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> If this was true about wealth creation, intergenerational wealth would eventually outcompete everything else, while it looks like the opposite is true. Not

> If this was true about wealth creation, intergenerational wealth would eventually outcompete everything else, while it looks like the opposite is true. Not outcompete, but intergenerational wealth does play a huge part in class mobility [1]. > The what they invest it in, is the whole point. If you spend your life and wealth playing 20% of your bankroll with zero expected value - you should completely expect not to be wealthy, and if you do become wealthy it will be completely by chance, against the odds. The amount of money you have is a very important factor in your options. The more money you have, the more options you have to invest with more expected value. For example, what options does a family that manages to save $500 a year to invest that money in something that brings them a lot of expected value? 1: https://www.pewtrusts.org/~/media/legacy/uploadedfiles/wwwpewtrustsorg/reports/economic_mobility/PursuingAmericanDreampdf.pdf https://www.pewtrusts.org/~/media/legacy/uploadedfiles/wwwpe... Page 6, figure 3

abigail95 4y ago
I disagree with the conclusions you draw and how you apply them to this context. Richer people don't have access to higher EV else their kids wouldn't have very similar relative mobility, they should be richer than their parents. And it seems that the risk of becoming downwardly mobile (absolute and relative) increases along with income. Which makes sense as some sort of mean reversion. Along with the bottom quintile having higher positive mobility than richer quintiles, EV increasing with income doesn't make sense to me. The family with $500 should keep it as liquid as possible unless they have enough credit to cover drawdowns in income. Other than that - they get the same EV as everyone else. $500/yr at 7% over 40 years will get you $100k. How many people with $500 actually invest it? Historical lookback on 40 years of the S&P 500 gets you real return of 8.77%.
- gjulianm 4y ago
  Not many people with 500 dollars invest it because they probably need it for essential things. Not to mention that the money you can get at 40 years doesn’t really matter too much when right now you can’t buy a house, even can’t pay your bills…

abigail95 4y ago

I disagree with the conclusions you draw and how you apply them to this context. Richer people don't have access to higher EV else their kids wouldn't have very similar relative mobility, they should be richer than their parents. And it seems that the risk of becoming downwardly mobile (absolute and relative) increases along with income. Which makes sense as some sort of mean reversion. Along with the bottom quintile having higher positive mobility than richer quintiles, EV increasing with income doesn't make sense to me. The family with $500 should keep it as liquid as possible unless they have enough credit to cover drawdowns in income. Other than that - they get the same EV as everyone else. $500/yr at 7% over 40 years will get you $100k. How many people with $500 actually invest it? Historical lookback on 40 years of the S&P 500 gets you real return of 8.77%.

gjulianm 4y ago
Not many people with 500 dollars invest it because they probably need it for essential things. Not to mention that the money you can get at 40 years doesn’t really matter too much when right now you can’t buy a house, even can’t pay your bills…