How do I build wealth?

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How do I build wealth?

Postby xiosen » Thu Mar 21, 2013 11:19 am

Hello Bogleheads,

I have been coming here for a few years and I been reading about how some others have been building wealth. I am wondering how their plans mesh with the boglehead world. Basically they suggest doing a mix of the following:

Growth Rate - Investment
4% - CDs
8% - Index Funds
15% - Stocks
30% - Real-Estate together with Stocks
45% - Real-Estate together with Stocks and Small Businesses
50+ - Start your own business

Note: once you get to the higher growth rates (i.e. stocks, real-estate, and business) in the table above, it is assumed that you will use leverage (i.e. other people's money and time) and actively manage them to increase your returns to the indicative levels.

I am basically in the process of doing this and I am wondering what is the best boglehead way of doing it. I already have some liquid savings in a high interest savings / cds. I also have been maxing out my IRA and investing all other extra income into vanguard according to the core 4 portfolio. I also am a web developer so I actively try to build new business ideas and am going to focus more on that in 2013 versus maintaining my existing service based one since it can't really be sold or grown any further.

Moving forward I want to try to build some real wealth in every way that I can. I am currently renting so the next step is to purchase a house that I can easily afford that can potentially be turned into a rental later. I may continue renting however as we are considering moving to another country when a job opportunity for my girlfriend presents itself. However the concept remains the same in that we would purchase a home to live in. I was also considering investing around $5k into stocks once my next business creates this profit (would represent about 3.8% of my current assets and investments, im 27) as more of a challenge to learn more about it and how I can grow it. At the end if it is not for me then I would withdraw what I have left. At the same time if I excel at it I would continue to grow it while not adding any more additional funds as this would mainly be to satisfy the urge to learn and not compromise the rest of my investment strategy.

I start to get confused toward the real-estate path. Assuming I have extra income each year I debate whether or not if that conflicts with putting it all in index funds or a mix between real-estate and index funds. For example if I took the real estate path I would save up 20% down payment (20-25k where I am at) to purchase a second home (assuming I am living in one now) and rent out one of them. I could then repeat the process or instead try to pay down each home before purchasing the next. Assume I also save up an emergency fund to cover vacancies, maintenance, etc.

So my question to you is, what is the most boglehead way to build wealth to maximize the growth rate to be as high as possible as well as diversifying in the process. I plan on working forever and always creating business' and I want to put all the money I earn to work to create true wealth. I am mainly interested in a plan to do it and at what point financially I should focus on each. At 27 I can afford to experiment more and I am happy with my existing portfolio. I hope to have a good 40 years to put this plan into action.

Im also open to any links or books that covers these topics that you have enjoyed (aside from bogleheads guide to investing as I need to re-read that again).
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Re: How do I build wealth?

Postby wesleymouch » Thu Mar 21, 2013 11:26 am

The big drains are buying a big house and expensive cars. If you avoid those and live beneath your means you should be fine
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Re: How do I build wealth?

Postby xiosen » Thu Mar 21, 2013 11:30 am

wesleymouch wrote:The big drains are buying a big house and expensive cars. If you avoid those and live beneath your means you should be fine


Totally get that. Im not worried about being fine and not into excess at all (actually a minimalist), but interested in amassing wealth and some strategies to do just that.
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Re: How do I build wealth?

Postby Confused » Thu Mar 21, 2013 11:45 am

With the possibility of higher returns comes the greater risk of losing it all. If you're young, you still have time to take on that risk (and hopefully recover from it, should it happen).

To build wealth, save as much money as you can (i.e., keep your expenses as low as you can) and take the savings and invest. CDs and MMAs won't do you much for your retirement; I'd suggest an aggressive mix of stocks and bonds. If you're in your 20s, I'd say >= 85% stocks, and <= 15% bonds. Invest via Vanguard. If you don't have much yet, the Vanguard Target Retirement Funds have a minimum starting balance of $1000, so get that together and open an investment account there.
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Re: How do I build wealth?

Postby leo383 » Thu Mar 21, 2013 11:52 am

I guess it all depends on what you mean by "real wealth".

If you want to end up with $2 million you should do very different things than if you want to end up with $50 million.
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Re: How do I build wealth?

Postby xiosen » Thu Mar 21, 2013 11:57 am

Confused wrote:With the possibility of higher returns comes the greater risk of losing it all. If you're young, you still have time to take on that risk (and hopefully recover from it, should it happen).

To build wealth, save as much money as you can (i.e., keep your expenses as low as you can) and take the savings and invest. CDs and MMAs won't do you much for your retirement; I'd suggest an aggressive mix of stocks and bonds. If you're in your 20s, I'd say >= 85% stocks, and <= 15% bonds. Invest via Vanguard. If you don't have much yet, the Vanguard Target Retirement Funds have a minimum starting balance of $1000, so get that together and open an investment account there.


I already have the core 4 portfolio with similar asset allocation to what you mentioned. CDs and High interest savings account is only for my emergency fund and liquid cash. Im mainly looking at strategies to build long term wealth outside of vanguard to shoot for returns like I mentioned on the table at the top unless one of the strategies is to just throw everything I got into my AA and dont mess with investing in real estate, small business', stocks, etc.
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Re: How do I build wealth?

Postby xiosen » Thu Mar 21, 2013 12:01 pm

leo383 wrote:I guess it all depends on what you mean by "real wealth".

If you want to end up with $2 million you should do very different things than if you want to end up with $50 million.


I suppose in this discussion, real wealth would be the 50 million or highest possible. Assuming that I also contribute money to comfortable retire ($2 million for example), the goal would be to amass as much wealth as possible. Im not really getting into the reasons for amassing wealth or what to do with it, but mainly strategies on how to get there.

