Blog post: When You Were Born > Everything Else

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Rowan Oak
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Blog post: When You Were Born > Everything Else

Post by Rowan Oak » Fri Feb 14, 2020 8:00 am

if you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year.
When You Were Born > Everything Else

Posted February 13, 2020 by Michael Batnick
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Re: Blog post: When You Were Born > Everything Else

Post by MotoTrojan » Fri Feb 14, 2020 8:02 am

1960 would’ve been a truly incredible time to start investing, even if you didn’t beat the market by 5%. Now 1940 would’ve been a drag.

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JoMoney
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Re: Blog post: When You Were Born > Everything Else

Post by JoMoney » Fri Feb 14, 2020 8:14 am

Taking all your invested money out in the single year of 1980 would be silly, as is the idea that it was all contributed in the single year of 1960.
Someone who contributed regularly from 1960 to 1980, then began periodic withdrawals from 1980 forward would have had a wonderful result.

FWIW, I think when you die > everything else. If you pass early, all your savings and investment go to someone else to enjoy.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Blog post: When You Were Born > Everything Else

Post by CyclingDuo » Fri Feb 14, 2020 8:27 am

Rowan Oak wrote:
Fri Feb 14, 2020 8:00 am
if you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year.
When You Were Born > Everything Else

Posted February 13, 2020 by Michael Batnick
When one talks about "luck", including the time frame of when you were born does play into that regarding a lifetime of investing. As the article mentions, when we are born is something we cannot control. On the other hand, the part that we can control - our saving rate - is really what we should focus on during the decades of our accumulation years.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: Blog post: When You Were Born > Everything Else

Post by KlangFool » Fri Feb 14, 2020 8:39 am

OP,

If you save 1 year of expense every year, it won't matter where and when you were born. The saving rate is more important than anything else and it is totally under your control.

KlangFool

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Re: Blog post: When You Were Born > Everything Else

Post by firebirdparts » Fri Feb 14, 2020 8:48 am

So far so good. I mean, except for those 1970's haircuts. That was pathetic. But the rest of it was pretty good.

I hate to say this, but there is kind of a dumb assumption built into that otherwise colorful article. The dumb assumption is that for all these generations, market return investing was important. That's not at all true. It has just recently caught on. As far as I know, my parents never invested in index funds. That wasn't a thing for them.
Last edited by firebirdparts on Fri Feb 14, 2020 8:56 am, edited 1 time in total.
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Re: Blog post: When You Were Born > Everything Else

Post by Ari » Fri Feb 14, 2020 8:48 am

Alright, we have three contenders, so far:
  • When you were born
  • When you die
  • Your savings rate
I'll add one more:
  • Where you were born
If you're born in Somalia, chances are it doesn't matter if it's in the 60's or 80's. Though of course, an even more important factor is:
  • If you were born
In fact, and this fact will astound you, the combined wealth of people who never existed is less than the average wealth of people who do. Surely this is the most important factor.
All in, all the time.

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Re: Blog post: When You Were Born > Everything Else

Post by KlangFool » Fri Feb 14, 2020 8:54 am

Ari wrote:
Fri Feb 14, 2020 8:48 am
Alright, we have three contenders, so far:
  • When you were born
  • When you die
  • Your savings rate
I'll add one more:
  • Where you were born
If you're born in Somalia, chances are it doesn't matter if it's in the 60's or 80's. Though of course, an even more important factor is:
  • If you were born
In fact, and this fact will astound you, the combined wealth of people who never existed is less than the average wealth of people who do. Surely this is the most important factor.
Ari,

<<Where you were born>>

I disagreed. My family is spread all over the world. The saving rate overrules that too. It may take 2 to 3 generations. But, they still thrive and succeed.

KlangFool

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Re: Blog post: When You Were Born > Everything Else

Post by JoMoney » Fri Feb 14, 2020 9:01 am

Ari wrote:
Fri Feb 14, 2020 8:48 am
Alright, we have three contenders, so far:
  • When you were born
  • When you die
  • Your savings rate
I'll add one more:
  • Where you were born
If you're born in Somalia, chances are it doesn't matter if it's in the 60's or 80's. Though of course, an even more important factor is:
  • If you were born
In fact, and this fact will astound you, the combined wealth of people who never existed is less than the average wealth of people who do. Surely this is the most important factor.
Yes, but loss aversion suggests those that never had it are happier :P
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Blog post: When You Were Born > Everything Else

Post by Watty » Fri Feb 14, 2020 9:20 am

if you had invested from 1960-1980.....
It is really hard to compare investing between generations and that could be a topic of a Phd. thesis and not a short blog.

