Looking at top 1% for actionable insight

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richard
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Re: Looking at top 1% for actionable insight

Post by richard »

Wagnerjb wrote:
SeattleCPA wrote: For an "actionable insight" that applies to younger forum members wrestling with educational and career choices, for example, the fact the IRS's top one percent statistics show that big chunks of the one percent club own a small business (maybe 22%?) or own a slice of a professional services firm (again maybe 22%?) or own a farm (nearly 11%) seem pretty relevant. (Heck maybe that info even tips the scales for recent posters asking about getting an MBA!) :happy
The "actionable insight" is to choose a very challenging profession (law, medicine, possibly MBA) that has a high barrier to entry in that it takes a certain amount of intelligence, dedication and money to get into and through those graduate schools. You have to do very well in your education in order to get hired by the top firms. Once you get into the top firms, you have to succeed in a very demanding environment. If you make it to the top levels of your profession (maybe partner in a law or accounting firm, maybe Vice President of a large company), you are likely to have earnings that classify you in the top several percent.
Choosing a lucrative profession with government enforced barriers to competition (e.g., law, medicine, accounting) or government subsidies (e.g., finance) is a good first step. Add being bright, personable, driven and lucky.
Wagnerjb wrote:Being a Boglehead and being smart about your investments won't get you there. Being a very frugal person won't get you there. You need the "offense" to score a lot of points (high earnings) as well as the "defense" to prevent yourself from spending it all.
Yes
Wagnerjb wrote:You can be extremely intelligent, dedicated and hardworking but if you choose a profession that the economy doesn't have a high value for (more supply than demand), you won't earn 1% wages. For many people, it is more important to be happy and thoroughly enjoy their work....and that is perfectly fine. Those people aren't jealous or resentful of the top 1% since they made the decision to work in a certain profession for which there is less demand.
Resentfulness seems to arise from seeing those who do very badly at their chosen career (e.g., those in finance who nearly bankrupted their companies and did grave damage to the world economy) receive massive payments.

The economy often changes its mind about which profession to value.
Wagnerjb wrote:I don't think the small business track is any more likely to pay off. There are an awful lot of small business failures (or those that generate a modest income - and long hours - for the owner). A lot of accountants won't ever be a partner at Price Waterhouse, and a lot of small business people won't make the top 1% either.
Agreed again. Many people see rich small business owners but don't see all the failed small businesses.
DFAMAN
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Re: Looking at top 1% for actionable insight

Post by DFAMAN »

It is amazing to me how many people who have "won the lottery" (in a sense) by being fortunate enough to land in extremely highly compensated jobs (and who clearly are in the 1%) end up not accumulating great wealth due to the failure to play even a modest amount of "defense." I am in a position (Biglaw partner) where I observe many, many extremely high income colleagues (compensation above the 7 figure mark per year, in many cases) who won't get close to the higher levels of the net worth range ($10 mill or so) even after a long career - or at least unless and until they work well into their 60's. The norm is for the spending to ratchet up to consume much of the compensation level ($1.5mm-plus home, vacation house in Snowmass, several luxury cars, multiple foreign trips each year, extremely expensive private schools for the kids, etc). I have found that, at income levels like these, you can have anything you want, but you can't have everything that you (or your spouse or kids) might want, especially if those "wants" are based on the lifestyles of your peers. You can send the kids to private school, live in a very nice house (but not a mansion), go to Europe once a year and drive the BMW, but you need to figure out up front how much you want to save each year and then stick to it. You spend what's left over. Somebody making this kind of money can spend enough of his or her income to live what most would consider an extremely luxurious lifestyle and yet be worth close to $10 million by age 50. Really amazes me how most seem not to do that - jobs that pay this kind of money are never secure (even in Biglaw), so a failure to play some modest defense will create a big lifestyle risk.

I also am surprised by how difficult it is to convince my colleagues to consider passive investments with low-cost advisors for what money they do invest.