I realize the $50 million would have to come with a lot of luck (facebook), but mainly looking at strategies on how someone would build wealth that could be as simple as make money and put it into your AA but I see others mentioning larger risks, returns with other strategies and I am looking to discuss what those would be and at what point to execute them in the best boglehead-ish way.
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Re: How do I build wealth?

Postby Confused » Thu Mar 21, 2013 12:11 pm

xiosen wrote:
Confused wrote:With the possibility of higher returns comes the greater risk of losing it all. If you're young, you still have time to take on that risk (and hopefully recover from it, should it happen).

To build wealth, save as much money as you can (i.e., keep your expenses as low as you can) and take the savings and invest. CDs and MMAs won't do you much for your retirement; I'd suggest an aggressive mix of stocks and bonds. If you're in your 20s, I'd say >= 85% stocks, and <= 15% bonds. Invest via Vanguard. If you don't have much yet, the Vanguard Target Retirement Funds have a minimum starting balance of $1000, so get that together and open an investment account there.


I already have the core 4 portfolio with similar asset allocation to what you mentioned. CDs and High interest savings account is only for my emergency fund and liquid cash. Im mainly looking at strategies to build long term wealth outside of vanguard to shoot for returns like I mentioned on the table at the top unless one of the strategies is to just throw everything I got into my AA and dont mess with investing in real estate, small business', stocks, etc.


Okay, in that case, my suggestion would be to buy real estate. If it were me, I'd probably buy a duplex or tri-plex (and I'd consider living in one of them while renting out the other(s), but I'd probably end up not wanting to get bugged by my tenants all the time and living somewhere else). So I'd probably suggest buying a duplex and renting them both out. It will be a drain on your time, unless you hire a management company (and they'll take a cut of your revenue). Unless you're good with fixing stuff, you'd also want to have a good electrician and plumber for when your tenants call with problems.

But, you'll want to try real hard to get good tenants, as that will make or break you. Good luck picking them out of a crowd. If you're in a landlord-friendly state, all the better.
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Re: How do I build wealth?

Postby hicabob » Thu Mar 21, 2013 12:13 pm

xiosen wrote:
leo383 wrote:I guess it all depends on what you mean by "real wealth".

If you want to end up with $2 million you should do very different things than if you want to end up with $50 million.


I suppose in this discussion, real wealth would be the 50 million or highest possible. Assuming that I also contribute money to comfortable retire ($2 million for example), the goal would be to amass as much wealth as possible. Im not really getting into the reasons for amassing wealth or what to do with it, but mainly strategies on how to get there.

I realize the $50 million would have to come with a lot of luck (facebook), but mainly looking at strategies on how someone would build wealth that could be as simple as make money and put it into your AA but I see others mentioning larger risks, returns with other strategies and I am looking to discuss what those would be and at what point to execute them in the best boglehead-ish way.



for 50 million you will probably need to inherit it, win the lottery or start a successful business.I'd go for the biz. First one will probably fail but you will learn a lot for the next one!
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Re: How do I build wealth?

Postby Raybo » Thu Mar 21, 2013 12:13 pm

It seems to me you are asking about multiplying the value of your assets, time, money, creativity, connections, etc.

You want to get a high multiplier, which will be required to get to the $50,000,000 range.

It seems to me the best way to get that kind of multiplication is to create something that other people want/need. It can be a product(s), an entire business, art, or something else that can either be sold for lots of money (is unique) or can be sold to lots of people.

Real Estate falls into this category, since (most) everyone has to live somewhere and there are major barriers to entry (leading to some inefficiencies in pricing?).

Starting a business can also be a major multiplier, though, it will have to be a popular business to get to a value in the range you are looking for and it will require a major commitment in time and money, either yours or someone else's. Note that using someone else's money means multiplying the value of their money more than your own!

The question as I see it isn't what you need to do to build this wealth, as what special abilities you have that might make you wealthy. The next question would be what is required to make the maximum advantage of your special ability/abilities?

If you have nothing unique to offer, then you have to come up with a different strategy.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.
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Re: How do I build wealth?

Postby KyleAAA » Thu Mar 21, 2013 12:22 pm

I think the most straightforward way to build wealth is to earn a ton of money, either through a high-paying job or starting your own business, and investing most of that income in a moderately-aggressive low-cost portfolio a la Boglehead recommendations. In my mind, owning rental real estate falls into the "owning a business" category. Of course, owning a business or using leverage to buy rental properties entails risk. If you can earn $200k at a regular job and save at least half of it each year, that strikes me as a more efficient path to moderate riches. Of course, if you want to be Zuckerberg rich you've got to start a billion dollar company. No way around that. If you want to be $5-10 million rich, just earning a $200-300k salary coupled with a frugal lifestyle will get you there. What if you're only earning $50k per year? Well, you've got to find a way to earn more money. A business may be the best way to do that.
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Re: How do I build wealth?

Postby xiosen » Thu Mar 21, 2013 12:24 pm

Raybo wrote:It seems to me you are asking about multiplying the value of your assets, time, money, creativity, connections, etc.

You want to get a high multiplier, which will be required to get to the $50,000,000 range.

It seems to me the best way to get that kind of multiplication is to create something that other people want/need. It can be a product(s), an entire business, art, or something else that can either be sold for lots of money (is unique) or can be sold to lots of people.

Real Estate falls into this category, since (most) everyone has to live somewhere and there are major barriers to entry (leading to some inefficiencies in pricing?).

Starting a business can also be a major multiplier, though, it will have to be a popular business to get to a value in the range you are looking for and it will require a major commitment in time and money, either yours or someone else's. Note that using someone else's money means multiplying the value of their money more than your own!

The question as I see it isn't what you need to do to build this wealth, as what special abilities you have that might make you wealthy. The next question would be what is required to make the maximum advantage of your special ability/abilities?

If you have nothing unique to offer, then you have to come up with a different strategy.


