If you're really rich you're probably not an index-fundi Boglehead

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CULater
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If you're really rich you're probably not an index-fundi Boglehead

Post by CULater » Sat Jan 27, 2018 11:00 am

Image

The composition of wealth ends up varying considerably between lower and higher net worths:

Primary Residence is the most important asset class for all net worth tiers up to $1 million.

For the $10k net worth tier, the value of a vehicle is more than investments such as pensions, IRAs, mutual funds, stocks, etc.

The proportion of directly-held stock increases up the tiers, and billionaires hold a significant portion of wealth in stocks.

Most multi-millionaires or billionaires are not liquid, and have most of their wealth in business interests.

http://www.visualcapitalist.com/chart-a ... ke-wealth/
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livesoft
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by livesoft » Sat Jan 27, 2018 11:08 am

Maybe if you are a really rich index-fund Boglehead you are not like others?
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Soon2BXProgrammer
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Soon2BXProgrammer » Sat Jan 27, 2018 11:16 am

average charts are hugely skewed....
i would argue that the average those show, mostly don't exist... or might reflect a really small percentage of the population..

have you ever looked at the "average filer metrics" for your tax bracket in turbo tax? those it has some whacky combinations... people that actually meet those averages are probably few and far between.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Broken Man 1999 » Sat Jan 27, 2018 11:32 am

Based strictly on what I have read in the various posts here, I believe many Bogleheads might be outliers on this holding:

Primary Residence is the most important asset class for all net worth tiers up to $1 million.


A Boglehead with a three fund portfolio might have more $$$$ in one or more of the three funds than their residence is valued.

Broken Man 1999
Last edited by Broken Man 1999 on Sat Jan 27, 2018 11:35 am, edited 1 time in total.
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Pajamas
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Pajamas » Sat Jan 27, 2018 11:34 am

Many of the very rich hold individual stocks as a form of ownership of public companies in which they are heavily involved. Gates, Buffett, Bezos, Zuckerberg, Carlos Slim, Ortega, Walton & Johnson families, etc. It's not surprising that they hold those individual stocks instead of mutual funds because involvement in those businesses is how they made their money in the first place.

I suspect that "business interests" in that graph includes such stocks. There is probably overlap in other categories, as well. For instance, Retirement (Pension/IRA) probably includes a lot of stocks and mutual funds.

So I would question the value of that graph without knowing more about the data it was created from.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by menlo » Sat Jan 27, 2018 5:10 pm

Pajamas wrote:
Sat Jan 27, 2018 11:34 am
I suspect that "business interests" in that graph includes such stocks. There is probably overlap in other categories, as well. For instance, Retirement (Pension/IRA) probably includes a lot of stocks and mutual funds.

So I would question the value of that graph without knowing more about the data it was created from.
Agreed. I assume "business interests" is defined to include controlling share holdings in public companies. But that should probably be included in the stock category.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by denovo » Sat Jan 27, 2018 5:13 pm

Pajamas wrote:
Sat Jan 27, 2018 11:34 am
Many of the very rich hold individual stocks as a form of ownership of public companies in which they are heavily involved. Gates, Buffett, Bezos, Zuckerberg, Carlos Slim, Ortega, Walton & Johnson families, etc. It's not surprising that they hold those individual stocks instead of mutual funds because involvement in those businesses is how they made their money in the first place.


So I would question the value of that graph without knowing more about the data it was created from.
+1
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by ulrichw » Sat Jan 27, 2018 5:16 pm

One of the weaknesses of wealth-based analyses is that wealth is heavily correlated with age.

An age-normalized comparison would remove some of the noise:
There's a big difference between the 22 year-old college who just started his/her first job and has a $10K net worth and the 65-year old working-class head of household who makes just enough to stay afloat. I think you may find differences in investment goals with these individuals, as well.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by denovo » Sat Jan 27, 2018 5:17 pm

Boy, the graph is really confusing too.

