31 ms·

The death of the ‘Millionaire Next Door’ dream

• BiteCode_dev 5y ago
  Obligatory xkcd: https://imgs.xkcd.com/comics/survivorship_bias_2x.png https://imgs.xkcd.com/comics/survivorship_bias_2x.png Taleb gives a good stab at that whole concept in his black swan as well.
  • deweller 5y ago
    Desktop version of that comic: https://xkcd.com/1827/ https://xkcd.com/1827/
• neonate 5y ago
  https://archive.md/2EPal https://archive.md/2EPal
• imwillofficial 5y ago
  That whole idea always seemed like a meme. Just work hard, go to college, save your money! For some of us this has worked out. For the large majority of people in the west, however, this has resulted in modern day slavery.
  • refurb 5y ago
    What’s interesting to me is plenty of immigrants prove it’s still true. And they often start out with even less than the poorest Americans. Sure, there is no guaranteed path to riches. But a comfortable existence free of major wants is more within reach than its ever been.
    • felipemnoa 5y ago
      >>What’s interesting to me is plenty of immigrants prove it’s still true. I've witnessed it. I know a couple of people who's net worth is more than a million dollars by simply working all the time, saving their money and buying their three family home. The more savvy ones even own more than one. And these are people that knew no English, had an elementary education, worked at jobs that lots of people would not work at. I guess the point is that you can make it, but you have to be willing to work for it.
      • falcor84 5y ago
        >have to be willing to work for it. And typically, you also have to be willing to live at a lower quality of life and save, which most people born in the west aren't.
        • bsenftner 5y ago
          Yep, but that "lower quality of life" can be surprisingly good. My father had a friend that was an El Salvadoran immigrant, as a teen in the 80's this guy was an illegal farm worker in California. He got his green card, then citizenship, and through all this (teen to adult, to family man with 5 kids) he lived in a trailer park outside Palm Springs, CA. His wealth building method was super basic: he purchased shipping pallets and re-used to wood to create picture frames and bird houses his kids painted in various themes. These items were then sold in the dozens of little knick-knack shops around Palm Springs / Coachella Valley. Little by little he purchased the entire trailer park his family lived, and when my dad met him his family owned a dozen trailer parks near Palm Springs and their 3rd generation has kids at Ivy League schools. They still live in the same trailer park lot, but it is probably nicer than many walled communities, from the actual friendly community aspect this family cultivates.
      • hellbannedguy 5y ago
        I have heard about the immigrant that came here with nothing, and made it big. I have never met one though. I sometimes think it's another American folk tale. I'm not talking 30-40 years ago. I'm talking big money, not graduating from a professional school money--bacically med school. It seems in the past just hard work, and maybe different cultural values, could be enough to get ahead here? (I said nothing racist, so please no sanctimonious lashing.)
      • imwillofficial 5y ago
        Proving it is possible does not mean it is true. Going from the standard to an extreme outlier does not bode well for the masses.
        • chasd00 5y ago
    • falcor84 5y ago
      I wonder if there's some model that could explain it using static friction. If you and everyone around you is and has been at the same socio-economic situation for a long while, it would take something big to make you move, but if you have just immigrated, then obviously there's no static friction and you don't have any particular baseline anymore, so you have a higher likelihood of just keeping in motion, due to the lower dynamic friction.
  • flerchin 5y ago
    Slavery is a completely different situation than the ills of late-stage capitalism.
    • imwillofficial 5y ago
      Is it? From my vantage point we are just serfs on the plantation.
      • flerchin 5y ago
        Chattel slavery, where you were bound, by law, to your owner, under penalty of death. vs. My student loan payments are too high, I am having a hard time building my net worth. vs. Serfs is a different thing, not slaves, but still vastly worse than 21st century ills.
        • Dylan16807 5y ago
          You said chattel, they didn't.
        • rhizome 5y ago
          Chattel slavery was relatively rare, and my understanding is that in most systems of slavery the slave was either working off a debt or could buy themselves out of bondage. Like you might with a student loan.
  • tonyedgecombe 5y ago
    Well it works better than Just work hard, go to college, don't save your money! No matter how much you dislike the system you do have to live in it. Choices you make an an individual might well be in conflict with your views on the aggregate.
    • imwillofficial 5y ago
      Why are college loans some of the only kind that can be signed for by your parents, yet not dischargeable via bankruptcy?
      • chasd00 5y ago
        in the US college loans are backed by the federal government so there's minimal risk to the lender, that's why the interest rate is low. Remove the federal guarantee and they can be dischargeable in bankruptcy. However, then the interest rates go sky high (like credit card rate high) because now all the risk of the loan is being taken on by the lender with no federal backstop.
        • imwillofficial 5y ago
          Or maybe they, you know, hand out loans based on ability to pay back like any other loan.
      • NonEUCitizen 5y ago
        https://www.tateesq.com/learn/student-loan-bankruptcy-law-history https://www.tateesq.com/learn/student-loan-bankruptcy-law-hi...
    • imwillofficial 5y ago
      > Well it works better than Just work hard, go to college, don't save your money! This is stupid. The alternative is not going to increasingly overpriced and under valued college.
  • chrisaycock 5y ago
    > modern day slavery Slavery is a system that involves kidnap, torture, rape, and murder. There is nothing about your life experiences that remotely compares.
    • bbrree66 5y ago
      It's easier for the whiners to call it slavery and act like they don't have the ability to make decisions to change their situation.
    • bsenftner 5y ago
      Modern day slavery is a system of economic bondage: one cannot change their job, improve their car (if they have one at all), live somewhere better, or other essential items in their lives because they can't afford the economic risk: one misstep and they have no backup, cascading poverty.
      • refurb 5y ago
        Slavery is “you can’t improve your car”? Did I get that right?
      • qzw 5y ago
        Modern day slavery is human trafficking, forced prison labor, re-education camps… you know, actual slavery. Having no social security net is a real problem, but let’s not be hyperbolic.