A couple of problems with the blog.

Even today most people cannot save much in their 20s and even early 30s.

I would suspect that the charts do not take inflation into account.

Inflation in 1980 was 13.58%. The cumulative inflation in the 1970s was 103% so you would have needed to make that much after taxes just to break even.

It was a bit later but my first mortage in 1986 was at 9.75% and I was very happy that I got a single digit mortage rate.

Investing before about 1980 was also very difficult since buying stocks would mean buying individual stocks or mutual funds would have involved using a full service brokerage usually with loads and high fees. Buying or selling stocks that were not a multiple of 100 shares was an "odd lot" which would cost a lot extra. Discount brokerages were just starting about then and index funds were in their infancy.

401ks were exceedingly rare until the late 1990's and IRA contribution limits were also very low until the early 2000's and many states did not give IRA deductions until around 1990.

Investing in taxable accounts was difficult since federal capital gains tax rates were as high as 40% and ordinary income tax rates could be as high as 70% during the 1960-1980 time period.

As bad as they look now with their high fees things like whole and universal life insurance could actually make sense back then because of the taxes and all the other options being even worse.

It is easy to discount the challenges that other generations face but it is easy to look at some other generation and think they had it easier than you.

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Re: Blog post: When You Were Born > Everything Else

Post by KlangFool » Fri Feb 14, 2020 9:35 am

Folks,

Some people believe that certain factors beyond their control are more important than anything else. For example, where you are born, when you are born and so on. Meanwhile, some people have family all over the world. They found that a high saving rate and devotion to education make them succeed and thrive all over the world. Those are the factors under our control.

You can either look at the glass as half empty or half full. I believe in maximizing the factors that are under my control and take my best shot in life. There are enough successful examples in my family that make me believe that it could work.

KlangFool

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Re: Blog post: When You Were Born > Everything Else

Post by Caduceus » Fri Feb 14, 2020 9:39 am

Rowan Oak wrote:
Fri Feb 14, 2020 8:00 am
if you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year.
When You Were Born > Everything Else

Posted February 13, 2020 by Michael Batnick
I think there's a strong argument to be made that if you're a value investor, you would find it easier to get rich if you were born any time earlier than compared to now, the earlier the better. When Ben Graham wrote Security Analysis, he could actually find companies trading at less than the value of their cash, net of their total liabilities. I mean, that is just amazing. I remember reading the book for the first time while working my night shifts at my part time job in graduate school and feeling so confused at what he was describing I didn't realize there were people standing in front of me!

I've only found one company like that in five years - it was trading at 30% of its tangible assets, with almost all its assets and liabilities marked-to-market. It hadn't made a loss in three decades of operation. I put more than 80% of my portfolio in that one stock and it earned 120% over 15 months (the timing was luck - I knew it was undervalued but I didn't know that the market would recognize it quite as quickly). I sold it when it reached 90% of its fair value. For two years, I outperformed Warren Buffett in all but the earliest years of his partnership :P

You would have found things like that everywhere in the 1960s or 1970s. Now, not so much.

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Re: Blog post: When You Were Born > Everything Else

Post by AlohaJoe » Fri Feb 14, 2020 9:48 am

Watty wrote:
Fri Feb 14, 2020 9:20 am
I would suspect that the charts do not take inflation into account.
It takes inflation into account.

I wouldn't have thought that "sequence of returns" or the volatility of the stock market would be controversial topics on Bogleheads.
Last edited by AlohaJoe on Fri Feb 14, 2020 9:50 am, edited 1 time in total.

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Re: Blog post: When You Were Born > Everything Else

Post by Kenkat » Fri Feb 14, 2020 9:49 am

End dates matter. A lot.

1980 = relative low point of the market
2000 = relative high point of the market

Plus, one does not simply just beat the market by 5% per year. Trailing by 5% is pretty easy, however. :wink:

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Re: Blog post: When You Were Born > Everything Else

Post by jsprag » Fri Feb 14, 2020 10:59 am

I'll add one more: to whom you were born

There's plenty of evidence indicating that the best environmental predictor of economic status and financial security as an adult is...the economic status and financial security of your parents when you were a child. Access to education, learned financial habits, elder care burdens, and wealth transfer set the stage for future income, savings rates, and even health care costs for decades. Starting conditions matter.

As far as behavioral factors, "savings rate" is, I think, only worth partial credit. More generally it is an ability to delay gratification. This captures not only deferring spending, but also deferring income now in exchange for proportionally greater income in the future.

