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>I'd also write a very different letter for wealthy families. For them, asset protection is far more important than savings. They often spend more energy dissoc

>I'd also write a very different letter for wealthy families. For them, asset protection is far more important than savings. They often spend more energy dissociating themselves from their wealth via trusts and other tax-efficient games than they do actually building savings. I've always found it weird that so many rich people think this way. They should be less risk averse then other people. If you're rich then you should make yourself a safety net and chase a high risk-reward strategy with the rest of your money.

maratd 10y ago
If you're winning at the casino, the right response isn't to create a safety net and play riskier games. It's to leave the casino.
- Dylan16807 10y ago
  Bad analogy, because you should always leave a casino. If you can get higher expected returns with an increase in risk, you should probably go for it with the money you can spare, as long as you can spread the risk around multiple fields.
  - maratd 10y ago
    It's actually a very good analogy. > If you can get higher expected returns with an increase in risk That's not how risk works. You always get higher expected returns with higher risk. That's the point or people wouldn't even consider it. You also get a higher probability of losing everything. > as long as you can spread the risk around multiple fields. Diversification is a strategy for reducing risk. It's irrelevant to this discussion. High risk as a strategy is sound when you have little to lose. Like when you're young and poor. When you're old and wealthy, it is profoundly stupid regardless of what strategy you employ. It is exactly like being in a casino. You have a ton of cash in your pocket, why would you engage in investments where the probability of losing your shirt is high?
    - Dylan16807 10y ago
      > That's not how risk works. You always get higher expected returns with higher risk. You make investment choices sound like a law of nature. There are risky bets without high returns, and they have a hard time attracting investors. > Diversification is a strategy for reducing risk. It's irrelevant to this discussion. The more money you have to spare, the more you can diversify. Having more money means risky bets are less risky to you. > High risk as a strategy is sound when you have little to lose. Like when you're young and poor. When you're old and wealthy, it is profoundly stupid regardless of what strategy you employ. This isn't about age. If we talk about 38 and poor vs. 38 and wealthy, I strongly disagree with your argument. Risky betting with half your money when you're poor could make you go hungry for a week. Risky betting with half your money when you have a moderate amount could ruin your ability to have a carefree retirement. Risky betting with half your money when you're wealthy will barely impact your standard of living. > It is exactly like being in a casino. But it's not a good analogy unless there is an analogue to the poor person that you say should be engaging in risky investments. Are you saying a poor person should bet their money in a casino? > the probability of losing your shirt Oh, there's a bit of a disconnect. The rich person should not be betting all of their money. The reason it's easy for them to invest is that they can spare a big fraction of their money and even if it catches fire they won't lose their shirt. - I can put it an entirely different way. When you don't have enough money to be comfortable, the happiness/dollar graph is closer to linear. Once you have more money than that, it's closer to a log graph. Someone in the first group has a lot more negative consequences from losing half their money. They should go with somewhat-safe bets and the moderate gains will help them a lot. Someone in the second group isn't impacted much if they lose half their money. But they need huge returns if they really want to improve their state of life. They are a much better fit to the risky high-value investment.
      - maratd 10y ago
        > The reason it's easy for them to invest is that they can spare a big fraction of their money and even if it catches fire they won't lose their shirt. Let's do an experiment! Take $2K out of your savings account. Put $1K in one pocket and $1K in the other pocket. Your left pocket is your safety net and your right pocket is your "get rich" fund. Now go to a casino. Play a little. After that, let me know what you think about rich people "investing" their money, my analogy, and how they should really do it.
PhantomGremlin 10y ago
make yourself a safety net and chase a high risk-reward strategy with the rest of your money Not sure why someone voted you down for that. A long time ago, Venrock[1] invested in a startup I was part of. They're a "venture" capital firm established by the "Rockefellers". Hence the name. Clearly they agree with your advice, which is to pursue some "high risk" investments. [1] https://en.wikipedia.org/wiki/Venrock https://en.wikipedia.org/wiki/Venrock
gnaritas 10y ago
> If you're rich then you should make yourself a safety net and chase a high risk-reward strategy with the rest of your money. If you're rich you don't need to chase rewards, certainly not risky ones; you've already won and can relax and do whatever you want without worrying about whether it rewards or not. That is the point of being rich, getting to do what you want rather than what other people want.
- sandworm101 10y ago
  I don't think it is so much not trying to earn, but being rich allows you to take advantage of investments that normal people wouldn't or couldn't consider. If you are not rich then you need ready access to your investments. You might need the money one day. A rich person can instead invest in less liquid concepts such as private equity or offshore havens.
  - DasIch 10y ago
    That you have that advantage isn't all that interesting. In the end it's not your income that matters, it's your happiness and these two things don't have a proportional relationship. If you're rich, you don't gain more happiness as you gain more income. So the only thing you really care about in regards to your income, is that it doesn't drop low enough to affect your happiness.
    - sokoloff 10y ago
      Many of the rich care about power and influence, so aren't likely to take their foot off the gas and coast, content to merely protect a high passive income. Like many of us, I'm a 2-3 percenter. I care about building wealth for my family, giving my kids a solid financial footing, etc. If I had $10MM in assets (enough to passively generate a 99th percentile income), I don't think I'd only be worried about protecting income.
      - gnaritas 10y ago
        > Many of the rich care about power and influence I'd wager most don't. Sure, some do, but they're a minority. > If I had $10MM in assets (enough to passively generate a 99th percentile income), I don't think I'd only be worried about protecting income. But you won't know until you do, anything you say now is merely a guess that's likely wrong. Once you have a work free income, odds are your evaluation of its value will change drastically and you will become very protective of it due to the freedom it provides.

maratd 10y ago

If you're winning at the casino, the right response isn't to create a safety net and play riskier games. It's to leave the casino.