      • kiba 5y ago
        It's not slavery, but it's a certain amount of Unfree labor. Unfree labor is a more apt term to describe what you are talking about since it includes: "destitution, detention, violence including death, compulsion,[1] or other forms of extreme hardship to either themselves or members of their families."[1] 1. https://en.wikipedia.org/wiki/Forced_labour https://en.wikipedia.org/wiki/Forced_labour
    • goodpoint 5y ago
      This is not true. "The condition in which one person is owned as property by another and is under the owner's control, especially in involuntary servitude." Hence the term https://en.wikipedia.org/wiki/Wage_slavery https://en.wikipedia.org/wiki/Wage_slavery
  • bbrree66 5y ago
    Maybe he was missing a couple things, but it's not far off. Go to college for a major that has high economic value. Continue building your skills after college. Live below your means. I'd like to see data on people who do all of those things and how they end up.
    • imwillofficial 5y ago
      How much of this do they teach in the average public school?
• LB232323 5y ago
  It wasn't just his thrift, it was his very standard knowledge of financial markets. I agree that the economic gap has widened and that our most famous and moneyed capitalists of today "borrowed" large sums from their business owning parents. However, Read was an outlier in many ways. His discipline likely stems from his military service, and without a basic value investing understanding of markets he would not have amassed his fortune. He may have been humble, but he was anything but the average guy. What's most impressive is not the building of his fortune but his giving in death. In a way he embodied both the old American work ethic and the American promise of economic opportunity.
• zhdc1 5y ago
  As much as everyone likes to discredit traditional values, such savings and thrift, they win out in the long run. The 'millionaire next door' is nothing more than consistently living on less than you earn (Elizabeth Warren has great savings guidelines), investing what you save (read John Boggle), and taking advantage of compounding interest. It's simple and doable for a large majority of western society. It's not easy though, but that was as true in 1996 as it is today.
  • Aaargh20318 5y ago
    > As much as everyone likes to discredit traditional values, such savings and thrift, they win out in the long run. Are those 'traditional values' still relevant in today's economy ? For example: > taking advantage of compounding interest. In my savings account, interest is set at 0.01% for accounts with less than €100k in them, and for accounts with more than €100k the interest is -0.5%. Yes, that's negative interest. So if you're saving up each year, you start losing money, not making it.
    • lixtra 5y ago
      Did you miss the reference to John Boggle? Did he recommended to put the majority of your assets in a savings account?
      • Aaargh20318 5y ago
        Returns on my investments (through both my mortgage and pension) are negligible as well, and considerably more risky.
        • zhdc1 5y ago
          Most pensions aren’t going to give you more than 1-2% over the risk free rate. You’re better off aiming to save another x% more of your after tax income and investing through your pillar 3 equivalent (IRA in the states) and, once your tax advantaged plans are maxed, through your own account.
        • 5y ago
• ianhawes 5y ago
  "Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires." This quote explains all you need to know about American culture.
  • refurb 5y ago
    Considering 60% of the federal budget is social spending, I’m not sure I buy that socialism never took root.
    • deleted 5y ago
      [deleted]
    • ModernMech 5y ago
      Government spending on social issues is not socialism. Socialism is when workers own their means of production.
      • missedthecue 5y ago
        The largest group of shareholders in any company out there are retirement and pension funds. Take Google for instance. Top ten largest holders are literally all retirement and pension funds. The workers do own the means of production today. https://money.cnn.com/quote/shareholders/shareholders.html?symb=GOOGL&subView=institutional https://money.cnn.com/quote/shareholders/shareholders.html?s...
        • ModernMech 5y ago
          But that's distinct from government spending on social issues.
  • newfriend 5y ago
    I really hate this quote. It's always trotted out by certain types of people in every discussion about wealth in the US. It presumes that one should only support a cause that they themselves would benefit from. It also implies that the American poor are too stupid to understand what they're voting for, but only the poor that vote against a certain party of course.
• sokoloff 5y ago
  The counter argument, and why I’ve never been bent out of shape by books like this, is: these strategies are no guarantee that you’ll live to become an 8-millionaire at 92, but they’re not likely to make your life’s financial outcome worse and even if you die at 75 with “only” $200K and a paid-off house that you lived in for 40 years, you probably experienced less financial (and overall) stress than you would have with your same life conditions but a YOLO attitude, leasing a new car every 3 years for every driver and taking big vacations every year because “you deserve it”. > “I certainly do not see the point of becoming [a millionaire] if I were to adopt Spartan (even miserly) habits and live in my starter house.” I can’t help but think of Warren Buffett here. He seems happy in his (well-chosen) starter home. https://www.businessinsider.com/warren-buffett-modest-home-bought-31500-looks-2017-6 https://www.businessinsider.com/warren-buffett-modest-home-b...
  • bluedino 5y ago
    "It's 6,570 sq. feet and has 5 bedrooms and 2.5 bathrooms. Fences and security cameras guard the property."
    • joshuaissac 5y ago
      That is very modest considering his wealth, and within the reach of many middle-class and even working-class people.
      • UncleMeat 5y ago
        A working class person owning a 6700 sqft home? I live in a MCOL area and that would be a $1,000,000 home at a typical price per square foot. In a suburb of a major city that is going to be much more expensive. "Starter home".
        • throw0101a 5y ago
          The median house price in Omaha is $128/sq. ft. (~$1280/sq. m.): * https://www.realtor.com/realestateandhomes-search/Omaha_NE/overview https://www.realtor.com/realestateandhomes-search/Omaha_NE/o... 6700 * 128 = 857 600. From 2017: > This is the home of billionaire Warren Buffett. Located in a quiet neighborhood of Omaha, Nebraska. He bought the house for $31,500 in 1958, $250,000 in today's dollars. It's now worth an estimated $652,619. He calls it the "third-best investment he's ever made." * https://www.businessinsider.com/warren-buffett-modest-home-bought-31500-looks-2017-6 https://www.businessinsider.com/warren-buffett-modest-home-b...