Not actionable for many, I realize - but clearly actionable for those in this income range.
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Wricha
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Re: Looking at top 1% for actionable insight

Post by Wricha »

Once heard a story about an American farmer and a Russian farmer. The American farm had 4 cows and he looked out at his neighbor's field and saw he had 5 cows. He said to himself I going to find out how my neighbor got 5 cows and do the same thing. The Russian farmer also had 4 cows as he looked out at his neighbor field he saw he had 5 cows . He said I wish one of my neighbor's cow would die. :happy
Good luck bad luck not sure but attitude is in there somewhere .
cowboysFan
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Re: Looking at top 1% for actionable insight

Post by cowboysFan »

Wagnerjb wrote: The "actionable insight" is to choose a very challenging profession (law, medicine, possibly MBA) that has a high barrier to entry in that it takes a certain amount of intelligence, dedication and money to get into and through those graduate schools.
I don't think we should assume graduates of top MBA programs are highly intelligence. The 2008 financial crisis demonstrated that many of those graduates are stunningly incompetent.
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SeattleCPA
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Re: Looking at top 1% for actionable insight

Post by SeattleCPA »

Wagnerjb wrote:I don't think the small business track is any more likely to pay off... A lot of accountants won't ever be a partner at Price Waterhouse, and a lot of small business people won't make the top 1% either.
You can look up the number of partners at a big firm... and it's probably several thousand... I haven't looked at the PWC website recently enough to remember. But there are I think tens of thousands of solo practice CPA firms who do just fine, enjoy their work, and will accumulate very nice nest eggs if they're good about using something like a SEP.

Actually, you know what? That's not strong enough. I know the foregoing to be true. Further, anyone who is interested can confirm by googling on "AICPA MAP survey"
Richard wrote:Agreed again. Many people see rich small business owners but don't see all the failed small businesses.
Business failure rates really vary by industry. In some categories, the failure rate is very high. In others, you're basically guaranteed to succeed. BTW, I'm quite comfortable recommending small business ownership to my kids and nieces and nephews. But people feel differently about the risks. I understand that the route isn't the right one for everyone.

I again make this point: I think we may be talking about a different one percent... the IRS study talks about one percent in wealth... that's something over or around $2M. You can get there with thirty thirty-five years of good sized contributions and common-sensed investing. You're right that most people don't. But the math is pretty irrefutable.

What I think is happening here (and maybe subconsciously) is that people are confusing the top one percent in income with the top one percent in wealth.
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Nestegg_User
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Re: Looking at top 1% for actionable insight

Post by Nestegg_User »

from the above post/joke about farmers...(it reminded me)

If we think about the vast numbers of fairly large farms and ranches... the land alone could easily be two mil, especially in Cali, Iowa, and other good farming areas...that makes me suspicious that the entry point is so low (2 million)
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Wricha
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Re: Looking at top 1% for actionable insight

Post by Wricha »

Sorry did not mean it as joke about farmers I meant as an actionable item about perspective / attitude.
cowboysFan
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Re: Looking at top 1% for actionable insight

Post by cowboysFan »

SeattleCPA wrote: I again make this point: I think we may be talking about a different one percent... the IRS study talks about one percent in wealth... that's something over or around $2M.
According to here, http://blogs.wsj.com/wealth/2012/03/21/ ... by-200000/, there are about 1.1 million households with a net worth of above $5M excluding their primary residence in a country with around 115 million households. The IRS data sounds low, especially if that $2M includes their house.
avalpert
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Re: Looking at top 1% for actionable insight

Post by avalpert »

richard wrote:SeattleCPA,

A major problem with looking at people who've done very well and studied what actions they have taken is that you're ignoring all those who have taken those actions but have not done very well.
Exactly, it is classic lazy 'best practices' - find someone who succeeded ask them what they did and viola you have a best practices. Never mind that 20 others did the exact same thing and failed...
avalpert
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Re: Looking at top 1% for actionable insight

Post by avalpert »

HomerJ wrote:
surfstar wrote:"Money can't buy happiness"
I don't know about that... I've never seen anyone sad while riding a jetski.
I have seen people sad while desperately trying to hold on to a runaway jetski - does that count?
avalpert
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Re: Looking at top 1% for actionable insight

Post by avalpert »

cowboysFan wrote:
Wagnerjb wrote: The "actionable insight" is to choose a very challenging profession (law, medicine, possibly MBA) that has a high barrier to entry in that it takes a certain amount of intelligence, dedication and money to get into and through those graduate schools.
I don't think we should assume graduates of top MBA programs are highly intelligence. The 2008 financial crisis demonstrated that many of those graduates are stunningly incompetent.
Every year I interview dozens upon dozens of top MBA program graduates who all think they are qualified for top tier consulting jobs - I assure you there is no guarantee that someone with a degree from a top MBA is even of average intelligence.