Why are retirement funds (IRA) , Stocks, Fixed Income, and Mutual Funds distinct categories? :shock:

That all should be lumped together under one category.
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by denovo » Sat Jan 27, 2018 5:19 pm

ulrichw wrote:
Sat Jan 27, 2018 5:16 pm

There's a big difference between the 22 year-old college who just started his/her first job and has a $10K net worth and the 65-year old working-class head of household who makes just enough to stay afloat.
This graph is only focusing on net worth, but let's go further. I'd be fine if I was 65 with only 10k to my name IF say I had $2,000 a month coming in from SS and a $5,000 monthly government pension. Net worth is not the only good proxy for financial well-being.
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by texasdiver » Sat Jan 27, 2018 7:46 pm

I expect that a great many of the uber wealthy, especially the recently uber wealthy are more or less stuck with their current asset allocation because it is primarily in the form of ownership interests in companies that they built or helped build. Someone like a Jeff Bezos or Elon Musk can't simply rebalance into index funds while at the same time maintaining any kind of controlling interest in their companies.

For most of us mortals, our wealth, such as it is, is more or less separate from our professional and personal lives. It's something that is just sitting there waiting until we retire. But Elon Musk? SpaceX and Tesla is who he is. He can't continue to be that guy without holding on to controlling interests in both companies.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by statman » Sat Jan 27, 2018 8:14 pm

From Warren Buffett's 2016 letter:

"The wealthy are accustomed to feeling that it is their lot in life to get the best
food, schooling, entertainment, housing, plastic surgery, sports ticket,
you name it. Their money, they feel, should buy them something superior
compared to what the masses receive."

"In many aspects of life, indeed, wealth does command top-grade products or
services. For that reason, the financial 'elites' -- wealthy individuals,
pension funds, college endowments and the like -- have great trouble meekly
signing up for a financial product or service that is available as well to
people investing only a few thousand dollars. This reluctance of the rich
normally prevails even though the product at issue is -- on an expectancy
basis -- clearly the best choice. My calculation, admittedly very rough,
is that the search by the elite for superior investment advice has caused
it, in aggregate, to waste more than $100 billion over the past decade."

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by heyyou » Sat Jan 27, 2018 10:30 pm

Most multi-millionaires or billionaires are not liquid
And why would those people need more cash? They can cover their expenses without needing to sell shares from either their businesses or their portfolios.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by MJS » Sun Jan 28, 2018 3:39 am

According to the chart, someone with $10k has a ~$3500 "primary residence." I assume this is a tree house in their parent's backyard.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by cheesepep » Sun Jan 28, 2018 5:50 am

The chart is mostly true regardless of how the readers here like it or or. If you are uber rich, you hold a lot of business assets and perhaps have your own company or a significant interest in one. As I’ve said before, to get rich you need stocks. To be filthy rich, you need to have your own business.

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privatefarmer
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by privatefarmer » Sun Jan 28, 2018 7:11 am

I’m not “really rich”, but I’m in my low 30s and on pace to be “really rich” by my mid 40s and that’s all due to my index funds.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by privatefarmer » Sun Jan 28, 2018 7:13 am

cheesepep wrote:
Sun Jan 28, 2018 5:50 am
The chart is mostly true regardless of how the readers here like it or or. If you are uber rich, you hold a lot of business assets and perhaps have your own company or a significant interest in one. As I’ve said before, to get rich you need stocks. To be filthy rich, you need to have your own business.
Risk vs reward. One way of becoming super poor is to also start your own business. My in laws found that out the hard way by opening up a grocery store and going under. A lucky few, who also are very talented, end up very wealthy via entrepeunrship but unfortunately many more go under.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Toons » Sun Jan 28, 2018 7:30 am

Broken Man 1999 wrote:
Sat Jan 27, 2018 11:32 am
Based strictly on what I have read in the various posts here, I believe many Bogleheads might be outliers on this holding:

Primary Residence is the most important asset class for all net worth tiers up to $1 million.


A Boglehead with a three fund portfolio might have more $$$$ in one or more of the three funds than their residence is valued.

Broken Man 1999

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Bacchus01 » Sun Jan 28, 2018 7:53 am

MJS wrote:
Sun Jan 28, 2018 3:39 am
According to the chart, someone with $10k has a ~$3500 "primary residence." I assume this is a tree house in their parent's backyard.

It’s net worth. Therefore it’s net of debt. That’s how much equity they have.