• ZeroGravitas 5y ago
  I hadn't read the book itself, but had got a different message. I thought that most of these people happened to run successful businesses in poorer communities (often immigrant) where their peers were all relatively poor. They therefore didn't get caught on a treadmill where expected gifts and living standards drive everyone to spend all their money on keeping up with the Joneses. Most of the community have little money, not because they're stupid or wasteful just because they're starting from very little. So the outlier has no real need to spend the money and just banks it in their business against downturns and over time it builds up. Interesting as a phenomenon, but it sounds they were drawing very broad conclusions from that for their book.
  • zhdc1 5y ago
    Thomas Stanley was a marketing by professor who made a name for himself teaching others how to sell to the rich. The Millionaire Next Door was largely written to dissuade people of the notion the hyper consumerism and associated advertising was an effective strategy for reaching a majority of upper wealth households. Wealthy households are generally frugal compared to their level of net worth. This is particularly true for wealthy households at the lower end of the scale (e.g., the millionaire teacher who got that way by investing 15% of their net income consistently over 30-40 years). Immigrants and business owners do have an advantage, and he goes into detail about how living in less wealthy neighborhoods is a wealth building advantage, but his main argument is that thrift, savings, and simple math are the main drivers of wealth.
  • mojuba 5y ago
    That, and also I think communities setting consumerist standards (houses this size, cars this make and year) are mostly suburb type. In big cities it's easier to hide your real worth since people mostly socialize outdoors and for example the car-show-off effect is minimal. When you meet someone in a big city chances are they won't even see what type of car you own. These things become less relevant in this type of environments, at least from my experience. The big city is the place where you can save on things you probably don't need. Move to the city, find reasonable accommodation which I believe is possible even in places like London and Paris, and just don't buy or do things that you don't see contributing to your life goals much. Just enjoy the vibrant and inclusive environment that's a big city. Socialize, exchange ideas, and save save save.
• phkahler 5y ago
  FIRE (financial independence retire early) is the new thing. If the millionaire next door isn't possible, what are all these FIRE people doing? Oh right, I know one that's planning to retire soon - in his 40s. Don't worry, that means one more good paying job will be available for someone else ;-)
  • zhdc1 5y ago
    We know many people who are either on the path towards early retirement or will have the opportunity of do so. They make good, but not great salaries, live frugally (e.g., use public transportation), and save. It’s not hard.
    • he_is_legend 5y ago
      Not hard as a rule, but it has one fairly difficult (for many) yet deciding factor: getting that high earning job when you are young, in a FAANG (or comparable company). Working for these type companies is a luxury limited to a very low percentage of people indeed (I have interviewed for them).
      • moate 5y ago
        "It's simple. If you don't want to be poor, earn more money". God I'm such an IDIOT. Why had I never thought of that... Seriously though, I love reading the comments section of HN, a subsection of a subsection in a high-growth, high-value industry talking about how easy/simple it is to make a ton of money and use that money to do things they want. Where my Eastern European hackers at? Where my Indian code-factory guys? Anyone want to chime in on your experiences?
        • givesendgo 5y ago
          "I'm Sundar Pichai, and I approve this message"
        • EEREPRESENT 5y ago
          I make ~100,000 euro yearly in eastern europe and invest maybe 90%. I can already retire, but think I'll do this for a few more years (job good, coworkers good) Suppose that wasn't the experience you were looking for?:)
• jstx1 5y ago
  I completely agree with the article and I still think that if you read Millionaire Next Door and it helps you get a perspective on living below your means and investing regularly, that could still be really useful. I feel similarly about FIRE - retiring early is one of the most unappealing goals that I can think of and the FI part of it is an outright lie - but if you read something on a FIRE blog and it helps you manage your money a bit better, I'm all for it.
  • zrail 5y ago
    > the FI part of it is an outright lie This is a perspective I haven't encountered before! Would you be willing to expand a bit?
    • jstx1 5y ago
      Perhaps I was too harsh. What I don't like about FI is that it pretends to be able to quantify the expenses that you'll need in the future with models like the 4% rule which make so many assumptions that the model is useless in practice (or at least the model is dishonest about the risks - one story of early retirement discussed on HN - https://news.ycombinator.com/item?id=26543527 https://news.ycombinator.com/item?id=26543527) So when you challenge the idea that those people are genuinely financially independent, the argument that usually comes up is "it's still better than not having that nest egg at all" or "you don't need to stop working, you need to be able to" - which is just another way to say that it's better to have more money (duh).
      • zrail 5y ago
        Thank you for elaborating. That makes perfect sense.
  • omnibrain 5y ago
    I used to read a few of those blogs and for some (most?) of them even the RE part was a lie. They rented out property and had to take care of it and had some side hustles here and there. Some even went into the direction of being "part time farmer". Granted, they retired from their old dayjob and worked way less than before and with more freedom - which is totally a valid lifestyle - but it's at least a bit disingenious calling this retirement.
• noduerme 5y ago
  I dunno. My GF rents a house for $950/mo, granted it's the smaller cottage on a $2M property. The owner of the property is a 26 year old optometrist. The guy next door has a $1.5M mansion and runs a septic tank company with two trucks and a bunch of stinkin hoses. (He also doesn't believe in covid and he's afraid to come over since we got vaxed because he thinks spike proteins are gonna sterilize him). The bartender at my local place has upwards of $100k in the bank in savings, and his mom owns a $2M house. I'm still not a millionaire (inching my way there) but a million dollars isn't what it used to be. OTOH, my brother in LA owns a condo and can't find a new place to move into for love or money. Shit's always bleak at the LA Times, but, they don't get to other parts of the country much.
  • madengr 5y ago
    Those properties could be mortgaged to the hilt too. Me, I paid off my house and maxed out my 401k for 25 years; not yet 50 and well past that threshold. Work now is just for 2x kids college savings, which is almost done.
  • GuB-42 5y ago
    https://commons.wikimedia.org/wiki/File:Wealth_distribution_by_percentile_in_the_United_States.png https://commons.wikimedia.org/wiki/File:Wealth_distribution_... About 1 in 10 families are worth more than a million in the US, 1 in 20 for 2 millions. So essentially, in the US, millionaires are the 5%, the upper middle class rather than the "rich". Most millionaires don't fly in private jets, they can afford business class, but there is a good chance for you to seat next to one in economy class. Millionaires have budgets too, and in fact, that they are flying coach may be the reason why they are millionaires, they don't spend all their money on luxury.