As for lawyers - as many graduates these days can attest to spending a lot on a law degree does not guarantee a job requiring a law degree.
tacster
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Re: Looking at top 1% for actionable insight

Post by tacster »

avalpert wrote:
HomerJ wrote:
surfstar wrote:"Money can't buy happiness"
I don't know about that... I've never seen anyone sad while riding a jetski.
I have seen people sad while desperately trying to hold on to a runaway jetski - does that count?
I've seen people sad after crashing a borrowed jetski into a dock. I think that counts. :oops:
INSERT PITHY QUOTE HERE
asterix0
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Re: Looking at top 1% for actionable insight

Post by asterix0 »

I think being in the top 1% is mainly luck but you can do things to increase the likelihood you will be lucky. One way is to take as much math as possible. Even in non-mathematical occupations, the reasoning ability mathematics give you will serve you well.
OutOfCyan
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Re: Looking at top 1% for actionable insight

Post by OutOfCyan »

asterix0 wrote:I think being in the top 1% is mainly luck but you can do things to increase the likelihood you will be lucky. One way is to take as much math as possible. Even in non-mathematical occupations, the reasoning ability mathematics give you will serve you well.
I have to respectfully disagree with the part about luck. Waiting for big bags of money to rain down upon us is an exercise in futility.

With regard to the top 1% of wealth, in all the reading that I've done, a disproportionately small number of people become wealthy due to luck. Most people get there by one of four ways:
  1. Developing a product or service which makes them rich, starting a franchise that accomplishes this, etc. This usually puts them in the top 0.1%. Think Gates, Jobs, Zuckerberg.
  2. Becoming a top-tier business leader, such as a CEO/COO/CFO at a giant corporation and having the inclination to save.
  3. Working in the financial services industry and siphoning money off of day traders and other people who fallaciously think they're being opportunistic.
  4. Taking the Boglehead approach.
Some people are born into wealth. I'd like to ignore them; my concern is how people can transition from non-wealth to wealth, whereas those born into wealth don't have to make that transition.

Few of us will invent a revolutionary product or service that will make us rich. Few of us will lead large corporations. Few of us will work in the financial services industry at a level that will allow us to accumulate vast wealth at the expense of others.

We are the biggest factor in our accumulation of wealth. We choose the car we drive. We choose the lifestyle we live. We choose whether to save or to spend. We choose whether to spend our earlier years traveling or working. There's a balance when it comes to saving and spending, enjoying life and running the rat race. You're the one that will tip the scales in favor of too much slacking off or too much career dedication.

Some people start out with a leg up on the competition. Many of them live unsustainable lifestyles and the wealth is gone within a generation. When the cash stops flowing, it's all over and they're eating canned cat food like all the other people who didn't prepare for the day the faucet would run dry. The principles are no different whether you make $50K/yr or $500K/yr.

There are many others who start out from households with little means and end up able to retire to a comfortable lifestyle which -- while not rich -- permits them the privileges of the wealthy 1%. If you're working a job where you can earn $50K/yr and have the discipline to save and invest, discipline will allow you to enter the ranks of the 1%. Getting rick via "luck" is a lie sold to us to placate the masses in the face of extreme economic unfairness. You will fare far better trying to thrive in the existing corrupt framework than trying to change it or hoping to win the lottery.

You are the biggest determinant in whether or not you're eating Alpo at 60. I don't buy into a lot of what Covey had to say, but do focus on the things within your sphere of influence and don't worry too much about everything else. Believing that you're not in control of your destiny allows external forces to have greater control over you and is thus detrimental to your well-being.

The biggest lesson I've taken from the 1% is that they didn't fritter their money away on extravagant purchases. You can be a multimillionaire and drive a 328i. The real trick is setting realistic goals and having the discipline to follow through on them. It takes more discipline than the vast majority of people have. How many people do you know that are not in shape? Do you think they don't know what's required to get to the finish line? Or is it a matter or not having the willpower to follow the steps needed to achieve their goal?