Thats a great assessment. I would say my special abilities are starting and running business'. Im a web developer so for me that involves building web based products with ultimately the intention to sell. I have not been very good at this so far as I use my talents to build products for other people. However I do have income producing business' and currently starting more so I hope to always have an excess in cash that I wish to apply toward making more.

I do only have a finite amount of time so as you mentioned I would need to focus on the maximum advantage so that would rule out major time sinks. Real Estate does have its appeal as I would be perfectly happy hiring someone to manage it. I guess thats why boglehead appealed to be so much in the first place as the only real commitment was deciding and managing my AA. Just like with index funds I am totally ok with investing time into learning something but the intention would be to have passive income in the end to reinvest to keep building more wealth.
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Re: How do I build wealth?

Postby HardKnocker » Thu Mar 21, 2013 12:28 pm

To build wealth you need to get some money. How much? The more the better. :moneybag Figure that part out first. This is most important.

Then once you have all that money, invest it wisely so that you don't lose it and it makes a fair return in excess of inflation

Easy.
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Re: How do I build wealth?

Postby xiosen » Thu Mar 21, 2013 12:33 pm

KyleAAA wrote:I think the most straightforward way to build wealth is to earn a ton of money, either through a high-paying job or starting your own business, and investing most of that income in a moderately-aggressive low-cost portfolio a la Boglehead recommendations. In my mind, owning rental real estate falls into the "owning a business" category. Of course, owning a business or using leverage to buy rental properties entails risk. If you can earn $200k at a regular job and save at least half of it each year, that strikes me as a more efficient path to moderate riches. Of course, if you want to be Zuckerberg rich you've got to start a billion dollar company. No way around that. If you want to be $5-10 million rich, just earning a $200-300k salary coupled with a frugal lifestyle will get you there. What if you're only earning $50k per year? Well, you've got to find a way to earn more money. A business may be the best way to do that.


Thanks for your input. My intention is to continue creating business' and if one happens to sell than thats great. On the other hand I struggle with real estate vs boglehead because they somewhat conflict. No matter the number of excess dollars, I often debate the best long term approach. Over the course of 40 years with a extremely hypothetical $50k/yr excess gives you 2 mil. That could give you 13 homes here to rent making potential passive income to reinvest or it sits in your AA doing the same thing with virtually no work. It could also open the opportunity to do both but which strategy has the higher chance of success in amassing the most wealth while also staying diversified?
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Re: How do I build wealth?

Postby xiosen » Thu Mar 21, 2013 12:36 pm

HardKnocker wrote:To build wealth you need to get some money. How much? The more the better. :moneybag Figure that part out first. This is most important.

Then once you have all that money, invest it wisely so that you don't lose it and it makes a fair return in excess of inflation

Easy.


Im already making some money, its the invest wisely that I am trying to figure out. I currently throw everything extra into my AA but I am wondering whether or not to pursue a mix of index funds, stocks, real estate, etc to create the most wealth since I can afford to have more risk right now.
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Re: How do I build wealth?

Postby Toons » Thu Mar 21, 2013 12:42 pm

Live beneath your means,make sure you take advantage of all tax free(roth)tax deferred
vehicles,401k,IRA etc the government offers and invest early and periodically for your entire working life . .Reinvest dividends ,cap gains(puts compounding to work for you).Stay OUT of debt . Just a few thoughts :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: How do I build wealth?

Postby HardKnocker » Thu Mar 21, 2013 12:50 pm

xiosen wrote:
HardKnocker wrote:To build wealth you need to get some money. How much? The more the better. :moneybag Figure that part out first. This is most important.

Then once you have all that money, invest it wisely so that you don't lose it and it makes a fair return in excess of inflation

Easy.


Im already making some money, its the invest wisely that I am trying to figure out. I currently throw everything extra into my AA but I am wondering whether or not to pursue a mix of index funds, stocks, real estate, etc to create the most wealth since I can afford to have more risk right now.


Investing is easy. Use the three funds approach detailed on this site. Let the power of compounding do its work. Your expectations of return should be realistic. 6-10% per year in equities. That's it. Forget chasing higher returns.

I've got news for you though. You won't be financially secure until you are 60 or 65 years old (if you are 25 now). Even then you may only be able to replace your income. This is a worthy goal.

If you want to be "wealthy" you need to makes lots of money. LOTS OF MONEY. Setting aside 10-20% of your income each week is not going to cut it. Your "business" could make you wealthy. That would be the engine.

Remember though that being "wealthy" does not mean you will be happy.

So make lots of money. Invest this money wisely.
Last edited by HardKnocker on Thu Mar 21, 2013 12:59 pm, edited 3 times in total.
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Re: How do I build wealth?

Postby snowman » Thu Mar 21, 2013 12:53 pm

It's great that you have these thoughts at such young age. While almost nothing will go as planned, you will be more successful having a plan to begin with.

Living below your means, staying out of debt, and regularly saving and investing money is a good and necessary start. By early 30s you will know whether you have the knowledge, personality and determination to start your own business. Real estate business is not for everyone, neither is self-employment. You may prefer to climb the corporate ladder and pocket most of the raises. There is nothing wrong with that.

Also, if building wealth is the highest priority in your life, realize that having kids will set you back. So will spending spouse and divorce. You will make some mistakes along the way - expect them, learn from them and move on. My advise to you is to live a happy life, take care of your body, do what you do because you enjoy doing it, not because it pays a lot of money. The rest will fall in place.
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Re: How do I build wealth?

Postby wellmoneyed » Thu Mar 21, 2013 1:05 pm

xiosen wrote:Im already making some money, its the invest wisely that I am trying to figure out. I currently throw everything extra into my AA but I am wondering whether or not to pursue a mix of index funds, stocks, real estate, etc to create the most wealth since I can afford to have more risk right now.


You can not invest your way to 50M USD from 0 working a normal job. It is not possible. You can gamble or speculate, but not invest.

