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Long-term investing in stocks is a well-known way to get rich. If median income people will keep all their money in stocks, then things may change quite drasti

Long-term investing in stocks is a well-known way to get rich. If median income people will keep all their money in stocks, then things may change quite drastically. I am wondering if this would have any power to affect the inequality gap. As the author mentions, there is some similarity to crypto. For instance, one could use crypto to pay for things but it is infeasible in practice because in the US you would have to pay taxes on every buy trade.

JumpCrisscross 7y ago
> If median income people will keep all their money in stocks, then things may change quite drastically For one, we'd expect average returns to go down. The flip side of that is corporate financing gets cheaper, which could spur new capital formation.
- account73466 7y ago
  Interesting. I could imagine something like "hey, we rich people cannot make just 8% per year as the average Joe!".
segfaultbuserr 7y ago
> Investing in stocks is a well-known way to get rich. Really? Buying high and selling low is a time-honored way of losing money.
- account73466 7y ago
  Of course, I am not talking about WSB like "investing". Long-term investments is basically 8% per year when holding long-term (e.g., more than 10 years). In other words, your capital doubles every 10 years. Inflation is slower than that.
  - whiddershins 7y ago
    8% is a very high estimate. I go with 4, myself.
    - account73466 7y ago
      Don't forget about dividends. If you account for 10 years, then 8% is pretty conservative. If you plan to hold for less than 10 years, then things are much more uncertain in both directions.
    - blackearl 7y ago
      The common estimate is 7% averaged over 10 years with a lazy portfolio. You can do better than 4% even if you do a long term target-date fund like Vanguard's 20XX retirement funds since the fees are so low.
      - perl4ever 7y ago
        If you bought long term government bonds in the early 80s at double digit interest rates, your returns over the next 30 years were very comparable to stocks. Is it safe to assume that stocks over the next 30 years will return more than the 2-and-a-little % of 30 year government bonds right now?
    - icelancer 7y ago
      You are being downvoted for some unknown reason. 8% is a high estimate and people simply averaging the past and coming up with that number as a reasonable predictor of the future are the ones slamming the downvote button in hopes that you are wrong. 1989-2019 with dividends reinvested and inflation controlled show a return of 7.3% in the S&P 500 index. But 1959-1989 with the same parameters shows a return of 4.96% by just moving the time period back 30 years. Arbitrary endpoints can make you justify anything, including double digit returns. But people who are saving money in the equities market that gets ever more crowded with index funds and ever more efficient should probably not count on 7-8% returns as the canonical amount they're getting back. They should plan on 5% or lower and be happy with higher returns if they come.
      - 7y ago
- jfengel 7y ago
  But buying diversely and holding is a time-honored way of building money. Not at dotcom-boom rates, but at faster-than-inflation rates. On the order of 7%, enough to double your money every decade -- and you want to hold for at least that long if you expect to weather the ups and downs. That's not really enough to make you rich unless you're already rich, but it's enough to take a comfortable salary and turn it into a comfortable retirement. If you're on a minimum-wage, hand-to-mouth [or less] salary, yeah, you're still boned, and investing in the market isn't an option when you need every dollar available right now.
- kevinventullo 7y ago
  You left out the first word of the sentence.
  - account73466 7y ago
    He didn't, I modified the text to avoid misunderstanding. Sorry for that.
adventured 7y ago
> If median income people will keep all their money in stocks Median income people can't keep all their money in stocks consistently. At that level of income, they frequently need to draw against their savings (or more commonly can never allocate it all consistently into the market in the first place). That's a critical separation point between being at the median and being in the upper economic tiers: the need (or lack thereof) to tap your capital for major life expenses. At a median income, step one is to have a cash buffer for emergencies. Just accumulating $5,000 in stray cash in your bank account as a life buffer is often difficult at a median income. Some emergency always wants to deplete it or otherwise move it backwards. The reason median income persons can accumulate wealth in a house is because they require shelter. That ownership is often an expensive form of shelter and a mediocre form of investing (with a typical house property taxes will often wipe out between 1/2 and all of your home's value gain over time, if you're lucky enough to have any real value gain at all; throw in maintenance costs; then mortgage interest costs will smash another large share of your gains from actually paying down the mortgage; it's inevitably like burning a dollar but saving one corner of it and pretending it's a great form of wealth formation), however since they do require shelter regardless, it ends up acting as a very slow building form of wealth formation (via home equity). You're at the median income. You've been careful and have accumulated $100,000 in the market. You require $50,000 of that for education expenses for your 15 year old child (you've known that all along and have expected to task a portion of that capital to that expense). 2008-2009 happens, the market tanks, it's the end of the world (according to the headlines). After the decline now you have $60k in the market and it's the year 2010. What do you do: pray it doesn't decline further or pull the capital and safeguard the required $50k? How confident are you vs your situation, circa 2010, that things are going to be ok with the market? It's a simple example, however it perfectly illustrates why median income persons struggle to do what you're proposing. And that's a very conservative scenario that doesn't get into the countless other life emergencies that will come for you over eg 20 years of trying to build a consequential portfolio at a median income. It's not impossible, it's very difficult.
- account73466 7y ago
  My point is that (and as you also said) investing is something for upper-income people. However, once median-income people see that all their money are in stocks (even if it is 5k), it may change their attitude. This would be a light form of what people call HODL in crypto. The difference, of course, is that in crypto people expect at least 10x in 10 years while in stocks one should expect not money than 2x. However, if applied broadly, one might expect that even median-income stocks-HODLers will tend to spend less on unnecessary things.
narrator 7y ago
I'm convinced the whole point of capital gains tax is to give the government an advantage when borrowing since government bonds are tax free. The government bond market is trillions, so this is not small potatos.