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Re: Blog post: When You Were Born > Everything Else

Post by bligh » Fri Feb 14, 2020 11:06 am

KlangFool wrote:
Fri Feb 14, 2020 8:54 am

I disagreed. My family is spread all over the world. The saving rate overrules that too. It may take 2 to 3 generations. But, they still thrive and succeed.

KlangFool
Surely you are not saying that people born in Venezuela, North Korea or Syria wouldn't be starving if only they had a high savings rate. Before you can have a high savings rate, or any savings rate, you need to be earning something. Where you are born makes a HUGE difference in how much (or even whether) you earn, and therefore, a huge difference on how much you are able to save.

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Re: Blog post: When You Were Born > Everything Else

Post by CyclingDuo » Fri Feb 14, 2020 11:08 am

jsprag wrote:
Fri Feb 14, 2020 10:59 am
I'll add one more: to whom you were born

There's plenty of evidence indicating that the best environmental predictor of economic status and financial security as an adult is...the economic status and financial security of your parents when you were a child. Access to education, learned financial habits, elder care burdens, and wealth transfer set the stage for future income, savings rates, and even health care costs for decades. Starting conditions matter.

As far as behavioral factors, "savings rate" is, I think, only worth partial credit. More generally it is an ability to delay gratification. This captures not only deferring spending, but also deferring income now in exchange for proportionally greater income in the future.
Saving rate is very important. More than partial.

https://humbledollar.com/2019/09/show-me-the-money/
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: Blog post: When You Were Born > Everything Else

Post by KlangFool » Fri Feb 14, 2020 12:33 pm

bligh wrote:
Fri Feb 14, 2020 11:06 am
KlangFool wrote:
Fri Feb 14, 2020 8:54 am

I disagreed. My family is spread all over the world. The saving rate overrules that too. It may take 2 to 3 generations. But, they still thrive and succeed.

KlangFool
Surely you are not saying that people born in Venezuela, North Korea or Syria wouldn't be starving if only they had a high savings rate. Before you can have a high savings rate, or any savings rate, you need to be earning something. Where you are born makes a HUGE difference in how much (or even whether) you earn, and therefore, a huge difference on how much you are able to save.
bligh,

My family comes from a place where there were 800+ famines across 800+ years. So, I come from a culture where folks save money even when they starve. I know this because I starve regularly through childhood and my parents still save money.

KlangFool

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Re: Blog post: When You Were Born > Everything Else

Post by bligh » Fri Feb 14, 2020 1:08 pm

KlangFool wrote:
Fri Feb 14, 2020 12:33 pm

bligh,

My family comes from a place where there were 800+ famines across 800+ years. So, I come from a culture where folks save money even when they starve. I know this because I starve regularly through childhood and my parents still save money.

KlangFool
Your parents were saving money instead of feeding you as a child?

Sorry, but my priorities as a parent would be a bit different.

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Re: Blog post: When You Were Born > Everything Else

Post by KlangFool » Fri Feb 14, 2020 1:15 pm

bligh wrote:
Fri Feb 14, 2020 1:08 pm
KlangFool wrote:
Fri Feb 14, 2020 12:33 pm

bligh,

My family comes from a place where there were 800+ famines across 800+ years. So, I come from a culture where folks save money even when they starve. I know this because I starve regularly through childhood and my parents still save money.

KlangFool
Your parents were saving money instead of feeding you as a child?

Sorry, but my priorities as a parent would be a bit different.
bligh,

You weren't faced with a choice of starving a bit every day versus no food for many days. If you were given only those two choices, what would you do?

If you never starved, you have not faced abject poverty.

KlangFool

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Re: Blog post: When You Were Born > Everything Else

Post by Third Son » Fri Feb 14, 2020 1:21 pm

Rowan Oak wrote:
Fri Feb 14, 2020 8:00 am
if you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year.
When You Were Born > Everything Else

Posted February 13, 2020 by Michael Batnick
I started investing in 1983 so I hit it just about right.
"A part of all you earn is yours to keep" | | -The Richest Man in Babylon

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Re: Blog post: When You Were Born > Everything Else

Post by bligh » Fri Feb 14, 2020 1:33 pm

KlangFool wrote:
Fri Feb 14, 2020 1:15 pm
bligh,

You weren't faced with a choice of starving a bit every day versus no food for many days. If you were given only those two choices, what would you do?

If you never starved, you have not faced abject poverty.

KlangFool
You're right, I've never faced poverty of any sort actually, and I don't plan to, and if I can help it, my children wont either.

