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I've heard this "it's hard to make money even when you're rich" often, and I just don't understand it. You don't need to beat the market, you just need to beat

I've heard this "it's hard to make money even when you're rich" often, and I just don't understand it. You don't need to beat the market, you just need to beat inflation + your rate of spending, and you're winning the economic gain. That's very difficult when you're poor, but when rich it shouldn't be harder than a set of diversified index funds and not hemorrhaging money just because you're "rich". Is there something I'm missing?

currymj 7y ago
i think the attitude is that if you theoretically could be making more money, then you are actually losing money.
awrence 7y ago
Nope, you're exactly right, and it's one of the main engines behind wealth inequality. Once you reach what I personally call material escape velocity, the point at which your lifestyle + inflation < yield on your capital, your wealth accrues up relentlessly. It's like escaping a financial gravity well. Eventually you get to a level where you can weather just about any market shock and then there's basically no way to get sucked back down barring things like death, taxes, divorce etc. The people that have reached this point casually boost on higher while everyone else who hasn't and can't save vs lifestyle needs gets left behind. You're also right people are thinking beating the market, but that's also a bit silly, you can just buy the market and match it, who needs to beat anything if they've reached this point...
- kortilla 7y ago
  > The people that have reached this point casually boost on higher while everyone else who hasn't and can't save vs lifestyle needs gets left behind. The mistake in this line of thinking is that a small pool of billionaires getting richer doesn’t leave everyone else behind. Their money is effectively irrelevant in how rich the rest of us are. A 100% wealth tax on all billionaires isn’t enough to fund UBI for one year. The only upside to “solving wealth inequality” is just to reduce rich people’s ability to big influence in politics. There is no economic or financial reason to do so.
  - awrence 7y ago
    I agree mathematically but wealth is very much a relative phenomenon, hence the term "inequality". Yes if an alien dropped a bunch of real wealth on the planet and gave it to a lucky individual, the others would be no poorer, but they would sure feel it (all else equal). This is obviously a highly complex and lengthy topic that spurs tons of thought experiments but I generally agree with your latter point.
    - qqqwerty 7y ago
      I think Bay Area real estate is a good analogy. Almost everyone is making more money than they were 10 years ago thanks to the tech industry, increases in minimum wages, etc... So technically everyone is wealthier, even after accounting for inflation. But thanks to increases in wealth inequality, the real estate market has gone bananas, resulting in the average resident feeling worse off.
  - jefftk 7y ago
    > A 100% wealth tax on all billionaires isn’t enough to fund UBI for one year. This doesn't sound right to me, though of course it depends a lot on what level you set the UBI at. In a US context we typically give numbers around 1/3 of median per-capita income (~$10k, out of $32k), and globally that would be ~$1k (out of $3k median per-capita income). To give $1k to everyone in the world you'd need $7.7T, and billionaires have ~$9T, so it looks like this would work out. (I don't think a 100% wealth tax on billionaires is a good idea, just surprised by your claim and looking into it)
    - kortilla 7y ago
      I’m talking about the US. Billionaires in the US hold about 3T. https://www.stockingblue.com/article/311/net-worth-of-billionaires-in-us-states-in-2018/ https://www.stockingblue.com/article/311/net-worth-of-billio... There are 250 million adults in the US. https://en.wikipedia.org/wiki/Demography_of_the_United_States https://en.wikipedia.org/wiki/Demography_of_the_United_State... That’s $12,000 per adult for a single year. That’s not enough to reach even a minimum wage full time income, let alone a livable wage. UBI is supposed to be something you can live off of. The $10k number you are citing is a joke compromise defeating most of the point of UBI.