I personally find financial fitness to be a much easier goal to achieve. It only takes an hour or two per week. My boss goes to the gym for 5-7 hours per week and is on the "snake diet" of 1 meal per day, yet he struggles to keep the weight off. You don't have to be a miser to amass wealth, but it does take discipline. I've watched as my money has started to work for me; it's a much tighter feedback loop than hitting the gym up 5 times per week or waiting for results from the elliptical.
freddie
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Re: Looking at top 1% for actionable insight

Post by freddie »

You need to define luck. I know I have worked very hard to get where I am but the luck of being born white, to middle class parents who stressed educations, having a top 5% IQ, and so on probably played as big of role in ending up where I did as the did the work ethnic. And I will not even go into the random choices I made (the reason grad school a versus b was not because of anything I could have predicted) that allowed me to end up where I am today. No I am not going to pretend those choices I made are the difference between being worth 5 million and homeless but the difference between 500k and 5 million is definitely possible. And heck some of the choices I didn't make are the difference between 5 million and 10 million.
OutOfCyan wrote:
asterix0 wrote:I think being in the top 1% is mainly luck but you can do things to increase the likelihood you will be lucky. One way is to take as much math as possible. Even in non-mathematical occupations, the reasoning ability mathematics give you will serve you well.
I have to respectfully disagree with the part about luck. Waiting for big bags of money to rain down upon us is an exercise in futility.
asterix0
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Re: Looking at top 1% for actionable insight

Post by asterix0 »

I think there is a distribution of incomes determined by the laws of property acquisition and ownership. If you rank income from r1 to rn (highest to least income), a fairly large number of people are equipped to fill each slot. Of the set of individuals eligible to populate a range of incomes, those with higher ranks have had more luck.
basspond
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Re: Looking at top 1% for actionable insight

Post by basspond »

Financial success is like a relationship. A lot fail because most are driven by emotion. But they both take hard work, ability to forget but learn from mistakes, do not covet, and a commitment from day one to do whatever it takes to make it work.

A kid came up to our door a couple of years ago selling magazine subscriptions. After I bought one from him he said I was lucky to live in a nice neighborhood. I explained to him it wasn't luck that I had to and did all sorts of jobs on the farm, getting good grades in school, working hard at my job for 20 years, and always saved before I spent.
Tonen
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Re: Looking at top 1% for actionable insight

Post by Tonen »

My take on smart vs lucky, and wealth.

Wage and salary earners that work hard, and are smart, disciplined and prudent can make it to the top with a reasonably narrow variance of expected outcomes, depending on their field of endeavour (= the work hard * smart paradigm). They are unlikely to be bankrupt, nor to be mega-millionaires.

Entrepeneurs that work hard, and are smart, disciplined and prudent can make it to the top with a huge variance of expected outcomes depending on the success or failure of their scalable outputs (= the work hard * lucky paradigm). They are at risk of bankruptcy, but aspire to be mega-millionaires.

Actionable? I guess it depends how lucky you feel.
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jmndu99
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Re: Looking at top 1% for actionable insight

Post by jmndu99 »

Serious question: Do those 1% hire a financial adviser and pay said advisor 1%?
sd94070
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Re: Looking at top 1% for actionable insight

Post by sd94070 »

Here would be my take -- my lucky 14.

1) Read "The Millionaire Next Door" 3 times in a row. Think long and hard about every lesson and nuance in this book.

2) Read "Think and Grow Rich" 10 times in a row. Get an audio book version and listen to it during every spare moment you have. Recognize and use the power of your mind. Don't be cynical and dismissive of sources of personal development. Exercise your brain and take action. Extra credit to those who find and watch the old and cheesy Napoleon Hill videos on YouTube. Oh heck, just go here: http://www.youtube.com/playlist?list=PL7E091337C8291FE7 -- And again, lose the snarkiness and cynicism.

3) Get married. Make sure both you and your spouse positively support and challenge each other in a loving and supporting way.

4) Don't get divorced.

5) Don't get arrested or sued.

6) Challenge yourself continuously.

7) Recognize, understand, and maximize your key strengths. Focus less on weaknesses but address any that could be career busting.