    • noduerme 5y ago
      This describes most working people I know, who mostly with houses and assets would be worth $100k-$1M or so. But they do range across a wide strata of society, from nurses and medical workers to comic book artists to programmers [edit: Those would be my artsy friends. Apart from them, guys in HVAC are buying new houses left and right]; a nurse anaesthetist friend of mine just celebrated her and her husband crossing the line to $1M (including her house equity). Had a little party =D But these are hourly, wage working people, not speculators. If you have $1M you can't live off the interest if you have a house, a car and kids, especially if it's mostly tied up in the house.
• mmcconnell1618 5y ago
  The model described in the book does work. Spend less than you make, invest the excess in long term assets that have compounding interest rates above the inflation rate. It does produce millionaires. It also requires tremendous discipline over a long period of time. The math is relatively simple, the behavior is not. While the millionaire described in the story had $8 million in assets, you will find almost no one "next door" with 10 to 100 million or a 1 billion. That level of wealth requires a return on investment that can't be achieved using the earn and save model. It usually requires creating/controlling an assets that can grow in value many orders of magnitude faster than the stock market (real estate, businesses, intellectual property).
  • the-dude 5y ago
    ( Not disagreeing ) If you want to lose weight, just eat less. It is simple calories-in minus calories-out. It is really simple..
    • MichaelRazum 5y ago
      That is true, in theory easier than gain weight, where you have to do more than less.
    • kemitche 5y ago
      Hunger is a pesky thing, however. And I tend to agree with the conclusion of the article - what's the point in saving that money if one has to live on a shoestring budget to acquire it? Specifically the "work all your life, end with $8 million" case. FIRE is different, with the value being the option to stop working much much earlier than 65 years old.
      • the-dude 5y ago
        The analogy just popped before my eyes, that is all. They both claim to have 'really simple solutions to problems'. Except it is not easy at all. It is very hard.
        • 5y ago
• faridelnasire 5y ago
  Something tells me this author went to an expensive school to study journalism and went on a trip abroad (or 2), and now doesn't know how to pay back all those student loans. Building wealth is still very much possible, there are many different communities online (FIRE, Dave Ramsey, and so on) where people are doing it, it just involves living a lifestyle that's abnormal for today's standards because consumerism has properly messed up our baseline.
  • ithinkinstereo 5y ago
    Live below your means. Max out you're tax-advantaged retirement accounts. If you're young, invest a non-small portion into high-growth, "risk-on" assets, preferably in an industry you know a little bit about and can imagine where the trajectory of growth will lead to. If you're staying put for the foreseeable future and don't mind limiting your optionality, consider buying a home (basically a 5x leveraged bet).
    • ransom1538 5y ago
      Exactly this. People have have studied 10k different millionaires this is what they found [0]: * Eight out of ten millionaires invested in their company’s 401(k) plan. * The top five careers for millionaires include engineer, accountant, teacher, management and attorney. * 79% of millionaires did not receive any inheritance at all from their parents or other family members. It isn't hard. However, but poor luck: divorce, drugs, medical can wipe out chances immediately. [0] https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research https://www.ramseysolutions.com/retirement/the-national-stud...
  • majormajor 5y ago
    Or you could look at who the author is and see they got their BA and MS in the early '70s and conclude they probably don't have any outstanding student loans 50 years later.
• CompelTechnic 5y ago
  https://fred.stlouisfed.org/series/MEHOINUSA672N/ https://fred.stlouisfed.org/series/MEHOINUSA672N/ Seems like we're doing fine.
  • zhdc1 5y ago
    Yep. This is also the case in other countries.
• hiddencache 5y ago
  Combine the rule of 72 (compound interest) with a historical 10% return from the S&P and I don't see how it couldn't work. All it takes is a bit of willpower, and the desire to "get rich slow"...
  • xorfish 5y ago
    The average real return of equities is 5.3%. https://www.credit-suisse.com/about-us-news/en/articles/media-releases/credit-suisse-global-investment-returns-yearbook-2021-202103.html https://www.credit-suisse.com/about-us-news/en/articles/medi...
    • hiddencache 5y ago
      That's the real return. The nominal return would still make you a millionaire, even if you don't feel that rich.
• NoblePublius 5y ago
  there have never been more millionaires and there have never been more children of millionaires, to say nothing of the fact that the average laborer can afford things today that the average millionaire could not afford ten or twenty years ago.
  • Clewza313 5y ago
    There have indeed never been more millionaires, because the bar keeps getting lower and lower. A million today inflation adjusted backwards was $143k in 1970.
    • NoblePublius 5y ago
      A 32 inch LCD TV was $15,000 when I was in high school; today it is $79. Encyclopedia Britannica was $8000; today Wikipedia has more content and is more accurate and is instantly and universally accessible to everyone everywhere through a pocket-sized device obtainable for $100 and $20/month.
      • mister_tee 5y ago
        Advancing technology is great, and yes, economically deflationary. Some less creature-comfort things unfortunately have outpaced wages in the US: housing, education, and health care coming in at #1. Granted, we have medicines and technologies we did not before.
        • achenatx 5y ago
          Education is essentially free on the internet. You cant get a diploma from a fancy university, but the knowledge is available. Housing costs are high in some areas, but still incredibly low in others. The internet has enabled knowledge workers to work remotely so they can live in low cost areas.
• 0x737368 5y ago
  I think it's also worthwhile to consider not just whether you can amass several millions from frugal spending and steady-hand and sober-minded investments into the market, but whether you should. I think most people set themselves goals such as working at FAANG, having millions in their accounts, driving expensive cars, not because it'd bring them happiness but because that's the societal expectations that they have unknowingly adopted and never noticed the switcheroo. It makes sense why society as a whole would value this "work to the bone at the cost of everything else" behaviour - it creates good workers whose work benefits the society. It is not clear how it benefits the worker. At the end of the day, what's the point of having those millions in your bank account when your 75, have bad knees, arthritis and crippling back pain. Decide what you want to do with your life, and work your hardest to achieve that. Don't dance at the tune of someone else's fiddle just so that maybe at the end of that long ride you can get a handshake and a pat on the shoulder.
