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Old 06-15-2020, 04:11 PM
 
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yes let's forget about income


How does the top 1% of American households hold almost as much wealth as the middle- and upper-middle classes combined yet only make about 20% of all dollars earned in America ?
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Old 06-15-2020, 04:16 PM
Status: "Biding my time." (set 17 days ago)
 
Location: Warwick, RI
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Quote:
Originally Posted by 1ondoner View Post
Bingo! He is assuming income is proportional to wealth.

One can own 10 multimillion dollar homes but if they are not being rented the wealth is not producing any income.
And the wealth behind those properties does does not actually exist if they are mortgaged, rather than purchased outright.


Income and net worth are two very different things. There are many people who earn high incomes, yet squander it on status symbols and when their debt is taken into account, have a very low net worth. There are also many people who earn much smaller incomes, who stay out of debt (credit cards, student loans, car payment, etc), pay off their mortgages early, save as much as they can and invest for the future, which in time results in a high net worth.


Now, when you combine people who earn high incomes AND stay out of debt, save and invest, that gets you to the 1%. I'm working on that myself, only minus the high income and with a late start due to the first 30 years of my life that I was a financial trainwreck.
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Old 06-15-2020, 04:20 PM
 
2,042 posts, read 519,230 times
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Originally Posted by jonbenson View Post
How does the top 1% of American households hold almost as much wealth as the middle- and upper-middle classes combined yet only make about 20% of all dollars earned in America ?
By doing so year after year, generation after generation, with ever-decreasing taxes on wealth and inheritance.
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Old 06-15-2020, 04:31 PM
 
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Originally Posted by Therblig View Post
By doing so year after year, generation after generation, with ever-decreasing taxes on wealth and inheritance.
Assets, ok
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Old 06-15-2020, 04:39 PM
 
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Richest 1% referring to net worth (because that's how "richest" is determined, not on income year-to-year) I have a theory.

It's one thing to have enough money to pay your bills.
It's one thing to have enough money to one day never return to work.
It's one thing to pay for your kids' college, wedding, and down payment on first house.

But it's quite another to be at a point where you haven't had to sell a single share of ANYTHING in the throes of a recession when we were shaken down with a one-two punch of mass job losses combined with a market correction.

That's why "the market is so good to the richest 1%".
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Old 06-15-2020, 06:09 PM
 
Location: Western Washington
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Originally Posted by jonbenson View Post
yes let's forget about income


How does the top 1% of American households hold almost as much wealth as the middle- and upper-middle classes combined yet only make about 20% of all dollars earned in America ?
Take three people.

One earns $25,000/year, has no degree or job specific skills. He is spending every dime he makes on rent and groceries. His parents are in a similar situation, so he will never inherit any money or get any family assistance in buying a house. In 10 years, he has no assets aside from personal clothing and an old junker car. Net worth: $5,000. By the time he retires, his net worth will be $5,000

The second person earns $80,000 a year. Has a degree from a decent school, and if she loses her job can get a comparable one. She has a house with a mortgage in a decent neighborhood, so she is building equity. She puts money into a 401k with a company match. Her parents have a similar profile, helped pay for her college, and gave her $25,000 for the down payment on a house. After 10 years of this, she owns 50% equity in a house worth $400,000, her 401k is worth $150,000, and she has $50k in other assets, for a total net worth of $400,000. Because her parents are in a similar position, she is likely to inherent $300,000 at some point in her life. By the time she retires, her net worth will be $1.5 million.

The final person earns $500,000 a year, which is the low end of top 1%. His parents paid for his college so he has no student loans, and he went into the family business with an initial salary of $250k. The rest of his $500,000 annual income comes from dividends he collects on stocks that were given to him by his grandparents. He lives in an apartment in San Francisco that is owned by a family trust, so he has no housing expense. He spends $200,000 a year, and invests the rest. As his parents are quite wealthy, at some point in his life he will inherit 20% of a thriving family business, some real estate, and stocks. Approximate value of this inheritance is $8,000,000. But in 10 years he will have built a personal net worth of $3,000,000 himself. By the time he retires, his net worth is going to be approximately $20 million. Most of this is inherited or increased value of capital assets that have not yet been taxed.

That is how the top 1% can earn relatively little, but own a lot. Obviously I have made the details up, and there are many more variations possible.
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Old 06-15-2020, 07:04 PM
 
4,923 posts, read 5,100,669 times
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Quote:
Originally Posted by jonbenson View Post
Ok maybe I would have titled it

Clear this up for me about the top 1% of wealth in America



anyway , this is the question


How does the top 1% of American households hold almost as much wealth as the middle- and upper-middle classes combined yet only make about 20% of all dollars earned in America ?

(see each article n the links on the OP) , thanks
Because the wealthiest Americans are largely not wage earners or at the very least the majority of their wealth does not come from their wages. Warren Buffett's annual income is $100k yet his NW is ~70 billion.
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Old 06-15-2020, 07:31 PM
 
1,713 posts, read 1,662,232 times
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Originally Posted by jonbenson View Post
Assets, ok
Yes. Wealth is assets, not income. The high income earners who don't spend it all but invest a portion of it in appreciating assets gain wealth as the assets appreciate. Some of those assets generate income, which they may or may not reinvest. If they continue to invest a portion of their high incomes, they will likely continue to grow their wealth.


The high income earners who spend it all do not form a part of the wealthiest cohort in terms of assets as all they have is income, not assets, though they might have inherited assets that form actual "wealth." If they are spending every cent of their high incomes, they will not be accumulating further wealth at the same rate as those who invest a portion of their high incomes except for what those inherited assets might earn. If they earn high incomes but spend it all and inherit assets but spend all of that, they will have no wealth at all, just income, which will only support their appearance of wealth as long as it continues.


It is also possible for working-class and middle-income earners to accumulate actual wealth through the same method: spending less than their full income and investing the rest in appreciating assets. It is likely that they will not accumulate as much wealth as the high earners do because they will have less to invest, but they will accumulate wealth beyond anything that others in their same earning bands who spend every penny will ever have.
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Old 06-15-2020, 08:04 PM
 
5,994 posts, read 1,766,929 times
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Originally Posted by jonbenson View Post
yes let's forget about income


How does the top 1% of American households hold almost as much wealth as the middle- and upper-middle classes combined yet only make about 20% of all dollars earned in America ?
Well, let's take Jeff Bezos, founder of Amazon, and perhaps the 2nd wealthiest person on the planet.
  • Jeff Bezos' most recent cash compensation for being CEO of Amazon was $81,840 and it hasn't changed in years.
  • Jeff Bezos does not receive stock options or RSUs or other stock compensation of any form, nor has he ever received stock compensation.
  • Jeff Bezos takes zero compensation of any kind for his role as Chairman of the Board.
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Old 06-15-2020, 08:25 PM
 
Location: Washington Park, Denver
8,082 posts, read 7,513,059 times
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Originally Posted by RationalExpectations View Post
Well, let's take Jeff Bezos, founder of Amazon, and perhaps the 2nd wealthiest person on the planet.
  • Jeff Bezos' most recent cash compensation for being CEO of Amazon was $81,840 and it hasn't changed in years.
  • Jeff Bezos does not receive stock options or RSUs or other stock compensation of any form, nor has he ever received stock compensation.
  • Jeff Bezos takes zero compensation of any kind for his role as Chairman of the Board.
Exactly.

OP, there are two distinct lists here: one of top earners and one of top wealth holders. These are very different lists.
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