Other than just getting lucky (lottery, single concentrated stock pick, etc), if you want to get to 50M USD, you need to start a business AND likely take real risk. Consider you start a business and it does well. You are earning $500K annually. You are on track to retire with 5-10M, but not 50M. You will likely be faced with a decision: do you risk your ability to retire with 5-10M in order to get to 50M? This is the rub. Do you really want 50M? Is 10M enough? Would you risk 5M to get to 10M? Imagine you have 25M in the bank would you place it on a 50/50 bet to get 50M?

If you want to work a job and "invest" to maximize your wealth, then put it in a 80% stock 20% bonds. You can use a 6-8% annual return and calculate how wealthy you will get. If you don't like the number, get a better job or spend less money.

Good luck!
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Re: How do I build wealth?

Postby boggler » Thu Mar 21, 2013 2:09 pm

I think this is a fabulous discussion. I've been wondering basically the same thing, and have converged upon the following philosophy:

Businesses are the best way to create wealth in the world. Read this for details: http://www.paulgraham.com/wealth.html

Take however much cash you need (and are willing to risk) to start your business and set it aside for that purpose. Take the remainder of the cash and invest it in a simple boglehead portfolio.

Ultimately, this comes down to efficiently using your time and skills. Your time is valuable, and how you choose to spend it is up to you. If you're a web developer and think you can start a successful business, that will probably provide more value to the world and provide you with greater wealth than if you spend that time buying properties and renting them out, since it uses a valuable skill you happen to have. Similarly, if you happen to be incredible at managing properties, maybe you should do the opposite. (And similarly, if you're really sure that you're good at market timing or stock picking, you should do that instead. But we assume that you're not, and that's why the boglehead recommendations make sense.) Most people aren't good at all of these things, and thus should choose something they both are good at and enjoy doing.
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Re: How do I build wealth?

Postby xiosen » Thu Mar 21, 2013 3:12 pm

boggler wrote:Ultimately, this comes down to efficiently using your time and skills. Your time is valuable, and how you choose to spend it is up to you. If you're a web developer and think you can start a successful business, that will probably provide more value to the world and provide you with greater wealth than if you spend that time buying properties and renting them out, since it uses a valuable skill you happen to have. Similarly, if you happen to be incredible at managing properties, maybe you should do the opposite. (And similarly, if you're really sure that you're good at market timing or stock picking, you should do that instead. But we assume that you're not, and that's why the boglehead recommendations make sense.) Most people aren't good at all of these things, and thus should choose something they both are good at and enjoy doing.


You know, Ive never thought of it like that before or looked at it from a worldly perspective. I have not read the link yet, but thank you for the insight. Off to read it now!
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Re: How do I build wealth?

Postby Scott S » Thu Mar 21, 2013 3:27 pm

Boy, if I could still make 4% on CDs and 15% on stocks, I wouldn't mess with anything else! :P
My Plan: * Age-10 in bonds until I reach age 60, 50/50 thereafter. * Equity split: 50/50 US/Int'l, Bond split: 50/50 TBM/TIPS. * Everything over 2 months' expenses gets invested.
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Re: How do I build wealth?

Postby johnkidding » Thu Mar 21, 2013 3:35 pm

xiosen wrote:
boggler wrote:Ultimately, this comes down to efficiently using your time and skills. Your time is valuable, and how you choose to spend it is up to you. If you're a web developer and think you can start a successful business, that will probably provide more value to the world and provide you with greater wealth than if you spend that time buying properties and renting them out, since it uses a valuable skill you happen to have. Similarly, if you happen to be incredible at managing properties, maybe you should do the opposite. (And similarly, if you're really sure that you're good at market timing or stock picking, you should do that instead. But we assume that you're not, and that's why the boglehead recommendations make sense.) Most people aren't good at all of these things, and thus should choose something they both are good at and enjoy doing.


You know, Ive never thought of it like that before or looked at it from a worldly perspective. I have not read the link yet, but thank you for the insight. Off to read it now!


I agree with the above posters. What unique and valuable skills and abilities do you bring to this world? Maximize those. I used to run around starting businesses and considering real estate, until a few years ago I realized my time is more valuable maximizing my skills as a web developer. By investing time and energy to be EXCELLENT in this area, it is really amazing how fast my income grows, along with my free time, simplicity (less stress), and other intangibles such as self-esteem, great marriage, etc. I now have options to free up time if I want, earn more money if I want, etc. I'm learning I prefer having time and simple (affordable) pleasures, with some luxurious travel sprinkled in throughout the year.

Soo glad I decided not be a landlord or pursue other businesses. I cringe to think how busy I would be making myself for no real good reason....
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Re: How do I build wealth?

Postby xiosen » Thu Mar 21, 2013 4:07 pm

johnkidding wrote:
xiosen wrote:
boggler wrote:Ultimately, this comes down to efficiently using your time and skills. Your time is valuable, and how you choose to spend it is up to you. If you're a web developer and think you can start a successful business, that will probably provide more value to the world and provide you with greater wealth than if you spend that time buying properties and renting them out, since it uses a valuable skill you happen to have. Similarly, if you happen to be incredible at managing properties, maybe you should do the opposite. (And similarly, if you're really sure that you're good at market timing or stock picking, you should do that instead. But we assume that you're not, and that's why the boglehead recommendations make sense.) Most people aren't good at all of these things, and thus should choose something they both are good at and enjoy doing.


You know, Ive never thought of it like that before or looked at it from a worldly perspective. I have not read the link yet, but thank you for the insight. Off to read it now!