  • Clewza313 5y ago
    > Decide what you want to do with your life, and work your hardest to achieve that. This is precisely the "American Dream" mindset that the article is calling out as a fallacy. Most people are not in a financial position to do what they want, much less achieve lifelong success (financial or otherwise) doing it.
    • 0x737368 5y ago
      No, this obsession with "financial" is exactly what is the American Dream, not what I'm talking about. You can live on so much less than minimal wage - it is because people go along with societal expectations do they consider it not enough. You pay the rent to live in an apartment, in a city, and work an official, recognised job. Why do you necessarily need to live in an apartment? Why in a city? And why do you need to work that menial job to pay off all of it barely having anything left at the end of the month? Look up dirtbagging, a movement rock climbers came up with to dedicate their lives to climbing instead of the 9-5. You can get by fine with living in a tent and eating from expired cans and free McDonalds ketchup packets if that gives you the freedom to pursue what you find meaningful.
• bko 5y ago
  > But the real secret to his success was catching the asset wave that Taleb mentioned. In other words: luck. The period in which he invested started with extreme undervaluations in the equity market If anyone is curious about the actual returns of the market, I made a sheet [0] with S&P 500 returns over 10, 20 and 30 years at every possible starting point. Note that this excludes dividend yield which is about ~2% today and higher in the past, which should cover inflation for the most part. type 10yr; 20yr; 30yr; min -3.57%; 2.80%; 6.94%; max 17.05%; 15.49%; 12.74%; median 8.54%; 10.21%; 9.86%; So for instance, if you invested over 10 years since 1929, the worst you could have possible done is a continuously compounding return of -3.57% (invested in 1927 and sold in 1937). The next worst is invest in 1938 and sold in 1938 for a 0% return. Everything else is positive. The worse 20 year return is 1927-1947 for an annual return of 2.8% But of course no one invests like this. They invest over time and dollar cost average. For instance you may invest $100 a month, in which case your returns would be positive and likely very high regardless of when you start, as long as you invest for long enough (more than a few years) I don't know why a journalist would quote someone without doing 5 minutes of research as to actual stock market returns and important timing is. I still don't understand why its so fashionable to have these garbage articles come out about how everyone working hard and saving is an idiot and everything is futile. Does the author believe this crap? What else is there to do but to work hard and save? Would you teach this stuff to your children about how they're destined to be destitute? [0] https://docs.google.com/spreadsheets/d/1dGFQUxyUfGyBE5dnz1rcDcWWuTXgSHGdJ-2-INMk4ag/edit?usp=sharing https://docs.google.com/spreadsheets/d/1dGFQUxyUfGyBE5dnz1rc...
  • mister_tee 5y ago
    hooray for doing the math, thanks This article is from 2015 and one of the author's key points is that we're never going to see the equity market booms of the 80s, 90s, and 2010s ever again. The example is that $100 in 1979 turned into $2000 in 2015... but that's only 8.5% annual RoR. I'm not sure whether it's real or nominal; depends on whether their dollar amounts are inflation-adjusted. IMO it was tempting at that time to say the next few years are going to look different than the past few. I, not at all an economist, also thought in 2015 the top must be in because, come on, just look at the graph! And the P/E, the CAPE, the Buffet indicator! That was wrong, of course. S&P 500 is up 125% since then, for a 17% nominal RoR. Which is double that 8.5% in case it was also nominal. random statement: "the millionaire next door" in 1996 is "the $1.73-millionaire next door" in 2021. Or more: CPI numbers just came in at 5.4% an hour ago.
• nemo44x 5y ago
  This article pretends that there no longer undervalued assets to be found and that these guys just got lucky to be there when apparently everything was cheap. The article doesn’t consider leverage was really difficult then due to interest rates. In addition there are always undervalued assets to be bought. But patience and discipline are required. The first million is the hardest and takes the longest to make.
• horrified 5y ago
  "If Read suffered from poor health during his working years or required long-term care, his estate would be a fraction of what it was." So don't bother saving or trying to get rich, because you might become ill and have to spend the money on your health? The whole article seems weird. What is their point? So 300$/Month is not enough, but 500$ would be? Surely that is something many people could at least aspire to? I think the poverty discussion often overlooks the fluent nature of the economy. People who have low paying jobs today (say pizza driver) don't necessarily have the same job forever. But new "poor people" (often young people) will enter the market and become pizza drivers. Should pizza drivers give up all hope and just "live"? Also afaik the markets had good returns in the long run pretty much always. If it really would not be worthwhile to invest anything anymore, some serious questioning of politics would be in order. I only recently read "The Millionaire Next Door", and while I didn't really like the writing style, I think it still made some good points.
• cascom 5y ago
  This article doesn’t make sense - it’s basically says here’s a guy who worked hard, was frugal, and invested for the long term - but he was just lucky (because the past 60 years of asset price returns were amazing) - except how many other people were in his relevant cohort…tens of millions more or less who have had this same opportunity? Not saying the next 60 years will be anywhere near as good, but I think it’s folly to dismiss this “strategy” as most people would be quite happy with an outcome that was 25-75% of that.
• kangnkodos 5y ago
  Someone who is retired, has a million dollars invested in the stock market, no debt and no income today is not rich. They are middle class. Assume they are collecting an average Social Security check. That's 18K per year. If the person draws 3.5% of their net worth each year, that will give them an additional 35K per year. (I picked 3.5% because if you look at the history of the stock market, that's a safe rate to draw money for a long period of time, even during past historical market downturns.) So they can spend a grand total of 53K per year. That's very close to the average US salary, 52K per year. It's true they don't have to work. But they're not rich. They are middle class.