papito 7y ago
A ball-less monkey can become richer in the United States, given some initial capital. And unless you are extra egregious committing white-collar crime, you don't risk going to jail. Just make sure you screw over someone down the food chain, that's all.
hyperpape 7y ago
I believe it's not a problem for an individual. Getting market returns is fine for a normal high worth individual (even if some of them won't accept that and demand ways to beat the market). It's a problem for people in the financial sector whose income/wealth stems from convincing people that you can beat the market (convincing is really the key, but it's way easier to convince people of it if you've already had success--even if that was luck). If you have a few million dollars to invest, you can beat the market by just finding a few arbitrage opportunities. But if you have $100 billion to invest, you need a lot of ideas--figuring out that a $1 billion company is incorrectly priced only lets you get returns from a fraction of the money you manage. Note: I'm an outsider..maybe someone in finance could give a better description.
pvarangot 7y ago
> Is there something I'm missing? I think you are missing the feeling of getting "financial cancer" or in a "financial car crash", like this very unexpected thing that sometimes happen to people where there's a huge global financial crisis, or they get scammed millions. The fear of that happening makes you do higher risk bets to maybe "just jump a little bit higher just in case and of course it may be the chance of my lifetime...". In the realm of those bets is sometimes where the actual crisis happen so it's kind of a vicious circle and very hard to break. Of course if all high risk high reward bets where guaranteed not to ever send the rest of the world crashing a burning it would be a virtuous circle, but history proves it's not the case so the fear of this financially crippling event still lingers.
abathur 7y ago
I guess some simple (probably too-simple) possibilities are: 1. They aren't just trying to beat inflation. * 2. Viable ways to make money change depending on the scale of the money you're trying to tie up. A lot of things don't scale (or, maybe better said, scaling them requires additional competencies and may ruin the margins that made it worth doing). 3. You aren't the only one out there competing for opportunities. There's a lot of money out there seeking return. * I'm shooting from the hip, based on my (potentially flawed) understanding of some reading I've done over the past few years on the body of Capital as Power (CasP) theory being built out by Jonathan Nitzan and Shimshon Bichler among others. When they frame Capital as Power, one of the important implications is that it isn't an absolute quanta--it's a relative measure (i.e., power describes a relationship--one can have power in some relations, and not in others). By framing it as a relative measure, they also suggest that attempts to increase one's capital are less about trying to beat inflation than they are about trying to gain power relative to others. I'm not sure I can unpack this in a very concrete way, but some implications are like: - You could just beat inflation in a high-growth sector for a decade or two and still lose large amounts of power relative to the big players in the sector, and effectively end up transitioning from having enough power to check the other participants to having too little to keep them from pushing you around. - You could lose money (absolutely) in a crisis, but still significantly increase your power relative to others.
dang 7y ago
We detached this subthread from https://news.ycombinator.com/item?id=21754764 https://news.ycombinator.com/item?id=21754764.

