4 ms·

Let's do the math for compounding returns. Suppose 7% growth for 30 years, same Person A and B: $1000 * (1.07 ^ 30) = 7,612.25 $1,000,000 * (1.07 ^ 30) = 7,61

Let's do the math for compounding returns. Suppose 7% growth for 30 years, same Person A and B: $1000 * (1.07 ^ 30) = 7,612.25 $1,000,000 * (1.07 ^ 30) = 7,612,255.04 Proportionally, It's still 1000:1. So we see compounding doesn't change the relative difference. But now we're getting to absolute gap that's simply uncoverable by wage income, unless you can land in the professional management class, which effectively sets its own wages (board members voting for compensation packages for one another).

notahacker 5y ago
If wages also go up by 7% then the absolute gap definitely is uncoverable by wage income. Sure, they often don't but the reason they don't has little to do with QE. After all, the entire point of QE and monetary stimulus in general is central banks are concerned that not enough jobs are being created and real wage cuts and layoffs will result. And in that scenario where credit is expensive and businesses are looking at layoffs, our wealthy investor is still getting 7% returns, just from offering expensive short term credit to struggling businesses rather than seeing the long term shareholder value of thriving businesses rise. But the worker is even further from catching them up, because they're struggling to find a job.
deleted 5y ago
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nly 5y ago
Sure, they'll always be ahead, but 1000x as wealth sounds pretty impossible compared to 'a lifetime or so of compound returns'. Most people only need to build a $2-3M pot to be financially independent, be able to stop working, and still live better than most working Americans, which is the biggest quality of life improvement there is in acquiring wealth. The utility of wealth falls off a cliff pretty quickly. Replacing a $200K/yr salary from passive income in perpetuity with a good level of certainty would require a pot of $6-7M At 7% (above inflation), most people still need to spend 30 years saving 30% of their salary before they can reach a level (30x) that can replace it. 15% over 40 years also works.
wonderwonder 5y ago
This is 100% correct, however for the person with less money they are going to be spending a much larger percentage of their funds each month than the richer one. So in reality the richer person will accelerate ahead and the ratio will get worse for the poor person every year.
keymone 5y ago
now account for $500 cost of living. or $100, which is lower than almost anywhere in the world. A will be broke while B won't even notice.
- pureliquidhw 5y ago
  This is the real issue. Excess cash poured into and competing for assets. Having 90% of your money available to invest vs 10% creates a massive difference in real outcomes.

notahacker 5y ago

If wages also go up by 7% then the absolute gap definitely is uncoverable by wage income. Sure, they often don't but the reason they don't has little to do with QE. After all, the entire point of QE and monetary stimulus in general is central banks are concerned that not enough jobs are being created and real wage cuts and layoffs will result. And in that scenario where credit is expensive and businesses are looking at layoffs, our wealthy investor is still getting 7% returns, just from offering expensive short term credit to struggling businesses rather than seeing the long term shareholder value of thriving businesses rise. But the worker is even further from catching them up, because they're struggling to find a job.

deleted 5y ago

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nly 5y ago

Sure, they'll always be ahead, but 1000x as wealth sounds pretty impossible compared to 'a lifetime or so of compound returns'. Most people only need to build a $2-3M pot to be financially independent, be able to stop working, and still live better than most working Americans, which is the biggest quality of life improvement there is in acquiring wealth. The utility of wealth falls off a cliff pretty quickly. Replacing a $200K/yr salary from passive income in perpetuity with a good level of certainty would require a pot of $6-7M At 7% (above inflation), most people still need to spend 30 years saving 30% of their salary before they can reach a level (30x) that can replace it. 15% over 40 years also works.

wonderwonder 5y ago

This is 100% correct, however for the person with less money they are going to be spending a much larger percentage of their funds each month than the richer one. So in reality the richer person will accelerate ahead and the ratio will get worse for the poor person every year.

keymone 5y ago

now account for $500 cost of living. or $100, which is lower than almost anywhere in the world. A will be broke while B won't even notice.

pureliquidhw 5y ago
This is the real issue. Excess cash poured into and competing for assets. Having 90% of your money available to invest vs 10% creates a massive difference in real outcomes.