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Pajamas
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Pajamas » Sun Jan 28, 2018 10:16 am

MJS wrote:
Sun Jan 28, 2018 3:39 am
According to the chart, someone with $10k has a ~$3500 "primary residence." I assume this is a tree house in their parent's backyard.
That chart presents composite data based on wealth tiers. The chart doesn't seem to say exactly what numbers are being presented for the groups: median, mode, or something else. (Even the blog the chart was taken from doesn't say.) But it's clear that it is not presenting data on single individuals, just as no single family in the U.S. has 2.4 children even though that is supposedly the average.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Maverick3320 » Sun Jan 28, 2018 11:19 am

Pajamas wrote:
Sun Jan 28, 2018 10:16 am
MJS wrote:
Sun Jan 28, 2018 3:39 am
According to the chart, someone with $10k has a ~$3500 "primary residence." I assume this is a tree house in their parent's backyard.
That chart presents composite data based on wealth tiers. The chart doesn't seem to say exactly what numbers are being presented for the groups: median, mode, or something else. (Even the blog the chart was taken from doesn't say.) But it's clear that it is not presenting data on single individuals, just as no single family in the U.S. has 2.4 children even though that is supposedly the average.
I just assumed that the $3500 was the "net worth" of the house at that point in life (value - outstanding mortgage).

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Pajamas
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Pajamas » Sun Jan 28, 2018 11:28 am

Maverick3320 wrote:
Sun Jan 28, 2018 11:19 am

I just assumed that the $3500 was the "net worth" of the house at that point in life (value - outstanding mortgage).
It is really impossible to understand exactly what that chart represents. It only allows you to compare whatever it is that it is presenting between the groups, without knowing what the whatever actually is beyond the label.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by CULater » Sun Jan 28, 2018 12:58 pm

Pajamas wrote:
Sun Jan 28, 2018 11:28 am
Maverick3320 wrote:
Sun Jan 28, 2018 11:19 am

I just assumed that the $3500 was the "net worth" of the house at that point in life (value - outstanding mortgage).
It is really impossible to understand exactly what that chart represents. It only allows you to compare whatever it is that it is presenting between the groups, without knowing what the whatever actually is beyond the label.
I suppose if anyone is really interested, they can go to the source - the Federal Reserve Survey of Consumer Finances, which is cited in the linked article. But, that might be too much effort?

https://www.federalreserve.gov/econres/scfindex.htm
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Pajamas
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Pajamas » Sun Jan 28, 2018 2:00 pm

CULater wrote:
Sun Jan 28, 2018 12:58 pm

I suppose if anyone is really interested, they can go to the source - the Federal Reserve Survey of Consumer Finances, which is cited in the linked article. But, that might be too much effort?

https://www.federalreserve.gov/econres/scfindex.htm
Yes, that is too much trouble as a graph is supposed to make data easier to understand, not obfuscate it. So the graph or accompanying article at least should state what it is representing. Even the government website says the files contain both median and mean amounts of the various assets and the percentage of families in each bracket that hold them. It shouldn't be up to the reader to go the source of the data and download and analyze the files. It is much too much effort and defeats the purpose of a graph on a blog. Complete failure.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by CULater » Sun Jan 28, 2018 2:17 pm

Pajamas wrote:
Sun Jan 28, 2018 2:00 pm
CULater wrote:
Sun Jan 28, 2018 12:58 pm

I suppose if anyone is really interested, they can go to the source - the Federal Reserve Survey of Consumer Finances, which is cited in the linked article. But, that might be too much effort?

https://www.federalreserve.gov/econres/scfindex.htm
Yes, that is too much trouble as a graph is supposed to make data easier to understand, not obfuscate it. So the graph or accompanying article at least should state what it is representing. Even the government website says the files contain both median and mean amounts of the various assets and the percentage of families in each bracket that hold them. It shouldn't be up to the reader to go the source of the data and download and analyze the files. It is much too much effort and defeats the purpose of a graph on a blog. Complete failure.
Respectfully disagree. Blaming the website is misplaced, IMO. The website exists to feature the author's work creating visual representations, and does not have the purpose of examining or explaining the data represented in detail. It is up to the reader to go to the source of the data if the reader finds that he/she wants that information. People gripe about the damnedest things.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by cherijoh » Sun Jan 28, 2018 2:33 pm

Broken Man 1999 wrote:
Sat Jan 27, 2018 11:32 am
Based strictly on what I have read in the various posts here, I believe many Bogleheads might be outliers on this holding:

Primary Residence is the most important asset class for all net worth tiers up to $1 million.