currymj 7y ago

i think the attitude is that if you theoretically could be making more money, then you are actually losing money.

awrence 7y ago

Nope, you're exactly right, and it's one of the main engines behind wealth inequality. Once you reach what I personally call material escape velocity, the point at which your lifestyle + inflation < yield on your capital, your wealth accrues up relentlessly. It's like escaping a financial gravity well. Eventually you get to a level where you can weather just about any market shock and then there's basically no way to get sucked back down barring things like death, taxes, divorce etc. The people that have reached this point casually boost on higher while everyone else who hasn't and can't save vs lifestyle needs gets left behind. You're also right people are thinking beating the market, but that's also a bit silly, you can just buy the market and match it, who needs to beat anything if they've reached this point...

kortilla 7y ago
> The people that have reached this point casually boost on higher while everyone else who hasn't and can't save vs lifestyle needs gets left behind. The mistake in this line of thinking is that a small pool of billionaires getting richer doesn’t leave everyone else behind. Their money is effectively irrelevant in how rich the rest of us are. A 100% wealth tax on all billionaires isn’t enough to fund UBI for one year. The only upside to “solving wealth inequality” is just to reduce rich people’s ability to big influence in politics. There is no economic or financial reason to do so.
- awrence 7y ago
  I agree mathematically but wealth is very much a relative phenomenon, hence the term "inequality". Yes if an alien dropped a bunch of real wealth on the planet and gave it to a lucky individual, the others would be no poorer, but they would sure feel it (all else equal). This is obviously a highly complex and lengthy topic that spurs tons of thought experiments but I generally agree with your latter point.
  - qqqwerty 7y ago
    I think Bay Area real estate is a good analogy. Almost everyone is making more money than they were 10 years ago thanks to the tech industry, increases in minimum wages, etc... So technically everyone is wealthier, even after accounting for inflation. But thanks to increases in wealth inequality, the real estate market has gone bananas, resulting in the average resident feeling worse off.
- jefftk 7y ago
  > A 100% wealth tax on all billionaires isn’t enough to fund UBI for one year. This doesn't sound right to me, though of course it depends a lot on what level you set the UBI at. In a US context we typically give numbers around 1/3 of median per-capita income (~$10k, out of $32k), and globally that would be ~$1k (out of $3k median per-capita income). To give $1k to everyone in the world you'd need $7.7T, and billionaires have ~$9T, so it looks like this would work out. (I don't think a 100% wealth tax on billionaires is a good idea, just surprised by your claim and looking into it)
  - kortilla 7y ago
    I’m talking about the US. Billionaires in the US hold about 3T. https://www.stockingblue.com/article/311/net-worth-of-billionaires-in-us-states-in-2018/ https://www.stockingblue.com/article/311/net-worth-of-billio... There are 250 million adults in the US. https://en.wikipedia.org/wiki/Demography_of_the_United_States https://en.wikipedia.org/wiki/Demography_of_the_United_State... That’s $12,000 per adult for a single year. That’s not enough to reach even a minimum wage full time income, let alone a livable wage. UBI is supposed to be something you can live off of. The $10k number you are citing is a joke compromise defeating most of the point of UBI.

papito 7y ago

A ball-less monkey can become richer in the United States, given some initial capital. And unless you are extra egregious committing white-collar crime, you don't risk going to jail. Just make sure you screw over someone down the food chain, that's all.

hyperpape 7y ago

I believe it's not a problem for an individual. Getting market returns is fine for a normal high worth individual (even if some of them won't accept that and demand ways to beat the market). It's a problem for people in the financial sector whose income/wealth stems from convincing people that you can beat the market (convincing is really the key, but it's way easier to convince people of it if you've already had success--even if that was luck). If you have a few million dollars to invest, you can beat the market by just finding a few arbitrage opportunities. But if you have $100 billion to invest, you need a lot of ideas--figuring out that a $1 billion company is incorrectly priced only lets you get returns from a fraction of the money you manage. Note: I'm an outsider..maybe someone in finance could give a better description.

pvarangot 7y ago

> Is there something I'm missing? I think you are missing the feeling of getting "financial cancer" or in a "financial car crash", like this very unexpected thing that sometimes happen to people where there's a huge global financial crisis, or they get scammed millions. The fear of that happening makes you do higher risk bets to maybe "just jump a little bit higher just in case and of course it may be the chance of my lifetime...". In the realm of those bets is sometimes where the actual crisis happen so it's kind of a vicious circle and very hard to break. Of course if all high risk high reward bets where guaranteed not to ever send the rest of the world crashing a burning it would be a virtuous circle, but history proves it's not the case so the fear of this financially crippling event still lingers.

abathur 7y ago

I guess some simple (probably too-simple) possibilities are: 1. They aren't just trying to beat inflation. * 2. Viable ways to make money change depending on the scale of the money you're trying to tie up. A lot of things don't scale (or, maybe better said, scaling them requires additional competencies and may ruin the margins that made it worth doing). 3. You aren't the only one out there competing for opportunities. There's a lot of money out there seeking return. * I'm shooting from the hip, based on my (potentially flawed) understanding of some reading I've done over the past few years on the body of Capital as Power (CasP) theory being built out by Jonathan Nitzan and Shimshon Bichler among others. When they frame Capital as Power, one of the important implications is that it isn't an absolute quanta--it's a relative measure (i.e., power describes a relationship--one can have power in some relations, and not in others). By framing it as a relative measure, they also suggest that attempts to increase one's capital are less about trying to beat inflation than they are about trying to gain power relative to others. I'm not sure I can unpack this in a very concrete way, but some implications are like: - You could just beat inflation in a high-growth sector for a decade or two and still lose large amounts of power relative to the big players in the sector, and effectively end up transitioning from having enough power to check the other participants to having too little to keep them from pushing you around. - You could lose money (absolutely) in a crisis, but still significantly increase your power relative to others.

dang 7y ago

We detached this subthread from https://news.ycombinator.com/item?id=21754764 https://news.ycombinator.com/item?id=21754764.