I agree with the above posters. What unique and valuable skills and abilities do you bring to this world? Maximize those. I used to run around starting businesses and considering real estate, until a few years ago I realized my time is more valuable maximizing my skills as a web developer. By investing time and energy to be EXCELLENT in this area, it is really amazing how fast my income grows, along with my free time, simplicity (less stress), and other intangibles such as self-esteem, great marriage, etc. I now have options to free up time if I want, earn more money if I want, etc. I'm learning I prefer having time and simple (affordable) pleasures, with some luxurious travel sprinkled in throughout the year.

Soo glad I decided not be a landlord or pursue other businesses. I cringe to think how busy I would be making myself for no real good reason....


Im not sure if you saw from previous posts, but I am also a web developer. Can you tell me a little bit more about how you were able to get more time, simplicity, income, etc? For example if you do client work, did you up your rates? Be more specific clientele? Do you work remotely for another corporation? What would you recommend to another developer to get to the level you are?
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Re: How do I build wealth?

Postby johnkidding » Thu Mar 21, 2013 4:56 pm

xiosen wrote:
johnkidding wrote:
xiosen wrote:
boggler wrote:Ultimately, this comes down to efficiently using your time and skills. Your time is valuable, and how you choose to spend it is up to you. If you're a web developer and think you can start a successful business, that will probably provide more value to the world and provide you with greater wealth than if you spend that time buying properties and renting them out, since it uses a valuable skill you happen to have. Similarly, if you happen to be incredible at managing properties, maybe you should do the opposite. (And similarly, if you're really sure that you're good at market timing or stock picking, you should do that instead. But we assume that you're not, and that's why the boglehead recommendations make sense.) Most people aren't good at all of these things, and thus should choose something they both are good at and enjoy doing.


You know, Ive never thought of it like that before or looked at it from a worldly perspective. I have not read the link yet, but thank you for the insight. Off to read it now!


I agree with the above posters. What unique and valuable skills and abilities do you bring to this world? Maximize those. I used to run around starting businesses and considering real estate, until a few years ago I realized my time is more valuable maximizing my skills as a web developer. By investing time and energy to be EXCELLENT in this area, it is really amazing how fast my income grows, along with my free time, simplicity (less stress), and other intangibles such as self-esteem, great marriage, etc. I now have options to free up time if I want, earn more money if I want, etc. I'm learning I prefer having time and simple (affordable) pleasures, with some luxurious travel sprinkled in throughout the year.

Soo glad I decided not be a landlord or pursue other businesses. I cringe to think how busy I would be making myself for no real good reason....


Im not sure if you saw from previous posts, but I am also a web developer. Can you tell me a little bit more about how you were able to get more time, simplicity, income, etc? For example if you do client work, did you up your rates? Be more specific clientele? Do you work remotely for another corporation? What would you recommend to another developer to get to the level you are?


Sure thing. Please feel free to PM me and we can connect and discuss these things.

Btw fellow Bogleheads, I'm impressed with the friendliness of these replies. I'm getting to used to seeing harsh replies to some threads lately. I appreciate the spirit of idealism and helpfulness here.
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Re: How do I build wealth?

Postby statsguy » Thu Mar 21, 2013 5:08 pm

I would not live my life pursuing a $50 million portfolio. In my opinion, that is the wrong approach. You should pursue happiness and quality of life. Since money can be an important part to that, I suggest you save a high percentage of your salary and pursue making the portfolio as large as you can, but without depriving yourself and your family of the lifestyle that you want have.

In our case, we saved 25+% of our salary for 30 years and never felt deprived. When we were young we were saving about $1000/month and when we retired we were saving about $3100/month into our portfolio. I figure we saved about $800K over the 30 years. You can do the math, but if you assume a 6% return (we had a 65/35 equity/bond portfolio allocation) that after 30 years you get to about $2.6 million. We were very lucky in that we had new money to invest at the bottom of both the recent recessions so we ended up doing somewhat better. We both retired early (my wife at 40 and I retired at 56) or we could easily have more than doubled our retirement portfolio size. For us, a $50 million portfolio was probably out of reach, but realistically we could have made it to $10 million had we both kept working and retired at 66. But having those extra millions would not be an adequate trade off for the ten years of retirement we are enjoying now.

Getting into a habit of saving every month is important. It is my opinion, that you will not save as much over your life time if you wait until you have some amount, say $5k, before putting it into the market.

As to owning rentals, I think they can add to your portfolio as well. Our experience with rentals is as follows. We currently own one rental, which cost us $40K plus $160K mortgage. The rental is worth about $210K now and has a positive cash flow of about $400/month. In twenty five years when the mortgage is paid off, I expect the house will be worth about $420K (assuming its value increases with inflation - 3%). Assuming also that we can increase rents with inflation then in 25 years we will have been provided with about $300K in income and have a property worth about $420K. Getting $720K return on a $40K leveraged investment after 30 years is 10% rate of return (a crude estimate). Assuming our experience is typical, you would need to invest about $200K in five $200K rentals with $160K mortgages for 30 years to get to $50 million. So rentals could get you there.

When I look at your growth rates, it is my experience that you will not get that high of a return. I hope you get those growth rates because that will make your task easier. Finally, don't get discouraged. It is easy to get discouraged in the beginning because portfolios grow so slowly and some years your net worth will go down... but once on the path stay the course. I recall it taking us about 6 years to get to a $100K portfolio and another 6 to get to $500K.

To paraphrase a common saying on this board, there are many roads to... a net worth of $50 million. Don't think it is all real estate, all stocks, all business start-ups, or all whatever. Always take a diversified approach.

Best of luck on your journey
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Re: How do I build wealth?

Postby mickeyd » Thu Mar 21, 2013 6:00 pm

How do I build wealth?


Read this forum.

Use logic.

Apply what you learn here.

Spend it wisley.

Stay the Course.
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Re: How do I build wealth?

Postby HurdyGurdy » Thu Mar 21, 2013 7:05 pm

The Boglehead mindset starts with the realization that the best return you can get from your investments in stocks and bonds, long term, is the return of the market (minus expenses). No more and no less. What is it going to be? Dave Ramsey's 12%? unlikely. More like 6%.