So, either you think I've never faced poverty (yet?) because I'm special some how or I was just better and smarter financially than people who were starving, or it was because I was luckier and more fortunate. I think it was because I was born in a good place, at a good time to decent parents. I could easily have been born to a starving family in Somalia during the Famine, or a poor family in Afghanistan or Venezuela. I would have a had a very different life. That was the point I was making.

The point of this thread was how much luck (ie. when you were born) plays a part in your investing career, and Ari was expanding on that to point out other factors in which luck also plays a part. I agree with him.

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Re: Blog post: When You Were Born > Everything Else

Post by KlangFool » Fri Feb 14, 2020 2:08 pm

bligh wrote:
Fri Feb 14, 2020 1:33 pm
KlangFool wrote:
Fri Feb 14, 2020 1:15 pm
bligh,

You weren't faced with a choice of starving a bit every day versus no food for many days. If you were given only those two choices, what would you do?

If you never starved, you have not faced abject poverty.

KlangFool
You're right, I've never faced poverty of any sort actually, and I don't plan to, and if I can help it, my children wont either.

So, either you think I've never faced poverty (yet?) because I'm special some how or I was just better and smarter financially than people who were starving, or it was because I was luckier and more fortunate. I think it was because I was born in a good place, at a good time to decent parents. I could easily have been born to a starving family in Somalia during the Famine, or a poor family in Afghanistan or Venezuela. I would have a had a very different life. That was the point I was making.

The point of this thread was how much luck (ie. when you were born) plays a part in your investing career, and Ari was expanding on that to point out other factors in which luck also plays a part. I agree with him.
bligh,

<<I could easily have been born to a starving family in Somalia during the Famine, or a poor family in Afghanistan or Venezuela. I would have a had a very different life. That was the point I was making.>>

So, conceptually, you could not comprehend or know of people that save and succeed in spite of being born in a bad place. This is where my family came from. A place where there were 800+ famines across 800+ years.

<<The point of this thread was how much luck (ie. when you were born) plays a part in your investing career, and Ari was expanding on that to point out other factors in which luck also plays a part. I agree with him.>>

If you are part of this group of people (savers), you would believe that luck has little to no part of being successful.

KlangFool

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Re: Blog post: When You Were Born > Everything Else

Post by jsprag » Fri Feb 14, 2020 3:10 pm

CyclingDuo wrote:
Fri Feb 14, 2020 11:08 am
jsprag wrote:
Fri Feb 14, 2020 10:59 am
I'll add one more: to whom you were born

There's plenty of evidence indicating that the best environmental predictor of economic status and financial security as an adult is...the economic status and financial security of your parents when you were a child. Access to education, learned financial habits, elder care burdens, and wealth transfer set the stage for future income, savings rates, and even health care costs for decades. Starting conditions matter.

As far as behavioral factors, "savings rate" is, I think, only worth partial credit. More generally it is an ability to delay gratification. This captures not only deferring spending, but also deferring income now in exchange for proportionally greater income in the future.
Saving rate is very important. More than partial.

https://humbledollar.com/2019/09/show-me-the-money/
Are we disagreeing? I can't tell.

Delayed gratification is an umbrella that includes consuming less today in order to save more for tomorrow, but it can also be about deferring consumption and savings today to invest in measures that will increase future income (i.e., through education) or reduce future costs. So if savings rate is more than partial, then delayed gratification is more than more than partial :wink:

I see your blog post, and raise you an academic study.

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Re: Blog post: When You Were Born > Everything Else

Post by firebirdparts » Sat Feb 15, 2020 9:36 am

I think if you really are going to drag this thread out as brutally as possible, we need to also argue about the starting environment effect being mostly genetic. I’m totally convinced already and I don’t want to burden the rest of you. :D
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Re: Blog post: When You Were Born > Everything Else

Post by oldzey » Sat Feb 15, 2020 10:31 am

Saver > Spender
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Re: Blog post: When You Were Born > Everything Else

Post by Dottie57 » Sat Feb 15, 2020 11:00 am

KlangFool wrote:
Fri Feb 14, 2020 9:35 am
Folks,

Some people believe that certain factors beyond their control are more important than anything else. For example, where you are born, when you are born and so on. Meanwhile, some people have family all over the world. They found that a high saving rate and devotion to education make them succeed and thrive all over the world. Those are the factors under our control.

You can either look at the glass as half empty or half full. I believe in maximizing the factors that are under my control and take my best shot in life. There are enough successful examples in my family that make me believe that it could work.

KlangFool
I so agree with this.