A Boglehead with a three fund portfolio might have more $$$$ in one or more of the three funds than their residence is valued.

Broken Man 1999
If I did the same stacked bar chart, my split would be very different than the average for my net worth tier. I have no real estate besides my primary residence and no business interests. As a single person I have minimal life insurance - just what my company provides as part of my benefits package. My primary residence probably represents ~12% of my net worth and my one 7 yo vehicle well under 1%. The rest is cash equivalents, taxable and tax-advantaged retirement accounts.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Pajamas » Sun Jan 28, 2018 2:44 pm

CULater wrote:
Sun Jan 28, 2018 2:17 pm
Respectfully disagree. Blaming the website is misplaced, IMO. The website exists to feature the author's work creating visual representations, and does not have the purpose of examining or explaining the data represented in detail. It is up to the reader to go to the source of the data if the reader finds that he/she wants that information. People gripe about the damnedest things.
It's a very poor visual representation of the data and I would not trust the author to represent data visually based on that graphic. IMO.

"Respectfully disagree" and "People gripe about the damnedest things" are contradictory, by the way. Poor verbal representation. :beer

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by CULater » Sun Jan 28, 2018 2:49 pm

Pajamas wrote:
Sun Jan 28, 2018 2:44 pm
CULater wrote:
Sun Jan 28, 2018 2:17 pm
Respectfully disagree. Blaming the website is misplaced, IMO. The website exists to feature the author's work creating visual representations, and does not have the purpose of examining or explaining the data represented in detail. It is up to the reader to go to the source of the data if the reader finds that he/she wants that information. People gripe about the damnedest things.
It's a very poor visual representation of the data and I would not trust the author to represent data visually based on that graphic. IMO.

"Respectfully disagree" and "People gripe about the damnedest things" are contradictory, by the way. Poor verbal representation. :beer
Did you actually look at the data to determine that? I'm assuming that the author represented it accurately, but I'm too lazy to sort through the Federal Reserve stuff to make sure of that. If you do it, then I won't have to. :D
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Pajamas » Sun Jan 28, 2018 2:54 pm

CULater wrote:
Sun Jan 28, 2018 2:49 pm
Did you actually look at the data to determine that? I'm assuming that the author represented it accurately, but I'm too lazy to sort through the Federal Reserve stuff to make sure of that. If you do it, then I won't have to. :D
No, I did not want to download the files. The information on the graph is not surprising considering the vagueness. I would expected to have seen more stocks in the upper levels of wealth but that is probably due to issues already mentioned, such as "business interests" including stock of companies that the families have involvement in.

Also I would like to have seen what assets families with negative net worth hold, but debt is not accounted for in the graphs. The $0 to $10k tier is missing, too.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by cherijoh » Sun Jan 28, 2018 2:59 pm

CULater wrote:
Sun Jan 28, 2018 2:17 pm
Pajamas wrote:
Sun Jan 28, 2018 2:00 pm
CULater wrote:
Sun Jan 28, 2018 12:58 pm

I suppose if anyone is really interested, they can go to the source - the Federal Reserve Survey of Consumer Finances, which is cited in the linked article. But, that might be too much effort?

https://www.federalreserve.gov/econres/scfindex.htm
Yes, that is too much trouble as a graph is supposed to make data easier to understand, not obfuscate it. So the graph or accompanying article at least should state what it is representing. Even the government website says the files contain both median and mean amounts of the various assets and the percentage of families in each bracket that hold them. It shouldn't be up to the reader to go the source of the data and download and analyze the files. It is much too much effort and defeats the purpose of a graph on a blog. Complete failure.
Respectfully disagree. Blaming the website is misplaced, IMO. The website exists to feature the author's work creating visual representations, and does not have the purpose of examining or explaining the data represented in detail. It is up to the reader to go to the source of the data if the reader finds that he/she wants that information. People gripe about the damnedest things.
I work with data all the time for my job. At a bare minimum, the chart should have a footnote to say whether the percentages are based on mean or median. The tranches are extremely wide so it makes a huge difference!