Such numbers give you a baseline to calculate the kind of income and savings you would need to have in order to end up with $50 million in retirement.
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Re: How do I build wealth?

Postby norookie » Thu Mar 21, 2013 7:41 pm

Um, today? Your human capital making/amassing funds hedged against inflation as your upcoming IPS calls for? After that, a lot of reading of the Wiki's suggestions sounds adequate. A good plan is better than the best, tinkered with endlessly, one. Because it incurs many costs. .18%/ .20% /.32% plusplusplus adds up! Good luck!--sone of ny keyboards being temprenetal, sone keys works one day not the next.(shrug)
Last edited by norookie on Fri Mar 22, 2013 10:49 am, edited 1 time in total.
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Re: How do I build wealth?

Postby momar » Thu Mar 21, 2013 8:04 pm

HardKnocker wrote:To build wealth you need to get some money. How much? The more the better. :moneybag Figure that part out first. This is most important.

Then once you have all that money, invest it wisely so that you don't lose it and it makes a fair return in excess of inflation

Easy.

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Re: How do I build wealth?

Postby mickeyd » Thu Mar 21, 2013 8:16 pm

Say hello to my little friend~Vanguard.
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Re: How do I build wealth?

Postby mephistophles » Thu Mar 21, 2013 8:23 pm

A day at a time.
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Re: How do I build wealth?

Postby StealthWealth » Thu Mar 21, 2013 10:42 pm

Arbitrage other peoples value creating skills! If you have a job it is assumed that you create more value than you are paid in salary (generally). Find something that could pay you a fair salary + $x and then get other people to do it. Once you find something that is scalable leverage capital to grow. Hopefully $x is really $xx,xxx+ and you are on the way! Generating significant wealth is hard without tapping into the value that other people create.
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Re: How do I build wealth?

Postby norookie » Thu Mar 21, 2013 11:54 pm

Not meant in any other way but hopfully considered as advisory, stash ur cash in a FI investment like ANY tips fund you deem worthy! :? shrug?
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Re: How do I build wealth?

Postby stemikger » Fri Mar 22, 2013 12:15 am

I didn't read all the replies, but here is what I do and have done.

What really helped me out a lot was buying a house I could afford and staying in the house until it was paid off. The house is valued between $350K to $400K, so right off the bat my net worth went up when the mortgage was paid off.

If you work for a company Max out your 401K. Paying yourself first and buying a house and paying it off were my cornerstones to wealth building.

CDs are not for investing, they are for an emergency fund only.

As Warren Buffett has often said smart people don’t use leverage and dumb people have no business using it.

Invest in stocks for growth but make sure you know your risk tolerance. If you are young, you should be higher in stocks and increase your bond allocation as you get closer to retirement.

Read Common Sense On Mutual Funds by John Bogle and/or The Bogleheads Guide to Investing.

If you feel you do not want to be a passive investor and feel you have the ability to research companies, learn about value investing which is the type of investing that made Warren Buffett one of the richest men in the world. A great book to look at about this type of investing is "How Buffett Does it". However, unlike passive investing in index funds Value investing takes time and work. A lot of reading is required before you even purchase the company's stock.

Even Warren has said that the best way for the average guy or gal to own equities is through low-cost index funds which is what John Bogle has been teaching us to do for years. I really love Taylor Larimore's three fund portfolio. It is simplicity at its best and gives you everything you need in a portfolio.

You seem to be looking at this with an analytical mindset. It is more about behavior then math.

The above is a get rich slow method, and aimed at the average Joe. However, you can also try and become an entrepreneur and build wealth through your own business or maybe find a mentor to teach you about real estate get into a rental property or two. However, even while doing that paying yourself first into stock index funds and living below your means is just as important.

Unfortunately, there are no shortcuts or get rich quick schemes. Don’t’ fall for the ads you see on informercials on late night tv.
Stay the Course!
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Re: How do I build wealth?

Postby Chan_va » Fri Mar 22, 2013 6:38 am

There are 2 types of human activities.

Linearly scaling activities - where increasing the input by a factor of x gives you x times the reward. Example: most professions (doctors, lawyers, handymen etc.)
Exponentially scaling activities - where increasing the input by a factor of x gives you x^y reward (Example: being a best selling author). The scaling exponent y depends on the profession.

Linearly scaling activities have low risk/reward, exponentially scaling activities have risk rewards in proportion to the scaling factor y.

Investing the boglehead way is an exponentially scaling activity, where y is somewhere between 1 and 1.2 (due to compounding and long term stock growth). Most people, me included feel like it is the sweet spot in the whole spectrum.

If you are looking for higher scaling exponents, recognize the risk. And realize the extreme survivor ship bias in the data you see around you. You see business owners making $1M, but you don't see the 1000 that failed for every one that made it.
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Re: How do I build wealth?

Postby KyleAAA » Fri Mar 22, 2013 8:28 am

Chan_va wrote:If you are looking for higher scaling exponents, recognize the risk. And realize the extreme survivor ship bias in the data you see around you. You see business owners making $1M, but you don't see the 1000 that failed for every one that made it.


Do thousands fail for every one that makes it? That does not match the statistics I've seen. Most business owners eventually succeed. The published failure rate is on a per BUSINESS basis, not a per ENTREPRENEUR basis. Many business owners who fail the first time go on to succeed.
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Re: How do I build wealth?

Postby wellmoneyed » Fri Mar 22, 2013 9:05 am

KyleAAA wrote:
Chan_va wrote:If you are looking for higher scaling exponents, recognize the risk. And realize the extreme survivor ship bias in the data you see around you. You see business owners making $1M, but you don't see the 1000 that failed for every one that made it.