8) Kill your television and wean yourself from needless "entertainment." (Unless you have a way of converting time spent watching "Dancing with the Stars" into making more money). You are allowed to subscribe to a couple of online music services like Spotify. Music can stimulate your brain. Oh, and throw in a Netflix and Hulu Plus subscription if you must, but no cable/satellite. If you can't wean yourself from typical TV, get an old school antenna put on your roof.

9) Save AT LEAST 25% of net income. Ideally shoot for twice that. Repeat after me: "DELAY OF GRATIFICATION."

10) Keep your investing strategy as plain dead simple as possible and give no sway to EMOTION. That means having a STRATEGY. Recognize that cash is your riskiest investment.

11) If you don't own your own business, seek rewarding sales positions and/or positions in high growth industries. I've been associated with tech since 1988. My base salary hasn't grown much in the last 10 years but is up about 9X since 1988. My wife's base salary is up about 10X during the last 20 years. We're just middle managers doing our thing -- my wife better so than me. We've never had any big payouts -- just continual progress -- and of course some setbacks here and there. Somebody else mentioned Jobs, Zuckerberg, and Gates. Just go work at those companies (or their ilk) and if your spouse is doing the same......

12) When you make it to the top 10%, scream loud F bombs in violent appreciation of yourself and chest bump everyone on your street. And then give $1000 on the spot to your favorite charity. This is an instant THANK YOU to the world -- on top of you already being a wonderful and giving person.

13) Get and stay in good physical shape. I'm currently 20 pounds overweight (based on BMI). That is unacceptable on multiple fronts. Your physical and mental health are the core of your pyramid. And yes, image is critical, particularly as you become more (ahem) seasoned.

14) Internalize what outofcyan wrote. Good wisdom there.
Last edited by sd94070 on Sun Apr 20, 2014 5:16 pm, edited 1 time in total.
sd94070
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Re: Looking at top 1% for actionable insight

Post by sd94070 »

jmndu99 wrote:Serious question: Do those 1% hire a financial adviser and pay said advisor 1%?
In our case, no.
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Zabar
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Re: Looking at top 1% for actionable insight

Post by Zabar »

jmndu99 wrote:Serious question: Do those 1% hire a financial adviser and pay said advisor 1%?
From my experience with the very wealthy (a.k.a. "whales" in the parlance of investment advisers), they pay more than 1% for questionable guidance into "sophisticated" investments. This also goes for organizations that invest large endowments.

When I ran a large nonprofit, the board insisted on using multiple layers of fund-of-fund advisers, hedge fund advisers and the like. It drove me nuts, but was out of my control.
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jmndu99
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Re: Looking at top 1% for actionable insight

Post by jmndu99 »

Thank you for you input sd....

Zabar, also thank you. From what you wrote I glean that those who do are a very tiny slice of the 1%'ers.
Zabar wrote:
jmndu99 wrote:Serious question: Do those 1% hire a financial adviser and pay said advisor 1%?
From my experience with the very wealthy (a.k.a. "whales" in the parlance of investment advisers), they pay more than 1% for questionable guidance into "sophisticated" investments. This also goes for organizations that invest large endowments.

When I ran a large nonprofit, the board insisted on using multiple layers of fund-of-fund advisers, hedge fund advisers and the like. It drove me nuts, but was out of my control.
KlangFool
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Re: Looking at top 1% for actionable insight

Post by KlangFool »

Folks,

This is my personal opinion and observation.

1) In general, there are very few people in the world that are either

A) So lucky that they will succeed regardless of what they do

B) So unlucky that they will fail regardless of what they do.

2) So, to most of us, we have strengths and weaknesses. And, we can be unlucky and lucky at times.

3) So, the path to succeed is to utilize our strength and avoid our weakness by our vocation and business.

4) Save and invest when we are lucky.

5) Use our savings and investment to keep us survive when we are unlucky.

In summary, most of us have some amount of strength, talent, and luck. It is a question of what we do with it that determine how well we turn out.

Look at all those lottery winners that went bankrupt later. A person may have the luck but may not have the capability and ability to use it wisely.

When things gone bad, it will not last. Ditto, when it went well, it will not last either. It goes in cycle.

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