I am constantly frustrated by the use of the word "average" in financial literature, when in fact the data may be the median. So unless it is explicitly stated, you have NO idea what is actually represented in a chart. Salary, net worth, and home values all tend to be skewed with the average considerably higher than the median. Medians are a lot more robust to outliers and are almost always the most appropriate metric.

I'll get off my soapbox now. :wink:

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by ThrustVectoring » Sun Jan 28, 2018 3:05 pm

Of course. Take a hundred people founding fifty startups, and you wind up with four multimillionaires, a few regular well-off folks, and the rest failed.

Putting a lot of eggs into the "business interests" basket is a recipe to either get really rich or fail. There's fewer outcomes near the mean compared to a Boglehead approach, which guarantees market-average outcomes.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by AndrewXnn » Sun Jan 28, 2018 3:14 pm

Keep in mind that the chart is illustrating net worth.

If somebody owns a home, but then owes on a mortgage of amount that is nearly equal to the home value then their net worth is very close to zero.

People with net worth's of <$10K, probably fit into this category.
Their average home equity could easily be only a few thousand dollars.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by JBTX » Sun Jan 28, 2018 3:24 pm

Largely a fun with graphs exercise.

A person with a million has roughly half of net worth tied up in all the equity/retirement and fixed income categories, or about $500k.

The billionaire visually looks to have about 20%, or $200 million - a lot more than $500k. That still a lot of room for index funds. It makes sense you don't get to a billion on index funds or just common investments (with Buffett being kind of an exception). Most people who are uber wealthly due to ownership stake in business.
Last edited by JBTX on Sun Jan 28, 2018 3:24 pm, edited 1 time in total.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by munemaker » Sun Jan 28, 2018 3:24 pm

This chart is not even close to our situation. We do not own any business interests, investment real estate, managed assets or life insurance. Our home and vehicles are a much, much lower percentage of our wealth than the chart depicts, a result of living below our means. Our fixed income and retirement are all mutual funds. The vast majority of our wealth is in mutual funds.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by staythecourse » Sun Jan 28, 2018 3:36 pm

Just curious if folks are surprised that they can't be worth 100+ million based on index fund investing? Isn't that obvious? The ONLY way to get to that level of wealth is either: Steal, marry, inherit, or start a business. That is it.

To make folks feel better though would be to do the same study and find out how many start up business folks end up with MORE wealth then a common Joe who invests the bogleheads way. That is more actionable then seeing Bill Gates or Zuckerberg and go, "Well there you go that is the path to being rich". Instead that is a classic selection bias. That was an inherent problem in Mr. Stanley's book. You can't look at those super wealthy and go they have x in common so just do x and you will be on of them.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Miakis » Sun Jan 28, 2018 4:00 pm

According to the chart, billionaires seem to have at least 20% of their wealth in liquid assets, including cash, stocks, and mutual funds. That seems pretty liquid. Why would they need more than 200 million dollars in liquid assets?

100 Millionaires look to have about 40% of their wealth in liquid assets. Again - how is 40 million dollars "not liquid."? What would they need more liquidity for?

It's true that they're not Bogleheads. According to this, the richer people get, the more individual stocks they own. Although at that wealth level, they could well be putting together a diversified portfolio that mimics an index fund.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by CULater » Sun Jan 28, 2018 4:12 pm

staythecourse wrote:
Sun Jan 28, 2018 3:36 pm
Just curious if folks are surprised that they can't be worth 100+ million based on index fund investing? Isn't that obvious? The ONLY way to get to that level of wealth is either: Steal, marry, inherit, or start a business. That is it.

To make folks feel better though would be to do the same study and find out how many start up business folks end up with MORE wealth then a common Joe who invests the bogleheads way. That is more actionable then seeing Bill Gates or Zuckerberg and go, "Well there you go that is the path to being rich". Instead that is a classic selection bias. That was an inherent problem in Mr. Stanley's book. You can't look at those super wealthy and go they have x in common so just do x and you will be on of them.