JumpCrisscross 7y ago

> If median income people will keep all their money in stocks, then things may change quite drastically For one, we'd expect average returns to go down. The flip side of that is corporate financing gets cheaper, which could spur new capital formation.

account73466 7y ago
Interesting. I could imagine something like "hey, we rich people cannot make just 8% per year as the average Joe!".

segfaultbuserr 7y ago

> Investing in stocks is a well-known way to get rich. Really? Buying high and selling low is a time-honored way of losing money.

account73466 7y ago
Of course, I am not talking about WSB like "investing". Long-term investments is basically 8% per year when holding long-term (e.g., more than 10 years). In other words, your capital doubles every 10 years. Inflation is slower than that.
- whiddershins 7y ago
  8% is a very high estimate. I go with 4, myself.
  - account73466 7y ago
    Don't forget about dividends. If you account for 10 years, then 8% is pretty conservative. If you plan to hold for less than 10 years, then things are much more uncertain in both directions.
  - blackearl 7y ago
    The common estimate is 7% averaged over 10 years with a lazy portfolio. You can do better than 4% even if you do a long term target-date fund like Vanguard's 20XX retirement funds since the fees are so low.
    - perl4ever 7y ago
      If you bought long term government bonds in the early 80s at double digit interest rates, your returns over the next 30 years were very comparable to stocks. Is it safe to assume that stocks over the next 30 years will return more than the 2-and-a-little % of 30 year government bonds right now?
  - icelancer 7y ago
    You are being downvoted for some unknown reason. 8% is a high estimate and people simply averaging the past and coming up with that number as a reasonable predictor of the future are the ones slamming the downvote button in hopes that you are wrong. 1989-2019 with dividends reinvested and inflation controlled show a return of 7.3% in the S&P 500 index. But 1959-1989 with the same parameters shows a return of 4.96% by just moving the time period back 30 years. Arbitrary endpoints can make you justify anything, including double digit returns. But people who are saving money in the equities market that gets ever more crowded with index funds and ever more efficient should probably not count on 7-8% returns as the canonical amount they're getting back. They should plan on 5% or lower and be happy with higher returns if they come.
    - 7y ago
jfengel 7y ago
But buying diversely and holding is a time-honored way of building money. Not at dotcom-boom rates, but at faster-than-inflation rates. On the order of 7%, enough to double your money every decade -- and you want to hold for at least that long if you expect to weather the ups and downs. That's not really enough to make you rich unless you're already rich, but it's enough to take a comfortable salary and turn it into a comfortable retirement. If you're on a minimum-wage, hand-to-mouth [or less] salary, yeah, you're still boned, and investing in the market isn't an option when you need every dollar available right now.
kevinventullo 7y ago
You left out the first word of the sentence.
- account73466 7y ago
  He didn't, I modified the text to avoid misunderstanding. Sorry for that.

adventured 7y ago

> If median income people will keep all their money in stocks Median income people can't keep all their money in stocks consistently. At that level of income, they frequently need to draw against their savings (or more commonly can never allocate it all consistently into the market in the first place). That's a critical separation point between being at the median and being in the upper economic tiers: the need (or lack thereof) to tap your capital for major life expenses. At a median income, step one is to have a cash buffer for emergencies. Just accumulating $5,000 in stray cash in your bank account as a life buffer is often difficult at a median income. Some emergency always wants to deplete it or otherwise move it backwards. The reason median income persons can accumulate wealth in a house is because they require shelter. That ownership is often an expensive form of shelter and a mediocre form of investing (with a typical house property taxes will often wipe out between 1/2 and all of your home's value gain over time, if you're lucky enough to have any real value gain at all; throw in maintenance costs; then mortgage interest costs will smash another large share of your gains from actually paying down the mortgage; it's inevitably like burning a dollar but saving one corner of it and pretending it's a great form of wealth formation), however since they do require shelter regardless, it ends up acting as a very slow building form of wealth formation (via home equity). You're at the median income. You've been careful and have accumulated $100,000 in the market. You require $50,000 of that for education expenses for your 15 year old child (you've known that all along and have expected to task a portion of that capital to that expense). 2008-2009 happens, the market tanks, it's the end of the world (according to the headlines). After the decline now you have $60k in the market and it's the year 2010. What do you do: pray it doesn't decline further or pull the capital and safeguard the required $50k? How confident are you vs your situation, circa 2010, that things are going to be ok with the market? It's a simple example, however it perfectly illustrates why median income persons struggle to do what you're proposing. And that's a very conservative scenario that doesn't get into the countless other life emergencies that will come for you over eg 20 years of trying to build a consequential portfolio at a median income. It's not impossible, it's very difficult.

account73466 7y ago
My point is that (and as you also said) investing is something for upper-income people. However, once median-income people see that all their money are in stocks (even if it is 5k), it may change their attitude. This would be a light form of what people call HODL in crypto. The difference, of course, is that in crypto people expect at least 10x in 10 years while in stocks one should expect not money than 2x. However, if applied broadly, one might expect that even median-income stocks-HODLers will tend to spend less on unnecessary things.

narrator 7y ago

I'm convinced the whole point of capital gains tax is to give the government an advantage when borrowing since government bonds are tax free. The government bond market is trillions, so this is not small potatos.