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>The data show that an individual in the 75th percentile of wealth distribution who invested $1 in 2004 would have yielded $1.50 by the end of 2015—a return of

>The data show that an individual in the 75th percentile of wealth distribution who invested $1 in 2004 would have yielded $1.50 by the end of 2015—a return of 50 percent. A person in the top 0.1 percent would have yielded $2.40 on the same invested dollar—a return of 140 percent. I may be mistaken but I think investing in VTI (total stock market index) and reinvesting dividends from 2004 to 2015 would yield you close to that 140 percent. Maybe 120 to 130? No need to be a top 0.1 percent to invest in that. The "rich are getting richer" is a natural consequence of compound interest (which works for those with assets, and against those with debts) and the stagnation of some wages.

fnbr 3y ago
Not sure about VTI, but if you invested in the S&P 500 and reinvested dividends, you would have got 130%: https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
Kirby64 3y ago
Seems to me to be a simple consequence that rich people disproportionately have assets held in stocks or broad market funds. Only a small fraction is held in low earning products like savings, cash, or bonds. Conversely, poor people either don't have any assets at all, or keep the majority in low yielding accounts such as savings. Risk adversity is a big driver of that, since losing your emergency fund or savings is catastrophic for someone with no other assets, whereas losing some of your large stock portfolio is something rich folks shrug off.
- LUmBULtERA 3y ago
  Agreed. Those properties, along with the impact of compound interest. However, another point I have is that similar yields are accessible by non-0.1 percenters by just buying a broad-market low-fee index fund like VTI/VTSAX.
- ojbyrne 3y ago
  The article specifically calls that out as “conventional wisdom.” “Conventional wisdom suggests that richer individuals put more of their assets toward high risk investments, which can result in higher returns. But our research finds that wealthy people often earn a higher return even on more conservative investments.”
  - Kirby64 3y ago
    Could this not be explained purely because of access to better funds? For example: Vanguard charges a higher expense ratio on the funds that are under $3000 in investment. Above $3000 you get 'Admiral' class with lower expense ratios. Even above that, there are 'Institutional' class funds that have an even LOWER expense ratio (with minimums of $5M). I imagine similar examples exist at other firms, companies, etc.
ravenstine 3y ago
That's just one part of the equation, and it's not even a requirement. The rich can get richer once they have reached what I call "escape velocity", where they have reached a level of wealth that their way of living will always be taken care of, hence they are free to throw their excess wealth at things in a way that an ordinary person wouldn't necessarily tolerate in terms of risk. Then there's things like inheritance, foundations, access to better financial advisors and portfolio managers, access to social networks of other wealthy people, etc.
- LUmBULtERA 3y ago
  Good term, "escape velocity". Agree with everything except: >access to better financial advisors and portfolio managers If anything, active wealth management usually ends up yielding less than a broad market index fund.
  - FirmwareBurner 3y ago
    Financial advisors aren't just investment brokers, but can help you optimize your finances to get the max of your local tax regulations or maybe even recommend some foreign jurisdictions as well with more benefits. Almost every country in the world has some undocumented open loopholes that the rich or the system savvy can exploit to reduce their tax burden, and get a lot more back from the state (or avoid paying in the first place), and the people not knowing them can loose a lot in the long run by not knowing how to play the game in their favor. For example, in Germany and Austria, there's an insane amount of wealth built on the tax fraud of cash-only businesses, especially for small family businesses in more rural areas where strict audits are less likely. It's not legal, it's fraud, but the people who know the game, know how to exploit it without ever getting caught, that's why flashing and discussing wealth there is socially frowned upon (because many have it obtained through inheritance of a "dark past™" or tax fraud, and it's tough to explain to everyone and the tax man how you bought a new Porsche and a villa in the south of Europe just by selling sausages on the weekend, so everyone flies under the radar by driving old cars and dressing modestly, while sitting on small empires on the side without anyone being the wiser).
- 3y ago
keernan 3y ago
>Conventional wisdom suggests that richer individuals put more of their assets toward high risk investments, which can result in higher returns. But our research finds that wealthy people often earn a higher return even on more conservative investments. Richer individuals enjoy pure “returns to scale” to their wealth. Specifically, for given portfolio allocation, individuals who are wealthier are more likely to get higher risk-adjusted returns...
- LUmBULtERA 3y ago
  Except the return of the 0.1 percenters was very close to the return of the broad market. Their conclusion doesn’t track with this fact.
ajsnigrutin 3y ago
It's not just that, it's also the fact that having a lot of money makes it easier to get more money too.. and also pay less taxes. I won't go into details, because they're country specific, but earing a wage here, especially an above-average (think engineer not richy rich) means you pay around 50% of your money in taxes. The percentage the government gets from the customer to your bank account (including the employers responsibilities and VAT) is even higher. What you can do to optimize taxes is to drive 5, 6 hours to a different country, open a company there, and start charging the customers via that company... since the company profits are taxed a lot less, you pay only ~10% taxes. Because you want health insurance in your home country you also become an "inependent contractor" there, pay minimum taxes and get medical, kindergarden for your kids etc. Now, if you're an engineer, with 1.5x-2x average paycheck it is possible but just not worth it... two accountants, driving there every now and then, two different taxes, fixed startup fees, fixed fees for yearly reports etc., plus the added risk of something going wrong, dealing with foreign tax inspectors etc. If you're earing 20x the average paycheck, the fixed yearly costs are the same, but the 50%->10% tax reduction is a huge saving. Same with companies... facebook can register a company in ireland and syphon their money over there, but for a mom and pop restaurant it just isn't worth it.