Good luck.
One way some people got to 100+ million based on index fund investing in 2008 was to have started with 200+ million in stocks. :annoyed
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Portfolio7 » Sun Jan 28, 2018 4:54 pm

Ironically enough, this describes us pretty well at 7 figures. We have a little less in Residence / Real Estate (we do have ownership interest in a second house that my fil lives in) and a bit more in Retirement/Mutual Funds/FI, even if you consider stocks as generic investments (since we don't have any solo stock investments), but we also have a business that's not going to make us bazillionaires but is growing ok so far.... so all in all it's surprisingly representative. I do expect we're the outliers though. A lot of businesses fail, and we've been lucky enough that hasn't happened to us, though the risks of business ownership become much more real as we worry about them (and work past them, so far.) Two thirds of our NW is in our tax advantaged accounts (401K and IRAs), rather than the roughly 50% "average")
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MoonOrb
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by MoonOrb » Sun Jan 28, 2018 5:05 pm

I don't want to be really rich, I just want to have a secure financial future and do my best to enjoy my life.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by inbox788 » Sun Jan 28, 2018 5:12 pm

MJS wrote:
Sun Jan 28, 2018 3:39 am
According to the chart, someone with $10k has a ~$3500 "primary residence." I assume this is a tree house in their parent's backyard.
There's no negative net worth tier. Some of the $3500 come from negative equity some homeowners have averaged out with those that have sufficient down payment. For apartment renters, it might include their furniture.

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Portfolio7
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Portfolio7 » Sun Jan 28, 2018 10:18 pm

MoonOrb wrote:
Sun Jan 28, 2018 5:05 pm
I don't want to be really rich, I just want to have a secure financial future and do my best to enjoy my life.
That's always been my point of view. Keep in mind security is usually pretty expensive. One thing I realized over the years is that I'd need to be what many people call rich in order to really achieve security. Especially once my (future) pension was slashed. On one hand I feel ridiculous thinking I need to be a multimillionaire to retire securely. I could be quite happy in a shack near a beach somewhere. However, when I consider the people depending on me, and the circumstances in their lives, and the independent input I have from financial sources, potential long term care needs, and current life spans... well, I seem to just barely be on track.
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by randomguy » Sun Jan 28, 2018 11:18 pm

inbox788 wrote:
Sun Jan 28, 2018 5:12 pm
MJS wrote:
Sun Jan 28, 2018 3:39 am
According to the chart, someone with $10k has a ~$3500 "primary residence." I assume this is a tree house in their parent's backyard.
There's no negative net worth tier. Some of the $3500 come from negative equity some homeowners have averaged out with those that have sufficient down payment. For apartment renters, it might include their furniture.
The problem with these things is they are an average. If you have 100 people and 99 own nothing and 1 owns a 300k house, they have an average house equity of 3k. I bet you find that people with ANY real estate or business interests tend to have well above those averages to counter act all the people that have zero. Especially in the sub 10 million category. I am will to bet that majority of the billionaires own a business of sometype:)

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by lazydavid » Mon Jan 29, 2018 6:26 am

MJS wrote:
Sun Jan 28, 2018 3:39 am
According to the chart, someone with $10k has a ~$3500 "primary residence." I assume this is a tree house in their parent's backyard.
A $100k primary residence on an FHA loan (3% minimum) would satisfy this scenario.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by alfaspider » Mon Jan 29, 2018 9:27 am

denovo wrote:
Sat Jan 27, 2018 5:19 pm
ulrichw wrote:
Sat Jan 27, 2018 5:16 pm

There's a big difference between the 22 year-old college who just started his/her first job and has a $10K net worth and the 65-year old working-class head of household who makes just enough to stay afloat.
This graph is only focusing on net worth, but let's go further. I'd be fine if I was 65 with only 10k to my name IF say I had $2,000 a month coming in from SS and a $5,000 monthly government pension. Net worth is not the only good proxy for financial well-being.
I'd say if you have a $5,000/month pension, that should be included in your net worth- it is an asset (a substantial one at that). While it's not a simple calculation, you can approximate the value by finding out what a single premium immediate annuity paying out that sum would cost you. Likewise, if you purchased an SPIA, I don't think it would make sense to say that your net worth decreased by the amount of the premium. Rather, you swapped a liquid asset for an illiquid one.

