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Comment by mlindner | Hacker News Reader

Important qualifier on that that's missed for most "the very rich". The "rich" are often quite penny pinchers. My grandfather is "rich" (several millions, and in a very cheap place to live in the midwest) but he lived his entire life being extremely strict on spending and controlled personal finances very carefully. He still complains when there's large money to be spent on something that should be cheap.

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I found out that my grandfather was a multimillionaire later in life as well, but I would never have guessed because he lives in an inconspicuous house in a middle class neighborhood and drives an inconspicuous car (Honda CR-V). He complains about milk and gas prices like most people and basically just doesn't telegraph his wealth at all (except by buying exclusively Wheaties as his breakfast cereal).

He grew up during the great depression though, so maybe that has something to do with his miserly ways.

Maybe this is just me, but I don't actually consider having a couple million dollars as "rich", I know a couple folks worth hundreds of millions, and the way they behave are certainly different.

A couple million dollars is a retirement nest egg. You can stop working, stretch it carefully until you die, and leave a small sum to your heirs.

To be very rich requires upwards of $100 million. Then you can access high paying investments which will generate enough income to afford a couple houses, hire help, buy a boat and a plane, and have enough left over after taxes to increase your assets to offset inflation. Actually, if you want a jet plane (with hired pilots, mechanics, hangers, etc) and a couple nice houses (>$10 million each plus staff) in the nicest places (Beverly Hills, Palm Beach, Jackson Hole), you need upwards of $1000 million.

A couple million dollars is more than a nest egg. You can retire immediately and provide for your family and yourself your whole life with that kind of money.

Only if used productively. Which, assuming you built it from more or less nothing, you probably have been doing to get to that point.

Having money does not make you wealthy. Having the correct financial arrangement to consistently make more than you spend is what makes you wealthy.

Entirely dependent on location, lifestyle, family status, etc. Yes, with $2m you can retire tomorrow and get something like $100K/year in pretty much guaranteed income not pegged to inflation. (You can argue the numbers but certainly <$200K/year with moderate risk.) And you can certainly live on that amount of money but equally certainly not with an opulent lifestyle--especially if you don't own your house/condo, have college expenses, like to travel/eat out etc.

ADDED: Yes, you're "rich" but not jet-setting in business class at resort hotels, multi-million dollar coastal city condo, eat at top restaurants on a regular basis etc. rich. Which is actually just fine for a lot of people who have no particular interest in those things.

Wait, how would you guarantee 5%? I don't see "put it in an index fund" as "pretty much guaranteed".

Annuities, high grade corporate or muni bonds, mix in some high dividend yield blue chips, etc. I'd mix with some riskier investments that were higher return on average.

Nothing is guaranteed if things go totally to hell, of course. (And I did make the qualification of not being pegged to inflation.) But unless we get to a very bad place, I think that assuming 5% on these sorts of investments is a pretty safe bet.

(ADDED: But pick your own number. 3-4% probably is closer to the really very safe modulo inflation given instruments like CDs in that range. But you're reinforcing my basic point. $2M is not really the basis for a huge annual income in perpetuity or even over a multi-decade timescale if you don't have other income streams to add to that mix.)

The market return for the past century has been something like 7% (after inflation). If you're investing in time spans longer than 10 years then typically you expect something in that range.

Past performance does not promise future results, and the world could end tomorrow, but it's not a bad idea to plan that you'll get an average of 5%+ on market investment.

(I'll note that you're responding to someone saying "pretty much guaranteed" and dropped that qualifier in your question).

I know about that, I meant besides that. An average return doesn't mean a consistent return from year to year - e.g. $100,000 / year from 2 million. I was just curious how other people would invest to target a high probability of 5% each year.

That is wrong, if you live in a wealthy country. The safe rate of return right now is a few percentage points at best. If it stays like that, and we get inflation, then it is going to be even worse (wealth shrinking happening now depending on tax variables of the retiree.)

$2m invested with 2% real returns is $40,000/y. So you could provide for your family but I think it would need to be pretty frugal and move away from major urban areas. (Maybe buy a 500k house and live off $30,000/y)?

That said I think semi-retire is the best bet. You have $30,000 for existence, and then go and do a gig every now and then for that foreign holiday or home repair or whatever.

You don't have to finish with the same amount you started with. If you aim for finishing somewhere between $2m and $0, you can spend between $40k and $100k per year.

Absolutely, but if you plan on doing this from 30 to 85, say, then it probably won't make much difference, and you might as well save the lions share for medical bills, rainy days or even inheritance down the line.

