10 reasony you/i arent rich.

[alocispepraluger102]

Yes, and exchange-traded funds are generally a decent way to go, *if* you are interested in trading in funds rather than individual stocks. I realize a lot of this comes down to individual preferences/risk tolerance, but I'm still fairly firm in my personal views.

my lack of stock knowledge would kill me trying to do that.

I realize a lot of people don't have the time to devote to learning the markets, which is why my initial comment on this topic was a bit arrogant.

I have to say that it is a little frustrating to me that a lot of stock prices are now driven more by funds that they belong to than fundamental valuation!

and now people trade funds as if they were stocks. much of this has to do with the way many of them are marketed.

wonder how many funds quietly went out of business last year? they wont likely appear on any roster of poor performers.

Edited March 24, 2007 by alocispepraluger102

[porcy62]

Yes, and exchange-traded funds are generally a decent way to go, *if* you are interested in trading in funds rather than individual stocks. I realize a lot of this comes down to individual preferences/risk tolerance, but I'm still fairly firm in my personal views.

my lack of stock knowledge would kill me trying to do that.

I realize a lot of people don't have the time to devote to learning the markets, which is why my initial comment on this topic was a bit arrogant.

I have to say that it is a little frustrating to me that a lot of stock prices are now driven more by funds that they belong to than fundamental valuation!

Does it depend on the broading market? I mean that now you can buy stocks from Pacific Area as well from East Europe. Since the Financial Market became so huge, nobody has the global knowledge of it, not even the "experts". So funds are the easiest and safer way to go also for banks and they sell funds so they have an earning anyway. Am I wrong?

[Eric]

To turn this around - the best way to become a millionaire - is to own part or all of a business. There are no guarantees - I am sure Chuck will attest to that. But working for the man - without a share of the business - will at best lead to a reasonable level of comfort.

Depends on the field. Plenty of people from my grad program went on to wall street and became millionaries very quickly.

I agree completely.

[J Larsen]

Yes, and exchange-traded funds are generally a decent way to go, *if* you are interested in trading in funds rather than individual stocks. I realize a lot of this comes down to individual preferences/risk tolerance, but I'm still fairly firm in my personal views.

my lack of stock knowledge would kill me trying to do that.

I realize a lot of people don't have the time to devote to learning the markets, which is why my initial comment on this topic was a bit arrogant.

I have to say that it is a little frustrating to me that a lot of stock prices are now driven more by funds that they belong to than fundamental valuation!

Does it depend on the broading market? I mean that now you can buy stocks from Pacific Area as well from East Europe. Since the Financial Market became so huge, nobody has the global knowledge of it, not even the "experts". So funds are the easiest and safer way to go also for banks and they sell funds so they have an earning anyway. Am I wrong?

Edit: sorry, I misread you the first time. If you want to diversify into an area that you are not familiar with, sure, go with funds. I personally am not that interested in diversification in general. I only invest in what I know.

I'm not 100% sure what the banks are doing for their own investments, but I do know that large financial institutions do a lot of stock picking. Also, the big firms have experts all over the world, so they do have "global knowledge".

Edited March 24, 2007 by J Larsen

[Brownian Motion]

Also , to be rich you have to BUST your ASS.

Or, you could just inherit the money as so many of the fuckheads today have. Grandpa busted his ass so William Jr. and his kids would never have to work.

My favorite is to be an incompetent executive, drive a company into the ground and still collect a ridiculous amount of money, get fired, collect even more money and never have to do a fuckin' thing ever again.

Seriously, busting your ass is still a key ingredient for most, I know.

How about being an incompetent executive, collecting ridiculous amounts of money, becoming Governor of Texas and then President, and then running a large and prosperous country into the ground.

Of course it could never happen...

