How did the 1% get so rich? (refund, expenses, taxes, salary)
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Considering that $5 mil in 1960 is the mere equivalent of $38.8 million in today's dollars, no reason you couldn't get started now. Chump change.
But my example assumes that this person has almost zero investing knowledge and skill and just sticks the money into a stock market index and lets it ride.
Someone with actual investing knowledge can of course start with significantly less than that amount and still get to $100 million+ over that time period.
The person with actual investing knowledge would be more likely to put it in an index and let it ride. Empirical data has shown time and time again that this person will come out ahead in almost every case over one who believes they have the 'skill' to beat the market.
Quote:
Originally Posted by BigCityDreamer
But my example assumes that this person has almost zero investing knowledge and skill and just sticks the money into a stock market index and lets it ride.
Someone with actual investing knowledge can of course start with significantly less than that amount and still get to $100 million+ over that time period.
The inspiration for this thread started because I was curious on how Mitt Romney became so wealthy, so I looked it up and ran across this video on how private equities work (Bain Capital). From what I understand, a lot of his income is "investment income" and it came from capital gains. Since he had a lot of investment income, he could use the corporate tax write-offs, which is why he paid 14%. Compared to people like my parents who made $115k, and paid 22%.
So, if I'm understanding this correctly, is this how the 1% became so rich?
It's one factor, but not the whole deal.
For example, if he spent all that money he made, instead of investing it, he'd be high income, but not rich.
I strongly doubt that your parent paid 22%, unless they had really poor tax advice. The method used to show Mitt Romney paying only 14% took his taxes and divided them by his entire income. Assuming that your parents only took the standard deduction (no house, no kids, no retirement savings, no education savings or student loans, no charity gifts) they would have paid around $17,500 in taxes or 15%. Mitt Romney also gave a HUGE amount to charity, that is what dropped his rate down to 14% not some special tax write-offs. He used the exact same write-off that you, me and your parents can use.
^^This is very likely true^^. People confuse their marginal tax rate with their effective tax rate all the time.
Here's an interesting article on how Al Gore & Mitt Romney have similar net worths and how they got them. Gore's wealth was made much faster than Romney's:
Funny how Obama didn't raise taxes on the true wealth but instead increased taxes on upper middle class which is making it harder for every day people to build wealth. Obama is rich, so is Pelosi (32 million), and Reid (5 million). They didn't raise taxes on themselves.
Obama supporters who don't know the difference between income and wealth bought Obamas lie hook, line and sinker.
The inspiration for this thread started because I was curious on how Mitt Romney became so wealthy, so I looked it up and ran across this video on how private equities work (Bain Capital). From what I understand, a lot of his income is "investment income" and it came from capital gains. Since he had a lot of investment income, he could use the corporate tax write-offs, which is why he paid 14%. Compared to people like my parents who made $115k, and paid 22%.
So, if I'm understanding this correctly, is this how the 1% became so rich?
You make it sound like your parents weren't allowed to do the same thing. His income "came" from capital gains. Your parents' "came" from income. Your parents could have gone the same route as Romney, but chose not to.
His income also increased, because it was "investment" income. Your parents relied on "wage" income. Completely different strategies.
His incomes carried great risk. Your parents' did not. Romney benefited from the return on the risk. Your parents benefited from the safety of theirs.
normal brains are pre-programmed to hate losing money more than they like making it.
our brains will talk us out of most ventures by forcing us to believe our own bull-sh&t and most folks never act.
those that are successful learned to adopt ready fire aim as their method of operation.
modern brain imaging has shown that when we make hypothetical decisions with no pressure we make good even handed choices.
but as soon as stress and our own money is at or going to be at risk different parts of the brain are used to make those same decisions . that part feeds you with so many negatives eventually you make the wrong choice.
i was very lucky to have read jason zweigs book your money your brain before an opportunity presented itself to me to buy in to a real estate parnership .
i thought the rewards were really great for the amount a partner was asking as his buyout. only problem was we were buying into owning co-op apartments with rent stabilized tenants in a prestigious building over looking central park.
up to now tenants were not that anxious to accept lease buyout offers so the apartments could be sold at market prices so it was a waiting game that could span years or even decades.
i had to come up with 500k to buy in and i had a whole load of sleepless nights as my brain pounded me with all the negatives of the deal and the borrowing..
i was at least aware of the fact i was not getting even handed rational thoughts.
i bit the bullet despite the bull-sh*t my brain handed me and buying in was one of the greatest moves in my life. not only did we end up in ventures with one of the worlds great real estate moguls but the first sale of an apartment paid for the entire buy in.
successful people analyze and act with little dwelling ,thats how they do what they do, compared to the rest of the masses that never act.
the top 1% have that quality as well as usually more assets behind them for more and bigger deals.
our partner is a 1%'er .. the money just made him more money. while we were involved in a few deals our take was very different from his since we got a small share and he got the balance.
so even though we had the same thought process the combo of the thought process and asset base made him a 1%'er while we were not.
Last edited by mathjak107; 02-17-2014 at 08:13 AM..
The person with actual investing knowledge would be more likely to put it in an index and let it ride. Empirical data has shown time and time again that this person will come out ahead in almost every case over one who believes they have the 'skill' to beat the market.
come to think of it, if Mitt Romney got elected for president and did that with tax payers money, the US wouldn't have these debt problems. oh well, democracy had other plans (Obama).
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