One could argue Social Security is a net-worth component, but since participation is mandated by law (and subject to changes in the law), attempting to value it is rather fraught.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Alkan » Mon Jan 29, 2018 9:41 am

MJS wrote:
Sun Jan 28, 2018 3:39 am
According to the chart, someone with $10k has a ~$3500 "primary residence." I assume this is a tree house in their parent's backyard.
Or, more likely a security deposit for a rental? Sometimes I feel that members of this board could show a little more respect for those living paycheck to paycheck.

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rocket354
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by rocket354 » Mon Jan 29, 2018 1:00 pm

As noted by others, the data is unclear what it is representing.

My guess is the tiers are the lower threshold. So the $10k tier is $10k-$99k, the $100k tier is $100k - $999k, etc.

Also, while it would definitely be nice to know if the proportions are median or mean, either way the amounts are plausible. Having a median/mean of 35% of your net worth in your primary residence at the lowest threshold isn't that hard to believe with mortgages, market fluctuations, and the fact that many people will have 0% at that level.

I found the chart illuminating, but ultimately it felt about right. For example, people who have bought a house but don't save much will be in the lower tiers and thereby have the biggest part of their net worth in their home and whatever car they drive. $200k house with $50k equity and a total net worth of $100k probably isn't all that atypical. People worth $10m likely don't own a home that is linearly proportional to those amounts: worth $20m with $5m equity. They have a nicer home than $200k, but I imagine in the vast majority of the cases it will account for a less percentage of their overall net worth.

Definitely an interesting chart. And validating.

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Pajamas
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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by Pajamas » Mon Jan 29, 2018 2:39 pm

rocket354 wrote:
Mon Jan 29, 2018 1:00 pm

the $10k tier is $10k-$99k
That is actually stated in the bottom left-hand corner of the full chart as shown on the blog.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by RAchip » Mon Jan 29, 2018 3:13 pm

"Why would they need more than 200 million dollars in liquid assets?"

Because if you are a billionaire you own a plane (or planes) many residences and have lots of staff and all of that produces a crazy cash burn.

I think you can put people with over $100mm in a different category. They have so much that what they do is not really relevant in my view. A better question in my mind is if you have $10-$50 million in investible assets, should you just put it in an index fund or should you put some or all in individual stocks. All those people had to do 10 years ago was buy some amazon and/or google 10 years ago and they would be ultra rich.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by MrPotatoHead » Mon Jan 29, 2018 7:51 pm

Based on life experience I would say this is pretty accurate. Since I do a lot of franchise consulting and asset disclosure is part of most zors application process, I know the finances of a lot of people in the 1-10M range. The old adage that you can't be rich because you pay to much in taxes seems to be true. Most of the higher net worth people I encounter have their wealth tied up in assets that allow them to control the distribution of income and not in retirement plans and mutual funds. There is also the thought that you concentrate your assets to build wealth and then diversify them in order preserve it, less represented in this article.

I think in the end, the generalized Boglelhead approach is not suitable for those trying to generate actual wealth (a number I alone define as a net worth of greater than 5 million by the time you are 50), but is suitable for those who aspire to be affluent in their 50s (1-4 Million). I note a lot of the Bogelheads whom post seem to have government pensions and healthcare packages, which likely will not be available to people going forward.

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Re: If you're really rich you're probably not an index-fundi Boglehead

Post by BigMoneyNoWhammies » Mon Jan 29, 2018 8:48 pm

Most very wealthy people (9 figure+ worth) either inherited their money or were incredibly lucky and made big scores by being entrepreneurial (the bill gates, mark cubans, and mark zuckerbergs of the world). I don't think there's really any investment strategy that's going to get you to ultra high net worth; one lifetime is just not enough time to accrue that kind of wealth absent a big leg up at the start from family money or blind luck.

Having said that, there are plenty of posters on here who have hit high 7 figure and even 8 figure net worths with a lifetime of solid saving.

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