The Rich Are Different. They're Better Investors | Hacker News Reader

The Rich Are Different. They're Better Investors

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18 pointsgedrap29 comments

Poor people don't have money to invest. They really don't. People at the bottom of society in the UK (and I'm talking millions of people here) struggle to get by.

You can't invest money if you don't have money to invest.

I don't think massive inequality in the UK has come about because rich people are savvy stock traders. More likely it's because our taxation system is regressive. For example, indirect taxation hurts the poor most, and the balance of taxation in the UK has shifted towards indirect taxation since the 1980s.

I heard a good talk about the differences in spending habits between poor people, normal people, and the rich. The gist was something like:

Poor people spend all the money they have. Once they've paid bills and bought food, etc., any money they have left over gets wasted on frivolous purchases like excess toys, magazines, and general cheap tat. This is easy to see: go to any council estate on any day of the week and you'll see discarded plastic rubbish all over the place.

Normal people spend their money on liabilities like loans for cars, thus when they get some extra money they just spend it on getting more expensive things instead of getting wealthier.

The rich spend their money on assets, so any extra money compounds into extra wealth and increases at an increasing rate.

Poor people who would save the extra £10 here and there instead of spending it on frivolities would eventually not be poor any more. But, for whatever reason, many poor people don't see the utility in saving up small amounts of money to make large amounts. A lot of good could be done if more people understood the power of compound interest

Most inequality in the UK is because rich people are getting much richer. But the poor people aren't getting poorer, they're getting richer too. Standard of living for poor people has increased hugely over the last 50 years.

> But the poor people aren't getting poorer, they're getting richer too

I'm not sure about the last fifty years, but I was referring to the last 30.

Certainly in recent times, absolute poverty is greatly increasing. As more people have their welfare payments withdrawn, I think we can expect to see this increase to continue. In the UK we are dismantling the welfare state, which has resulted in over a million people using food banks annually. The poor are not getting richer.

That may be, but they still don't have money to invest

Poor people don't have money to invest.

Also everyone creates these financial management tools for the affluent. Poor people are the ones who need financial management because they cannot afford to make certain mistakes.

I don't think that was the argument here. The argument was that being rich compounds the inequality seen between them and everyone else, not just the poor, but including the middle class, etc.

Not being much of a sophisticated investor (low cost Vanguard funds for me, thank you), I have a question:

Isn't the latest common wisdom the notion that money managers actually underperform the market as a whole?

http://money.cnn.com/2015/03/12/investing/investing-active-v...

If fund managers -- whom should qualify as sophisticated investors -- aren't doing that well (or at least, can't beat a market index), why would we expect the rich generally to do any better? Is it merely the ability to reap the tax benefits of capital gains/losses?

Just the fact that you are buying low cost Vanguard funds probably puts you in the upper tier of sophistication. You have no idea how many people are just buying individual stocks seemingly at random and then buying and selling them way more often than they should both diminishing their top line gains and paying more in taxes to boot. I think people that do this are the "unsophisticated" people the article refers to.

Depends what you mean by sophisticated. Knowing that probably makes you more sophisticated than the average person.

I slightly suspect sophisticated here, means insider info...

Selection bias? Rich people who are not good investors won't stay rich for long.

Survivor bias would be a better way of putting it.

We shouldn't consider the poorest only, but also the middle class. I'd say it's a much more interest segment.

Some of them live from paycheck to paycheck (or close to) still in their 30s and 40s, living above their means, trying to keep up with the Joneses.

Others, they live well below their means and have a really nice savings account by the time they are 40 or 50. Living in a bit cheaper place then you can afford to, driving a bit cheaper car (or just using the public transportation), it adds up to a lot over the years.

Which can be invested later and that's when the cumulative profits kick in. They won't be billionaires (or even multimillionaires) but they will be way, way above the average.

The investments that I was presented with as I "moved up" into the world of accredited investment were significantly better than the ones available before. There are hedge funds for accredited investors with less volatility and better returns than many high-fee mutual funds.

Inheriting money is not a learnable skill.

You can't choose your parents, but you can have a series of rich spouses whom you outlive.

That might not work so smoothly if they have children, family, and other spouses before

That's part of the problem I see with the article. The other problem is that what is defined as sophisticated investments? How is it more sophisticated if I apply commonly known strategies to minimize risk in the markets through diversifying the stocks/funds I hold? I'm not quite sure this is all that sophisticated when you're just an investor, but maybe I'm biased.

>It provides a concrete, plausible mechanism for a Piketty-type dystopia, in which the natural tendency of financial markets is to make inequality explode.

Now I'm pretty libertarian by leaning, but things like this make me very concerned about completely "free market" economics. Economic systems exist to serve people and the society we want to build. If free market capitalism can be shown to systematically lead to increasing inequality by their very nature, then we've got some hard questions to ask ourselves as a society.

"Free market capitalism" does not exist so that's a misnomer.

News at a 11, why do Eskimos have so much snow? The answer might shock you!

What is a sophisticated investor? The article never made this clear. Is it just someone with more money in investments?

Fascinating how the comments here are mostly critical. I think the tone would have been different if we were having this conversation when HN first started. Are we in the beginning of a wider, general cultural shift away from capitalist thinking?

Most likely, when HN started, you had the YC groups and a few others. This meant Ivy League educated ($$$$) or related to VC/Investors ($$$$). Now you hear comments from plumbers, doctors, fast food employees so you get more perspective from the other side

I'm amazed at this thinking too - especially in this crowd - that doesn't see this happening as another iteration of a natural power law. Sure, it's to an Nth degree, but that's to be expected in those distributions.

I would bet that you'd see the same distribution even within the ultra-wealthy (Gates & Buffet probably make up the majority of the wealth).

You also see it at the other end of the spectrum (US citizens are 1000x magnitudes more wealthy than the bottom 2 Billion).

>>What if the rich get richer because they know how to invest their money more effectively? New research shows that this may be a factor behind the rise in inequality.

A factor, sure... one factor... of many...

There is effectively a rich investor cabal that works to guarantee those who are rich stay rich and get richer. Its easy to be a "better investor" when you've got all of the smartest financial minds working to make sure you get richer.

I wish ya'll would stop falling for his trick. His posts are nothing but link bait drivel designed to attract views. The entire domain might need a ban. Flagged.

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