Edited March 24, 2007 by Brownian Motion

[Big Wheel]

Going back to the original post, it seems to me that most of the ten reasons are "things you should avoid doing so you don't become poor," rather than "things that are sufficient for helping you become wealthy." Even the best savings and investment in the markets won't get you *rich* - the markets are structured in a way that even the best-performing funds only can consistently garner you 15% or so a year. To get truly rich, you need to either:

1. Do something very very risky (invest in risky things like futures, or in more conventional instruments by buying on margin, or just throw all your eggs in one basket on a risky but very high-potential stock). Then again, as J Larsen notes, if you know a field really well you can probably get away with investing in something that everyone else thinks is risky, but you know to be a sure thing.

2. Go into a field with extremely high earning potential (law, banking, consulting, VC, some kinds of self-employment, being friends with Dick Cheney). It doesn't matter too much how well your investments do if you're making $400k a year. Obviously, not everyone has the means or the desire to do these things.

Edited March 24, 2007 by Big Wheel

[Eric]

Number 7 is curious. Of course other people know more about money than I do, particularly when it comes to tax treatment of income, etc. I can't believe he is calling for people to stop using investment professionals, which would include those running mutual funds if we took it to extremes. I guess the broader point of taking responsibility for your finances and knowing at least the basics is a good one.

Mutual funds are actually a pretty horrible investment in the long run.

I assume you aren't including index funds in that category.

Guy

Actually I am. After fees, index funds are guaranteed to (slightly) underperform the market, plus there are usually restrictions on when you can pull out. I'm not personally interested in an equity investment that is going to tie up my cash and yield a below-average return. I can see why they are attractive to others, though.

Not sure the index funds you are referring to, but I would guess the vast majority do not have restictions on when you can redeem. Further, on average, index funds typically outperform 2/3 of all actively managed funds.

[Eric]

To get truly rich, you need to either:

1. Do something very very risky (invest in risky things like futures, or in more conventional instruments by buying on margin, or just throw all your eggs in one basket on a risky but very high-potential stock). Then again, as J Larsen notes, if you know a field really well you can probably get away with investing in something that everyone else thinks is risky, but you know to be a sure thing.

2. Go into a field with extremely high earning potential (law, banking, consulting, VC, some kinds of self-employment, being friends with Dick Cheney). It doesn't matter too much how well your investments do if you're making $400k a year. Obviously, not everyone has the means or the desire to do these things.

I agree that no. 1 above is folly. And I will also agree that no. 2 works.

But -- I would speculate that well over half the "rich" in this country got there by either investing in real estate or as I mentioned above - owning some/all of a business. God forbid, neither of these are risk free and both involve hard work and a willingness to make sacrifices. But it can be done and without connections or a fancy degree.

Edited March 24, 2007 by Eric

[JSngry]

There's only one reason why I'm not rich - I don't have enough money to be considered "rich".

Now, the reasons why I haven't gotten rich, that's another story, and no doubt fodder for a list such as this...

[Big Wheel]

To get truly rich, you need to either:

1. Do something very very risky (invest in risky things like futures, or in more conventional instruments by buying on margin, or just throw all your eggs in one basket on a risky but very high-potential stock). Then again, as J Larsen notes, if you know a field really well you can probably get away with investing in something that everyone else thinks is risky, but you know to be a sure thing.

2. Go into a field with extremely high earning potential (law, banking, consulting, VC, some kinds of self-employment, being friends with Dick Cheney). It doesn't matter too much how well your investments do if you're making $400k a year. Obviously, not everyone has the means or the desire to do these things.

I agree that no. 1 above is folly. And I will also agree that no. 2 works.

But -- I would speculate that well over half the "rich" in this country got there by either investing in real estate or as I mentioned above - owning some/all of a business. God forbid, neither of these are risk free and both involve hard work and a willingness to make sacrifices. But it can be done and without connections or a fancy degree.

Sure, which is why I threw in the "some kinds of self-employment" part. But real estate is risky and a big time drain, and most working people don't have the time to learn it the way they should. And starting a business is also really risky - 95% of small businesses fail within the first 5 years, according to the SBA. I'd be interested in seeing more detailed ROI numbers on that...