Do thousands fail for every one that makes it? That does not match the statistics I've seen. Most business owners eventually succeed. The published failure rate is on a per BUSINESS basis, not a per ENTREPRENEUR basis. Many business owners who fail the first time go on to succeed.


What is succeed? 1/1000 making to 1M in annual profit certainly is the right order of magnitude.
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Re: How do I build wealth?

Postby investingdad » Fri Mar 22, 2013 9:43 am

Here's my take on it.

There's a few different categories of wealthy, you can call them whatever you like....less than $1 million, $2 million to $5 million, $10 million to $20 million, $50 million to $100 million, >$100 million.

Crossing the $1 million threshold is achievable by a large percentage of the US population with a very disciplined approach, even if their salary isn't the best.

Getting into the next grouping I picked (up to $5 million) can be accomplished with a disciplined approach but only if with a higher than average salary.

To cross into the $10 million territory is where I consider the start of genuinely wealthy begins. Getting here will be difficult for nearly all 'day to day' professions on salary alone unless you're a highly compensated lawyer, doctor, senior financial or banking person, executive, etc. Reaching this milestone will more than likely require an alternate income source...rental property, successful business of some type, etc. I think it's achievable in a dual, higher income situation if investing and maximizing saving is a focus from your 20s. Difficult.

Moving into the $50 million category is a different level of wealth. Multiple businesses or one biz that has grown to tremendous size, etc.

And cracking the $100 million level is the Zuckerberg type rich.

Of course, this is all just me talking smoke and I'm sure there are many examples that would prove me wrong.
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Re: How do I build wealth?

Postby YDNAL » Fri Mar 22, 2013 9:45 am

xiosen wrote:Hello Bogleheads,

I have been coming here for a few years and I been reading about how some others have been building wealth.

In this regard, too little emphasis is placed on savings rate. A few things on building wealth:
  • Financial Wealth is relative as one may be considered wealthy by the next guy/gal's standard, and not wealthy by Bill Gates' standard.
  • Luck and timing factors. Illustrations are countless.
  • Be able to SAVE money from earnings. In order to save we must control expenditures. "Expenditures" come in many different flavors.
  • Return on investments.. the more we expect, the more risk we take, and viceversa... simple concept.
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Re: How do I build wealth?

Postby Chan_va » Fri Mar 22, 2013 9:49 am

In addition, how wealthy you feel is much more to do with who you associate with.

$1M on this forum is average - it is immense by average US standards.
$50K is average by US standards - it is a lot to 90% of the world's population

To each his own, but a driving desire to build your life around wealth is distasteful to me.
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Re: How do I build wealth?

Postby TSR » Fri Mar 22, 2013 10:23 am

I am not wealthy, so please feel free to disregard this, but I am a lawyer who has worked with a lot of wealthy (and formerly wealthy) people. Here is my advice....

$50 million just about requires "getting rich quickly." It's fine if you want to try to do that. However, while pursuing that, do NOT forget to "get rich slowly," and do not intermingle your "slow" wealth with your "fast" wealth. The slow wealth requires discipline and savings. The fast wealth requires risk and (usually) leverage. In the law we say that where people get in trouble is with OPM -- "other people's money." You can't make $50 million without other people's money. So my advice to you is to learn ways to spend other people's money without cross-contaminating your "slow" wealth. DO NOT SIGN PERSONAL GUARANTIES for business loans. This is almost impossible, but it's important -- guaranties are where people lose all of their personal assets when their business fails. Learn about sunk cost -- if your business starts failing, do not think you can revive it by cashing out your retirement accounts and dumping that money into your business. Just take the loss. Unfortunately, these are the risks that some (most?) very wealthy people take, and they occasionally pay off. Problem is that they very often fail. I have sued those people for the very last dollar they have, chased them into bankruptcy, and defended them in criminal cases after they have defrauded people in desperate attempts to keep their wealth. It's not a pretty sight.

For all of the above reasons, I'm someone who prefers getting rich slowly over getting rich quickly. If you prefer getting rich quickly, however, please also learn how to get rich slowly and DO NOT mix the two.

Good luck, and let us know how you do as you go along!
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Re: How do I build wealth?

Postby travellight » Fri Mar 22, 2013 10:27 am

Great replies. Your smoke makes a lot of sense to me, investingdad.

I also would not live my life going for 50 million. 10 is a good enough goal and there is less risk involved.
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Re: How do I build wealth?

Postby KyleAAA » Fri Mar 22, 2013 10:43 am

wellmoneyed wrote:
KyleAAA wrote:
Chan_va wrote:If you are looking for higher scaling exponents, recognize the risk. And realize the extreme survivor ship bias in the data you see around you. You see business owners making $1M, but you don't see the 1000 that failed for every one that made it.


Do thousands fail for every one that makes it? That does not match the statistics I've seen. Most business owners eventually succeed. The published failure rate is on a per BUSINESS basis, not a per ENTREPRENEUR basis. Many business owners who fail the first time go on to succeed.


What is succeed? 1/1000 making to 1M in annual profit certainly is the right order of magnitude.


Most people would consider success to be generating enough income to live a middle class or higher lifestyle from their business. Almost no entrepreneur I know would consider themselves a failure if their business generated, say, $150k per year rather than $1 million. If the business doesn't fail and it generates in the 6 figure range, it's successful by most standards.
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Re: How do I build wealth?

Postby Chan_va » Fri Mar 22, 2013 10:50 am

KyleAAA wrote:
Most people would consider success to be generating enough income to live a middle class or higher lifestyle from their business. Almost no entrepreneur I know would consider themselves a failure if their business generated, say, $150k per year rather than $1 million. If the business doesn't fail and it generates in the 6 figure range, it's successful by most standards.


Not by OP's standards.
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Re: How do I build wealth?

Postby Fuhheryan » Fri Mar 22, 2013 11:12 am

I would say there are only a handful of ways to become "wealthy" if 50 million is the threshold.