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Re: Blog post: When You Were Born > Everything Else

Post by longinvest » Sat Feb 15, 2020 11:18 am

I have control on choosing a sensible approach to save and invest money into a balanced portfolio, during accumulation, and combining lifelong income with withdrawals from the same balanced portfolio using a sensible approach, during retirement, regardless of when I was born. It's all under my own control. Here are links to the sensible approach I use:
Here are posts illustrating how this sensible approach would have worked for people born in various years: 1966 was one of the worst historical years to retire, 1982 was at one of the best, and 1989 was somewhere in between. The flexible VPW accumulation and retirement approach adapted to the vastly differing investment returns. This contrasts with the inflexible approach of savings 10% of salary during accumulation and withdrawing a fixed inflation-indexed amount equal to 4% of the retirement portfolio which bankrupted the 1996 retiree, and lead the 1982 and 1989 retirees to reduce spending during retirement and die with huge unspent portfolios.

The Bogleheads investment philosophy doesn't have a principle that says "Be born in the Right Year". Instead, its first principle is to Develop a workable plan, such as the plan I've outlined above.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

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Re: Blog post: When You Were Born > Everything Else

Post by manatee2005 » Sat Feb 15, 2020 11:26 am

I bad for kids graduating college now and having to invest their dollars at 30k dow and 10k Naz when a few years ago it was much cheaper.

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Re: Blog post: When You Were Born > Everything Else

Post by KlangFool » Sat Feb 15, 2020 11:42 am

manatee2005 wrote:
Sat Feb 15, 2020 11:26 am
I bad for kids graduating college now and having to invest their dollars at 30k dow and 10k Naz when a few years ago it was much cheaper.
manatee2005,

That is only a problem for people that are 100/0 in the US stock. They have zero diversification. Why do that?

KlangFool

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Re: Blog post: When You Were Born > Everything Else

Post by dharrythomas » Sat Feb 15, 2020 12:34 pm

KlangFool wrote:
Fri Feb 14, 2020 9:35 am
Folks,

Some people believe that certain factors beyond their control are more important than anything else. For example, where you are born, when you are born and so on. Meanwhile, some people have family all over the world. They found that a high saving rate and devotion to education make them succeed and thrive all over the world. Those are the factors under our control.

You can either look at the glass as half empty or half full. I believe in maximizing the factors that are under my control and take my best shot in life. There are enough successful examples in my family that make me believe that it could work.

KlangFool
+1

The problem is that both sides of the argument are 100% correct. In absolute terms, there are times when the wind is at your back and there are times when it is against you, times when it is easier to do well financially than others. There is a great deal of random chance involved in life, much we can’t control.

On the other hand, if you do well the things that you can control, you will do relatively better than those in your cohort that do not.

Just because I can’t control inflation, market returns, when I was born, how long I’ll live, etc. I should still live below my means and invest the savings in something with the chance of generating a positive return. Manage well what you can control!

Harry

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Re: Blog post: When You Were Born > Everything Else

Post by KlangFool » Sat Feb 15, 2020 12:57 pm

dharrythomas wrote:
Sat Feb 15, 2020 12:34 pm
KlangFool wrote:
Fri Feb 14, 2020 9:35 am
Folks,

Some people believe that certain factors beyond their control are more important than anything else. For example, where you are born, when you are born and so on. Meanwhile, some people have family all over the world. They found that a high saving rate and devotion to education make them succeed and thrive all over the world. Those are the factors under our control.

You can either look at the glass as half empty or half full. I believe in maximizing the factors that are under my control and take my best shot in life. There are enough successful examples in my family that make me believe that it could work.

KlangFool
+1

The problem is that both sides of the argument are 100% correct. In absolute terms, there are times when the wind is at your back and there are times when it is against you, times when it is easier to do well financially than others. There is a great deal of random chance involved in life, much we can’t control.

On the other hand, if you do well the things that you can control, you will do relatively better than those in your cohort that do not.

Just because I can’t control inflation, market returns, when I was born, how long I’ll live, etc. I should still live below my means and invest the savings in something with the chance of generating a positive return. Manage well what you can control!

Harry
dharrythomas,

You are what you believe.

<<On the other hand, if you do well the things that you can control, you will do relatively better than those in your cohort that do not. >>

Conversely, if you believe the factors beyond your control is more important, you will do nothing.

The good and bad thing about my family coming from a place with 800+ famines across 800+ years is

A) The world/environment is against your survival.

B) Even if you fight hard, you still may not survive.

C) If you do not fight hard, you would not survive for sure.

Those that survived after 800+ years are survivors and fighters. It is a process of elimination.

KlangFool

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