Dylan16807 10y ago
Bad analogy, because you should always leave a casino. If you can get higher expected returns with an increase in risk, you should probably go for it with the money you can spare, as long as you can spread the risk around multiple fields.
- maratd 10y ago
  It's actually a very good analogy. > If you can get higher expected returns with an increase in risk That's not how risk works. You always get higher expected returns with higher risk. That's the point or people wouldn't even consider it. You also get a higher probability of losing everything. > as long as you can spread the risk around multiple fields. Diversification is a strategy for reducing risk. It's irrelevant to this discussion. High risk as a strategy is sound when you have little to lose. Like when you're young and poor. When you're old and wealthy, it is profoundly stupid regardless of what strategy you employ. It is exactly like being in a casino. You have a ton of cash in your pocket, why would you engage in investments where the probability of losing your shirt is high?
  - Dylan16807 10y ago
    > That's not how risk works. You always get higher expected returns with higher risk. You make investment choices sound like a law of nature. There are risky bets without high returns, and they have a hard time attracting investors. > Diversification is a strategy for reducing risk. It's irrelevant to this discussion. The more money you have to spare, the more you can diversify. Having more money means risky bets are less risky to you. > High risk as a strategy is sound when you have little to lose. Like when you're young and poor. When you're old and wealthy, it is profoundly stupid regardless of what strategy you employ. This isn't about age. If we talk about 38 and poor vs. 38 and wealthy, I strongly disagree with your argument. Risky betting with half your money when you're poor could make you go hungry for a week. Risky betting with half your money when you have a moderate amount could ruin your ability to have a carefree retirement. Risky betting with half your money when you're wealthy will barely impact your standard of living. > It is exactly like being in a casino. But it's not a good analogy unless there is an analogue to the poor person that you say should be engaging in risky investments. Are you saying a poor person should bet their money in a casino? > the probability of losing your shirt Oh, there's a bit of a disconnect. The rich person should not be betting all of their money. The reason it's easy for them to invest is that they can spare a big fraction of their money and even if it catches fire they won't lose their shirt. - I can put it an entirely different way. When you don't have enough money to be comfortable, the happiness/dollar graph is closer to linear. Once you have more money than that, it's closer to a log graph. Someone in the first group has a lot more negative consequences from losing half their money. They should go with somewhat-safe bets and the moderate gains will help them a lot. Someone in the second group isn't impacted much if they lose half their money. But they need huge returns if they really want to improve their state of life. They are a much better fit to the risky high-value investment.
    - maratd 10y ago
      > The reason it's easy for them to invest is that they can spare a big fraction of their money and even if it catches fire they won't lose their shirt. Let's do an experiment! Take $2K out of your savings account. Put $1K in one pocket and $1K in the other pocket. Your left pocket is your safety net and your right pocket is your "get rich" fund. Now go to a casino. Play a little. After that, let me know what you think about rich people "investing" their money, my analogy, and how they should really do it.

PhantomGremlin 10y ago

make yourself a safety net and chase a high risk-reward strategy with the rest of your money Not sure why someone voted you down for that. A long time ago, Venrock[1] invested in a startup I was part of. They're a "venture" capital firm established by the "Rockefellers". Hence the name. Clearly they agree with your advice, which is to pursue some "high risk" investments. [1] https://en.wikipedia.org/wiki/Venrock https://en.wikipedia.org/wiki/Venrock

gnaritas 10y ago

> If you're rich then you should make yourself a safety net and chase a high risk-reward strategy with the rest of your money. If you're rich you don't need to chase rewards, certainly not risky ones; you've already won and can relax and do whatever you want without worrying about whether it rewards or not. That is the point of being rich, getting to do what you want rather than what other people want.

sandworm101 10y ago
I don't think it is so much not trying to earn, but being rich allows you to take advantage of investments that normal people wouldn't or couldn't consider. If you are not rich then you need ready access to your investments. You might need the money one day. A rich person can instead invest in less liquid concepts such as private equity or offshore havens.
- DasIch 10y ago
  That you have that advantage isn't all that interesting. In the end it's not your income that matters, it's your happiness and these two things don't have a proportional relationship. If you're rich, you don't gain more happiness as you gain more income. So the only thing you really care about in regards to your income, is that it doesn't drop low enough to affect your happiness.
  - sokoloff 10y ago
    Many of the rich care about power and influence, so aren't likely to take their foot off the gas and coast, content to merely protect a high passive income. Like many of us, I'm a 2-3 percenter. I care about building wealth for my family, giving my kids a solid financial footing, etc. If I had $10MM in assets (enough to passively generate a 99th percentile income), I don't think I'd only be worried about protecting income.
    - gnaritas 10y ago
      > Many of the rich care about power and influence I'd wager most don't. Sure, some do, but they're a minority. > If I had $10MM in assets (enough to passively generate a 99th percentile income), I don't think I'd only be worried about protecting income. But you won't know until you do, anything you say now is merely a guess that's likely wrong. Once you have a work free income, odds are your evaluation of its value will change drastically and you will become very protective of it due to the freedom it provides.