  • adamisom 5y ago
    That is a poor comparison. The 52k is taxed. But even beyond that, your expenses can be way lower if you don't have to work - to earn good money you might need to live in a more expensive place than you would if you had total freedom; you might have daycare $$$expenses; spend more on commuting and food out, and frankly might just naturally spend more due to being more stressed from work and having less self-discipline to avoid a lot of discretionary expenses. If I had 53k/year just to SPEND - no debt!! - I'd be extremely happy and consider myself rich as I wouldn't have to worry too much about almost anything I'd want to spend on, if I chose a reasonable COL city.
    • SapporoChris 5y ago
      Completely agree with this as it very closely mirrors my current situation. I am retired, zero debt, live off modest investments. It is easy to minimize my taxes. I do not have the cost of a car. I select places to live that are interesting and affordable. It's quite easy to go a month and spend less than 3000 USD. There's several websites that provide cost of living information by city on an international level.
    • marvin 5y ago
      Not sure if this is in the scope of the discussion, but there are many countries in the world where capital gains are taxed at the same rate as salary. The US is a bit of an outlier there, assuming a relatively small annual withdrawal.
• givesendgo 5y ago
  It's dated, but the principles work. Has no one hear of _fire_ ? https://www.reddit.com/r/financialindependence https://www.reddit.com/r/financialindependence
• apsec112 5y ago
  The book's claim is something like "most millionaires are people who own ordinary small businesses without a luxurious lifestyle". This article seems to be trying to refute the different claim that "even a low-income person can easily become a millionaire". But I don't think that's ever been true, and it's not really the book's message. Someone making $130,000 as a small business owner isn't "low-income" - the book is mainly contrasting this group with highly educated doctors, lawyers, MBAs, etc, who also have high incomes but spend much more.
  • kixiQu 5y ago
    The linked piece about that book has a different idea of its claim: > The book “stands today as a sort of promise that everyday people have a shot at accumulating true wealth through habits and not just outsize risk,” wrote Ron Lieber at the New York Times. Wall Street Journal columnist Jonathan Clements called it “a roadmap for everyday Americans who want to accumulate significant wealth.” That piece links this one: https://www.reuters.com/article/idUS394135834820131016 https://www.reuters.com/article/idUS394135834820131016 > When Thomas Stanley and William Danko published their best-selling book in 1996, they made much of the statistic that “80 percent of America’s millionaires are first-generation rich.” The majority, they pointed out, were entrepreneurs, many working in blue-collar professions. > Anyone could make it big, the two authors all but proclaimed; all you need is frugality and a few tax breaks. Don’t live in a pricey home. Put a cork in the Cabernet, and pop a Coors instead. But most important, open your own business. When it came to the secret sauce for scoring a million bucks, “a very big factor is self-employment,” Stanley said. > The ensuing years have not been kind to the working-class millionaire. > A little-noticed marketing report released last month by U.S. Trust contained the disturbing statistic that while almost a third of Baby Boomers worth more than $3 million claimed to have grown up in lower-middle-class homes, the number fell precipitously for younger cohorts, with 18 percent of Gen Xers and a mere 6 percent of such Millennials saying they came from working-class stock.
    • apsec112 5y ago
      If you're measuring by net worth, that's super confounded - making $3 million by growing a small business is a lot slower than being born to wealth. So the former will be disproportionately old regardless of generational cohort.
• tamaharbor 5y ago
  In any case, you wont become a millionaire if you elect to take unemployment in lieu of a job.
  • chansiky 5y ago
    Not if you buy dogecoins with your unemployment check.
• TrackerFF 5y ago
  I know one guy that managed to retire before 40 (he's now 45), following the boring route. Roughly, it went like this - He chose to go to trade school, and become an electrician - He chose to live in his small rural town - He worked overtime whenever he could, but not at the cost of his social or family life. - He saved around +/- $30k every year, for almost 20 years, and invested it all on index funds. - He didn't splurge on excessive travel, electronics, cars, etc. lived a modest life. After he "retired", he enrolled community college to study Electrical Engineering, and now does smaller contracting work that he finds interesting.
  • CountDrewku 5y ago
    It's possible to live a very comfortable lifestyle and save a lot if you're not consumed by the idea that you need to live in SF or NY to enjoy your life. I always see these stories about how it's impossible for millenials to own a house etc. I bought my first house at 24 and sold it for 80k profit 5 years later, paid off my student loans. I'm on my second house now and it's appreciated considerably in the last few years. Both houses were below 250k with and over 1400 sqft. My wife and I have pretty modest incomes and only bring in about 100k a year together. While there are certainly things I would like to buy that I cannot afford I can buy most of the things I enjoy when I want to without having to worry and still save a lot for retirement.
    • vineyardmike 5y ago
      > if you're not consumed by the idea that you need to live in SF or NY to enjoy your life And yet some people enjoy big cities more than they'd enjoy living in a small town and it is not a moral failing or a sign of stupidity or weakness. Many people enjoy the multiculturalism found in cities, and many immigrants or minorities feel out of place in small towns while major cities offer them the opportunity to connect with people like themselves. Obviously owning a big residence in a city will never be affordable but as a society we should ensure that people can affordably live where it makes sense for them.
      • subsubzero 5y ago
• throwaway713 5y ago
  I've always wondered why we don't see more people with $50M-$100M saved up over a lifetime. The average person can't do it, but there are plenty of doctor/lawyer or tech manager couples in the Bay Area or NYC that can save $100k-$150k per year. Max out retirement accounts, invest in index funds, assume 7% return, assume a long life of 90 years, and... that ends up being a lot of money. Not saying that couples who are capable of saving that much per year are actually doing it, but rather, you would think it would at least be more common than it is.
  • nappy-doo 5y ago
    Probably because people want to spend what they make. If you live in SV, you see people driving Teslas, and you think, "I want to do that too." So, next time you fly first class for the family vacation, and stay at the pricey villa. On your next trip, you add a couple of private tours, and can't find a good return flight, so you buy some NetJets credits. Next thing you know, you're spending 65k/year for a nanny (to support those high-paying Google T6 jobs), and it's eating into the 200k/year savings it would take to reach that level of wealth. Most people end up spending close to what they make. Most people don't save like what 100M would require you to save.