Edited March 24, 2007 by Big Wheel

[J Larsen]

Number 7 is curious. Of course other people know more about money than I do, particularly when it comes to tax treatment of income, etc. I can't believe he is calling for people to stop using investment professionals, which would include those running mutual funds if we took it to extremes. I guess the broader point of taking responsibility for your finances and knowing at least the basics is a good one.

Mutual funds are actually a pretty horrible investment in the long run.

I assume you aren't including index funds in that category.

Guy

Actually I am. After fees, index funds are guaranteed to (slightly) underperform the market, plus there are usually restrictions on when you can pull out. I'm not personally interested in an equity investment that is going to tie up my cash and yield a below-average return. I can see why they are attractive to others, though.

Not sure the index funds you are referring to, but I would guess the vast majority do not have restictions on when you can redeem. Further, on average, index funds typically outperform 2/3 of all actively managed funds.

Oh, they absolutely outperform actively managed funds, but not the market. An S&P 500 index fund, for instance, is going to earn you a return slightly below that of the S&P 500; ie it will do worse than the expected return of a stock picker selecting from the S&P 500.

[Quincy]

Not sure the index funds you are referring to, but I would guess the vast majority do not have restictions on when you can redeem. Further, on average, index funds typically outperform 2/3 of all actively managed funds.

Oh, they absolutely outperform actively managed funds, but not the market. An S&P 500 index fund, for instance, is going to earn you a return slightly below that of the S&P 500; ie it will do worse than the expected return of a stock picker selecting from the S&P 500.

The expense ratio on Vanguard S&P 500 fund is 0.18%, or 18 dollars on a 10,000 investment. I'm pretty sure TIAA-CREF offers one that low, and I think a few others do too.

"The market" doesn't have to pay taxes or commissions, so while it's good to know how the various bogies perform it's sort of silly to gripe about index funds underperforming the target since they don't have the advantage of working in this tax & commission-free fantasyland.

Finally, I don't think you can say that the S&P 500 index fund will under perform the expected return of a stock picker picking S&P 500 stocks. There are enough funds & "experts" out there whose performance suggests otherwise. Sure, there are a few exceptions, but in general things tend to regress to the mean. And if the picker is buying & selling frequently, the odds are even less if one considers the real world consequences.

I say this as someone who choses to invest about 85% of my money in individual stocks and the rest in low expense funds. I'm a happy hypocrite.

[Jazzmoose]

I have to say that it is a little frustrating to me that a lot of stock prices are now driven more by funds that they belong to than fundamental valuation!

Ah, I see. You think stock prices reflected fundamental valuation at one point. That explains it.

[Jazzmoose]

Finally, I don't think you can say that the S&P 500 index fund will under perform the expected return of a stock picker picking S&P 500 stocks.

Amen. Unless you replace "expected" with "possible", that's just silly.

[J Larsen]

Finally, I don't think you can say that the S&P 500 index fund will under perform the expected return of a stock picker picking S&P 500 stocks.

Amen. Unless you replace "expected" with "possible", that's just silly.

I meant expected in the statistical sense - the average stock picker would be expected to get the average return. I do far better.

[J Larsen]

I have to say that it is a little frustrating to me that a lot of stock prices are now driven more by funds that they belong to than fundamental valuation!

Ah, I see. You think stock prices reflected fundamental valuation at one point. That explains it.

No, but it used to be a much more significant driver. This is actually becoming a very serious concern in the world of financial economics.

[The Magnificent Goldberg]

Actually, I was rather shocked at the assumption that it was normal to want to be rich.

I've been poor most of my life - sometimes poor and miserable, but mostly poor and happy.

It's only since about 1990 that my finances improved to the extent that I stopped worrying about where the next album was coming from, started taking holidays in exotic places like Newark NJ and West Africa, and we started living on about two thirds of my earnings (so retiring wasn't too muh of a comedown). Never had to worry about where the next meal was coming from, thank goodness. But it was a struggle to keep spending within income - and as with Jim, my wife and I decided that our daughter should come first, before a job for her, so we did it on my income only.

I'm still not rich.

And still happy.

MG