fnbr 3y ago

Not sure about VTI, but if you invested in the S&P 500 and reinvested dividends, you would have got 130%: https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/

Kirby64 3y ago

Seems to me to be a simple consequence that rich people disproportionately have assets held in stocks or broad market funds. Only a small fraction is held in low earning products like savings, cash, or bonds. Conversely, poor people either don't have any assets at all, or keep the majority in low yielding accounts such as savings. Risk adversity is a big driver of that, since losing your emergency fund or savings is catastrophic for someone with no other assets, whereas losing some of your large stock portfolio is something rich folks shrug off.

LUmBULtERA 3y ago
Agreed. Those properties, along with the impact of compound interest. However, another point I have is that similar yields are accessible by non-0.1 percenters by just buying a broad-market low-fee index fund like VTI/VTSAX.
ojbyrne 3y ago
The article specifically calls that out as “conventional wisdom.” “Conventional wisdom suggests that richer individuals put more of their assets toward high risk investments, which can result in higher returns. But our research finds that wealthy people often earn a higher return even on more conservative investments.”
- Kirby64 3y ago
  Could this not be explained purely because of access to better funds? For example: Vanguard charges a higher expense ratio on the funds that are under $3000 in investment. Above $3000 you get 'Admiral' class with lower expense ratios. Even above that, there are 'Institutional' class funds that have an even LOWER expense ratio (with minimums of $5M). I imagine similar examples exist at other firms, companies, etc.

ravenstine 3y ago

That's just one part of the equation, and it's not even a requirement. The rich can get richer once they have reached what I call "escape velocity", where they have reached a level of wealth that their way of living will always be taken care of, hence they are free to throw their excess wealth at things in a way that an ordinary person wouldn't necessarily tolerate in terms of risk. Then there's things like inheritance, foundations, access to better financial advisors and portfolio managers, access to social networks of other wealthy people, etc.

LUmBULtERA 3y ago
Good term, "escape velocity". Agree with everything except: >access to better financial advisors and portfolio managers If anything, active wealth management usually ends up yielding less than a broad market index fund.
- FirmwareBurner 3y ago
  Financial advisors aren't just investment brokers, but can help you optimize your finances to get the max of your local tax regulations or maybe even recommend some foreign jurisdictions as well with more benefits. Almost every country in the world has some undocumented open loopholes that the rich or the system savvy can exploit to reduce their tax burden, and get a lot more back from the state (or avoid paying in the first place), and the people not knowing them can loose a lot in the long run by not knowing how to play the game in their favor. For example, in Germany and Austria, there's an insane amount of wealth built on the tax fraud of cash-only businesses, especially for small family businesses in more rural areas where strict audits are less likely. It's not legal, it's fraud, but the people who know the game, know how to exploit it without ever getting caught, that's why flashing and discussing wealth there is socially frowned upon (because many have it obtained through inheritance of a "dark past™" or tax fraud, and it's tough to explain to everyone and the tax man how you bought a new Porsche and a villa in the south of Europe just by selling sausages on the weekend, so everyone flies under the radar by driving old cars and dressing modestly, while sitting on small empires on the side without anyone being the wiser).
3y ago

keernan 3y ago

>Conventional wisdom suggests that richer individuals put more of their assets toward high risk investments, which can result in higher returns. But our research finds that wealthy people often earn a higher return even on more conservative investments. Richer individuals enjoy pure “returns to scale” to their wealth. Specifically, for given portfolio allocation, individuals who are wealthier are more likely to get higher risk-adjusted returns...

LUmBULtERA 3y ago
Except the return of the 0.1 percenters was very close to the return of the broad market. Their conclusion doesn’t track with this fact.

ajsnigrutin 3y ago

It's not just that, it's also the fact that having a lot of money makes it easier to get more money too.. and also pay less taxes. I won't go into details, because they're country specific, but earing a wage here, especially an above-average (think engineer not richy rich) means you pay around 50% of your money in taxes. The percentage the government gets from the customer to your bank account (including the employers responsibilities and VAT) is even higher. What you can do to optimize taxes is to drive 5, 6 hours to a different country, open a company there, and start charging the customers via that company... since the company profits are taxed a lot less, you pay only ~10% taxes. Because you want health insurance in your home country you also become an "inependent contractor" there, pay minimum taxes and get medical, kindergarden for your kids etc. Now, if you're an engineer, with 1.5x-2x average paycheck it is possible but just not worth it... two accountants, driving there every now and then, two different taxes, fixed startup fees, fixed fees for yearly reports etc., plus the added risk of something going wrong, dealing with foreign tax inspectors etc. If you're earing 20x the average paycheck, the fixed yearly costs are the same, but the 50%->10% tax reduction is a huge saving. Same with companies... facebook can register a company in ireland and syphon their money over there, but for a mom and pop restaurant it just isn't worth it.