spending = more headaches. Hotels and weekly apartments are cheap in Eastern Europe, and that's my major expense.
Most of my money is from stock market gains (especially some market timing I did to avoid crashes of 2000 and 2008). Savings from my corporate job (1983-1995) amounted to maybe $250K total. Another big chunk of savings from my home business. Of course those savings more in today's dollars, but it's clear to me that saving from income is a slow road to wealth, unless you have a truly huge income. It's those effortless and quick and largely tax-free stock market gains that are impressive, but no guarantee someone else could repeat those gains. I was lucky to be in the right place at the right time with the right preparation.
In general, I think wealth is mostly a matter of luck, especially the luck of having good physical and mental health, good education, USA citizenship, etc. Plus the luck of having the right personality, very important. If you are destined for wealth, you'll already know various answers to the OP's question. If you are not destined for wealth, and you try to get wealthy following advice given here, you'll just fail and make yourself miserable in the process.
Getting $10mm really isn't my thing, even if I bet I could have reached it had I made it a priority. But I learned along the way that the sacrifices required to do it (relationships, health, sanity, etc) just aren't worth it, and that I can live an objectively great life with way less.
But if you're looking for ideas, one thing that certainly made accumulating money easier in my case is marriage. People talk about investing leverage, but marriage is a great example of earning leverage where you can increase your income way beyond the associated increase in expenses. Of course all leverage has risks, and marriage can also bankrupt you if you screw it up. But marry a fellow highly-motivated frugal engineer like I did while doing the work to make it last, and you set yourself up for financial success.
I read an article recently that showed most entrepreneurs are earning at levels equivalent to the salary they could achieve. The majority aren't looking for huge wealth but rather freedom from working for someone else. At the extremes it changed, the bottom decile earnt less than the bottom decile of workers and the top decile earnt a lot more. This chimes with my experience and what I see when looking at my peers.
That's a highly relevant and really great article. It's rare to find so much wisdom and so many technical concepts clearly explained in one fairly short post. I can also certainly relate our business to many of the points discussed.
I guess you would have to look at yourself and decide whether you would be better at growing a business or climbing the greasy pole. I don't think there is much overlap between these two groups.
It's a bit more complicated in our case as it was my OH who started the business. I'm a risk averse INTJ and was safely earning a high income from technical employment. My own attempt at starting a business was simply working as a contractor instead of as an employee in the same field. My OH is polar opposite and just dived in with a new concept which quickly grew into something big which generates a far higher income than she ever earned before. It's totally unrelated to her previous jobs so there's no reason the income generated should be similar. Her personality lends itself to constant innovation, which that article highlights as the main way of making profits - we innovate in both the manufacturing methods and new products. As the business has grown bigger I've devoted more and more of my time to supporting on the financial and operational side of things.
From observation, the people with serious wealth have identified a business opportunity and exploited it very hard. It must be said, they often sail pretty close to the wind in terms of morals and/or legality. It's faster to grow a business in value if you have people working for you and if you continually add on new products/services or buy up competitors. At some point, the cashflow generated with be worth 10m.
Other options would include working in a highly paid job in the financial sector. Top lawyers, accountants and financiers all seem to do pretty well and with judicious investment (a mix of property and stocks) capital growth is possible. I'll leave you to work out the characteristics necessary to scramble to the top of those greasy career poles!
I'd echo many others though and ask 'why would you want to do that?'. The essence of ERE is that it's possible to live a great life on super-modest resources.
IMO you don't hit 10 million ethically or legally spotless.
The mindset we see on this forum, is in many ways the opposite of what produces real wealth. It's the rare person who makes it on their own. Yes money comes from running a business, but also connections. The company you keep needs to change. Get already wealthy people invested in mentoring you, learn from them, network with them, etc. Money comes once you are in the club.