You need to have an exceptional skill or talent, and you need to capitalize on that skill.

Professional athlete- the top in each sport can reasonably expect to earn 50 Million over a career.

The option for the rest of us- use that skill/talent to create or perfect a new market- this can be done as an individual, a small group (startup), or by being a key clog in a multi- national machine ( Tony Fadell at Apple)

Or provide the financing/capital to those above- wall street.

I am constantly amazed by the people I meet and the road they took to success, I know a gentlemen who is a millionaire who invented convict proof soap dispensers for prisons, I know others who were recruited for some little start up in the valley called Google. There are multiple paths but ultimately you must have a skill/talent and you must capitalize on it - I think equal parts hard work, inherent ability, and timing ( some of its luck- catching the right company at the right time- some of it is earning the ability to see multiple opportunities)

I am an entrepreneur and although I don't have the millions I could have if I made a few different choices along the way, I have a small company that I run with a great business partner- I love what I do, and ultimately a number of families cover their mortgages, the kids braces, vacations, etc with the little company we have- all in all I rate it as a success.
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Re: How do I build wealth?

Postby HomerJ » Fri Mar 22, 2013 11:19 am

KyleAAA wrote:
Chan_va wrote:If you are looking for higher scaling exponents, recognize the risk. And realize the extreme survivor ship bias in the data you see around you. You see business owners making $1M, but you don't see the 1000 that failed for every one that made it.


Do thousands fail for every one that makes it? That does not match the statistics I've seen. Most business owners eventually succeed. The published failure rate is on a per BUSINESS basis, not a per ENTREPRENEUR basis. Many business owners who fail the first time go on to succeed.


Where do they get the money to try a second time? That's what I always wondered.
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Re: How do I build wealth?

Postby KyleAAA » Fri Mar 22, 2013 12:06 pm

HomerJ wrote:
KyleAAA wrote:
Chan_va wrote:If you are looking for higher scaling exponents, recognize the risk. And realize the extreme survivor ship bias in the data you see around you. You see business owners making $1M, but you don't see the 1000 that failed for every one that made it.


Do thousands fail for every one that makes it? That does not match the statistics I've seen. Most business owners eventually succeed. The published failure rate is on a per BUSINESS basis, not a per ENTREPRENEUR basis. Many business owners who fail the first time go on to succeed.


Where do they get the money to try a second time? That's what I always wondered.


Borrow it. Find investors. Save it. Same place they get the money the first time. Failing once doesn't make it more difficult to find funding the second time. In many cases, the experience makes it much easier. Think of it this way: if you have $50,000 to invest in a startup, would you rather give money to somebody who's never started a business before or somebody who started a business that eventually failed? You'd rather give it to the person who's actually started a business before, of course. You're also ignoring the fact that a multitude of businesses don't require any financial capital to start. Many times, human capital will suffice. Other times, you don't even need that. Example: you can (and many people have) start an multi-million dollar internet business for $20.
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Re: How do I build wealth?

Postby Meg77 » Fri Mar 22, 2013 12:14 pm

xiosen wrote:On the other hand I struggle with real estate vs boglehead because they somewhat conflict. No matter the number of excess dollars, I often debate the best long term approach. Over the course of 40 years with a extremely hypothetical $50k/yr excess gives you 2 mil. That could give you 13 homes here to rent making potential passive income to reinvest or it sits in your AA doing the same thing with virtually no work. It could also open the opportunity to do both but which strategy has the higher chance of success in amassing the most wealth while also staying diversified?


I don't see how real estate and boglehead values conflict. If you're talking about consumption real estate such as a fancy homestead and/or second home - which many of the threads are - then yes you're sort of right. But when it comes to investment properties or other businesses I think you'll find most bogleheads in support of that.

As to which strategy has the higher chance of success - you can't know that. That is why it's important to diversify. You could save the right/Boglehead way for 4 decades and then a badly-timed market crash right as you retire totally screws you. That's why I started investing in real estate - just as an alternative income stream to mitigate the risk of the stock market. My first bucket is the conservative/safety path to wealth which entails having an emergency fund, maxing out retirement accounts, and buying and holding index funds for decades on end. My second slightly riskier path to wealth includes funneling excess income/assets beyond that into rental properties. I now have 10 rental units, one of which I live in (average cost $111K per unit).

I'm struggling currently because I don't have any specific goals for my next path to wealth, which I always assumed would include starting a business of some kind. Alternately you could create something (music, writings) that would generate royalties, and a website might be a blend of that plus manging a business. But I don't currently have any special skills or inspiration or free time currently to devote to that, so I'm going to focus on maximizing my current 2 buckets and accumulate cash to use for a future business when the mood/timing strikes. Of course in the meantime my career is an important source of fuel for these endeavors, so I should theoretically be focusing on it so that I can maximize my income so that I can have more cushion and investment opportunity.
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Re: How do I build wealth?

Postby xiosen » Fri Mar 22, 2013 1:03 pm

Thanks everyone for the amazing replies. This has been a very enlightening conversation.

Meg77 wrote:
xiosen wrote:I'm struggling currently because I don't have any specific goals for my next path to wealth, which I always assumed would include starting a business of some kind. Alternately you could create something (music, writings) that would generate royalties, and a website might be a blend of that plus manging a business. But I don't currently have any special skills or inspiration or free time currently to devote to that, so I'm going to focus on maximizing my current 2 buckets and accumulate cash to use for a future business when the mood/timing strikes. Of course in the meantime my career is an important source of fuel for these endeavors, so I should theoretically be focusing on it so that I can maximize my income so that I can have more cushion and investment opportunity.


How would you hypothetically free up time in the future to focus on business? If I were to pursue a similar path I would be a little concerned that the properties would or other endeavors would consume my life and not allow the time it takes to focus on a future business.
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