    • handrous 5y ago
      > Probably because people want to spend what they make. If you live in SV, you see people driving Teslas, and you think, "I want to do that too." So, next time you fly first class for the family vacation, and stay at the pricey villa. On your next trip, you add a couple of private tours, and can't find a good return flight, so you buy some NetJets credits. Next thing you know, you're spending 65k/year for a nanny (to support those high-paying Google T6 jobs), and it's eating into the 200k/year savings it would take to reach that level of wealth. Don't forget to blog about the struggle of being a working parent in tech, but how great it is that you manage to make space in your schedule for plenty of quality time with your kids anyway, while forgetting to mention the double-median-income amount of money you're dropping on child care every year ("newborns are so hard you guys LOL #blessed #stressed" has a "night nanny" and sleeps great most every night). Bonus points if post it while a startup founder or "CEO".
• babesh 5y ago
  Another aspect not touched upon by either the author of this article nor of the book is multigenerational thinking common in immigrants. You KNOW you aren't getting that rich but you are trying to make a better life for your kids. Your kids will benefit. If your kids are industrious then your grandkids will be even better off. There are whole cohorts of Chinese blue collar people who bought houses in lower middle class neighborhoods who sent their kids of to UCs. Those kids then become doctors, engineers, investors, etc... Some of the grandkids are more laid back but some want to climb further.
  • peter303 5y ago
    A number of people in the FIRE subteddit claim they saving big money living with parents who pay most living expenses until 30 or later. I know my ethnic would not tolerate perpetual adult children tenants. But this is encouraged in other groups.
    • BatteryMountain 5y ago
      Same here. Was out of the nest just after turning 19 and have been on my own (or with partners) ever since.
• neogodless 5y ago
  The term `Millionaire Next Door` is key. It's someone you wouldn't even realize is wealthy, because they don't demonstrate wealth visibly. They take care of needs and (some) wants based on their own internal compass rather than the image it would convey. Certainly, low income and high cost of living is not a recipe for success. But moderate income and moderate cost of living (less than income) can be. The article says investment returns like those can't be replicated, because inflation is too low. But being able to make enough money to invest isn't possible because inflation is too high. Well, you can't have it both ways! Lets throw some assumptions in... 7% return on investments after inflation. > If you contribute $834.85 every month over the next 40 years towards your goal, you will have $2,000,000.00 in savings. > If you contribute $1,764.39 every month over the next 30 years towards your goal, you will have $2,000,000.00 in savings. $2 million (given the 4% safe withdrawal rate derived from the Trinity Study) would give you $80k annual income. Everything will be in today's dollars, since inflation is already factored into your ROI. If you started at age 25 and wanted to retire at 55 with $2 million dollars, with the assumption you're spending $80k every year, you'd need an after tax income of $101,172.68 each year. In other words, save just over 20% of your income, and pull off early retirement in 30 years. (If you keep the $80k and $2 million at a perfect 1:25 ratio, this math works for any income/spending, for example ~$63k income, $50k spending and $1,250,000.) Who thinks someone living an $80k lifestyle on a $101k (after tax) income is hating their quality of life? Drive 3-5 year old cars for 5 years, paid cash. (At the oldest they are 10 years old just before you sell them.) Don't buy more house than you need, with "tiny exaggeration syndrome" where you need the "best" school and the "best" walkable score and the "best" etc... Balance eating out with the joy of cooking. And so forth. Your neighbors will not think you are poor, but they also won't suspect you're getting rich. You will become a millionaire next door.
• MrPowers 5y ago
  Thomas Stanley and Sarah Fallaw (Stanley's daughter) published an updated book in 2016 called The Next Millionaire Next Door: Enduring Strategies for Building Wealth. They argue the conclusions from the Millionaire Next Door still hold and directly address Taleb's survivorship bias claim. Remember that Thomas Stanley had a PhD in finance and didn't do garbage research. There is a leanfire subreddit if you're looking for real world stories of people that are currently living the high savings lifestyle: https://www.reddit.com/r/leanfire/ https://www.reddit.com/r/leanfire/ Here's a great video of a young, modern leanfire couple: https://www.youtube.com/watch?v=Lb3Z5cGOksY&ab_channel=CNBCMakeIt https://www.youtube.com/watch?v=Lb3Z5cGOksY&ab_channel=CNBCM... Millionaire Next Door might not be possible for minimum wage workers in HCOL areas anymore, but seems to me like lots of folks are still figuring out how to make it happen and become financially free at a young age.
• deleted 5y ago
  [deleted]
• bennysomething 5y ago
  The guys son wrote a sort of follow up to millionaire next door, with updated stats. Contradicts what this article is claiming.
• MR4D 5y ago
  (2015)
• rglover 5y ago
  “Do not let your fire go out, spark by irreplaceable spark in the hopeless swamps of the not-quite, the not-yet, and the not-at-all. Do not let the hero in your soul perish in lonely frustration for the life you deserved and have never been able to reach. The world you desire can be won. It exists.. it is real.. it is possible.. it’s yours.” — Ayn Rand
• WalterBright 5y ago
  And yet I see people regularly who complain that they can't get ahead, yet they're driving his & hers new cars. Though with Biden's plan to tax people at 40%, it's going to get a lot harder.
• maerF0x0 5y ago
  one of my main gripes of the boring route to wealth is that it's so disincentivized in our society. By saving money you miss out on the present opportunities of consumption, but in many ways we subsidize those who choose present over long term choices. Ex: if you choose to work overtime to save for your future (above 401k money), you pay a greater marginal tax rate on those earnings... Ex2: there are many programs that come in times of disaster to support those who did not have any foresight to be prepared. Those who took present opportunities are subsidized in their lack of foresight, while those with foresight are denied the same resources. It's an inversion of logic because above average intelligence will never be understood by the democratic masses, therefore the best a politician can do is reward average behavior.
  • j_walter 5y ago
    This is a frustration for those who see themselves as planning for the future. The obvious renter vs. landlord issue going on right now is a huge talking point. Many renters haven't paid for over a year because they were "protected" even though many of them didn't stop working and even if they did they got unemployment benefits that more than made up their income. Landlords are not oblivious to this fact and are frustrated at having to subsidize the renters...but the government is rewarding it because "think of the poor people". Example: https://www.yahoo.com/news/evicted-despite-federal-moratorium-not-121812674.html https://www.yahoo.com/news/evicted-despite-federal-moratoriu... >Dejonae King, 33, held back tears after she lost her eviction appeal. King was laid off from Walgreens and has been without a job for most of the pandemic. She had not paid the $253 weekly rent on her one-bedroom apartment since July 2020. So where did her unemployment money go? $600/week extra initially and now "only" $300/week extra. She is $14K overdue in rent...and seems surprised that she will eventually be kicked out.
    • maerF0x0 5y ago
      And a big part of my point is that baseline responsibility is to have 6 months of money in the bank. Those who are financiall responsible and sat on 6months money instead of getting a $1000 iphone or a instagrammable moment still paid their rent. But those who were marginally able to save that money up, but chose instead to burden themselves with one time or recurring costs? Those irresponsible people got say they couldnt pay their rent and someone else had to bear the burden for their irresponsibility in the past. Now here's the kicker that I am really confounded by -- irresponsible people are by far the majority, and democracies are (basically) majority rules. So how can the government do anything but continue to create rules that create an optimal experience for irresponsible people, meaning the responsible ones are incentivized to being irresponsible too.
• eplanit 5y ago
  What an unhappy author, who goes to such trouble to throw whatever cold water he can dream up in order to disparage captialism, without ever making a solid point. It comes off as envy, without any concrete points beyond well, luck was maybe part of their success. Multi-generational business or wealth accumulation is invalidated, because not everybody has that, so therefore it's inherently unfair. Sigh. Yeah, capitalism is bad m'kay. The LA Times is writing stuff their readers like, so everything is actually going as it should.
• mark_l_watson 5y ago
  That was a great book, I read it when I was young and it really informed my views on wealth creation and value of free time.
• dougmwne 5y ago
  An irony here is that after a lifetime of frugality, the hospital and library this man bequeathed his fortune to will spend it flagrantly on pet projects, staff perks, political turf and tail chasing IT projects (and sure, a bit of the mission as well). Such is the way of the world.
• deleted 5y ago
  [deleted]
• peter303 5y ago
  There is a busy subreddit- financialindependence- comprised of people hoping to retire by 40. Its a mixture of a frugal lifestyle and high savings. The rough formula is you a financially independent when you have 25 times your annual expenses saved. That is a million if you can live on $40,000. Some single people in professional jobs can fairly easily do this. I find it sad when some posters go overboard by denying themselves vacations and families just to feel rich.
  • strix_varius 5y ago
    To clarify, “retire by 40” is definitely not a component of /r/financialindependence. The subreddit is about building a life you want and living below your means until that life is sustainable independent from employment. There is no specific age involved, and everyone’s means and goals are unique.
• peter303 5y ago
  Correcting for inflation since 1996 book publication, a 1996 "million"is about $1,700,000 now. The word million just sounds catchy. About 1 in 12 Americans is a millionaire in assets. But these assests may include real estate and retirement savings which are not easily spendable.
• dudeman6969 5y ago
  Propaganda to kill the American dream and get people to vote to become dependent on the give
• monocasa 5y ago
  It's why the wealth class has retconned 'millionaire' to mean >$1M/yr income instead of >$1M net worth. You can get >$1M net worth just by working hard and saving in a blue collar job. https://www.npr.org/sections/money/2011/05/24/136461536/whats-a-millionaire https://www.npr.org/sections/money/2011/05/24/136461536/what...
• mensetmanusman 5y ago
  “Fewer young people starting their careers today have had even the middle-class upbringing or family resources of so many of Stanley’s quiet millionaires.” Note that divorce is one of these family resource affecting occurrences. More and more people are growing up in families of divorce, and divorce decimates current and future wealth potential. Say nothing about the ethics of divorce, a culture that does more of a resource destroying thing will inevitably have a “death” of some downstream consequence.
  • wil421 5y ago
    The divorce rates hit a 50 year low in 2019.[1] It’s a stretch to say more and more families when the peak looks like it hit in the 1980s. [1] https://ifstudies.org/blog/the-us-divorce-rate-has-hit-a-50-year-low https://ifstudies.org/blog/the-us-divorce-rate-has-hit-a-50-...
    • mensetmanusman 5y ago
      True should have been more clear that breakups and resulting kids being raised by single parents are not accurately under the umbrella of divorce because low income people aren’t even getting married anymore, since it’s become a status symbol more and more.
• RickJWagner 5y ago
  I think the article reaches a wrong conclusion. Visit Bogleheads.org, you'll find plenty of people who are doing quite well simply by living below their means and investing the slow, steady way. Also, as near as I can tell, a lot of the FIRE people are younger folk. Don't be fooled into not taking part-- you can be relatively wealthy, if you can just save a little and exercise patience.
• WalterBright 5y ago
  It's not dead at all. With the mega-trillions in more government spending causing massive inflation, we'll all be millionaires shortly. Everyone will be inflated into the "wealthy" tax brackets. I was going through some old financial records of mine from the 90's, and was surprised at how much less things cost then.
• imgabe 5y ago
  There is no hope. Do not try to manage your finances in any way. The only way to succeed is by pure random luck. Your actions make no difference at all. By the way the LA times has some ads to show you for some shiny things you should buy instead of saving your money.
• atlgator 5y ago
  It was entirely possible, at least until a few years ago when housing skyrocketed beyond reach. The younger generations will not build wealth if they continue paying >50% their take home pay on rent.
• m0llusk 5y ago
  The book isn't a recipe, but mostly a warning. Many of the people who think of themselves as millionaires are not. This hasn't changed even the tiniest bit.