Yes, yes, the wealth curve is essentially a vertical line at the right-hand edge. Don't pity the poor decimillionaires.

What if they are physically handicapped? What if they are lonely? What if they spend their time and energy investing in 3rd world countries?

Consider checking your prejudice at the door.

It doesn't become easier to beat the market when you have more than $100 million.

Anyone with a couple $1000 can buy cheap etfs or index funds

From what I understand, the thing that changes when you have lots of money, is you can act as an investor in individual ventures that are much riskier, but with a much higher potential payoff. If you can drop $1 million without being ruined if it doesn't pan out, you can multiply your money very quickly when things do happen to go your way.

In fact, isn't that basically the entire premise behind all the VC funds that fuel Silicon Valley?

>isn't that basically the entire premise behind all the VC funds

Which often don't have especially high rates of return.

I don't really disagree with your basic point. At least somewhat higher investments do give you access to a wider variety of financial instruments even if diversified through a third party.

Yes but the $100 million guys can afford higher risks with higher returns. The $1000 guys can only play it safe with small returns.

The $1000 guys can afford humongous risks if they're 20 year olds saving for retirement. In fact, if they have a job to live off of, their risk tolerance is going to be far greater than a rich person living off their wealth.

It is not 'just you', but it does peg you as being part of a tiny part of the population that can hold these beliefs.

For the very very vast majority 100K in liquid funds would be a fortune they could never imagine acquiring outside of a huge lottery windfall.

GP said nothing about liquid funds, and this thread is mainly talking about people's life savings.

in this context, one million dollars is really not much. if you have no job or pension, one million in assets grants you the ability to spend about $40k a year safely. you could certainly have a comfortable retirement this way, but it would be far from a luxurious lifestyle.

If you only know person worth $2 million, they're rich. If you know 10 millionaires, the person with $2 mil might not seem so rich to you anymore.

The United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $3,140 per acre

While the average farm size has been increasing approximately two acres per farm each year since 2012, the number of farms is decreasing. Today, the average farm size is 444 acres.

444*3140 1,394,160

US average farmer is a millionaire. Go ask one if he feels rich.

Do most farmers actually own the land that they work on? I was under the impression that most farming is done by large companies and that there are not many small independent farmers that exist.

When I was working on farms ( 30 yrs ago ) most farmers were still on property they owned. During that time I saw the shift to corporate farms and I dont know that answer as I have found less labor intensive work.

Most of the corporate structures I saw were family or a combination of family and friends.

I think many farmers are pretty levered. Whether its mortgage on the land or loans for operating capital, to make a decent return on equity you've got to borrow.

I would agree with that perspective. I knew a few farmers that owned it all but those have passed on.

It's enough to maintain a swell lifestyle without working. It is meaningfully different than not having enough money to stop working.

That there's people with even more money is true enough.

From the sounds of it, they're relatively rich for the part of the country they live in.

What are the implications of only buying Wheaties for breakfast? That doesn't scream wealth to me, but I also don't eat breakfast cereals, so have a blind spot.

It was mainly a joke for people familiar with breakfast cereal prices; I consider a box of cereal that is less than ~$2.50 to be a "good deal".

I've never, ever seen Wheaties for <$4 per box, and it's never on sale.

Reminds me of the book, "The Millionaire Next Door". Seems like many of the people who have accumulated wealth tend to be fairly frugal.

Reminds me of a German saying I can't quite remember (something like 'erber, gerber, versterber'). Basically the first rich generation is very frugal because they had to work hard to attain it. The second generation maintains it, not really adding more but not frittering it away either, and the third generation throws it away on ski resorts and fancy cars.

That's also one of the few things I do respect about 'old money': they really drill it into their kids to not be ostentatious and wasteful with the familial wealth, thus escaping the aforementioned trap.

Is it this one:

> Die erste Generation schafft Vermögen, die zweite verwaltet Vermögen, die dritte studiert Kunstgeschichte, und die vierte verkommt.

> Bismarck (1815–1898)

EN:

> The first generation creates wealth, the second manages wealth, the third studies art history, and the fourth degenerates.

“My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel” - Sheikh Rashid bin Saeed Al Maktoum

I have heard it in english too: First generation earns it, second learns it, third burns it.

A time proven way to get rich by old age is to not spend money. It's a decent way to stay rich too.

P.S. If it "should be" cheap doesn't it make sense to complain when it's expensive?

my dad used to tell a story of him working at gas station in italy in the 60's as a small kid, a guy with a Ferrari came by and asked to fill his tank, and when paying there was some not-insignificant amount of change, so my dad asked "so, I'll keep the change, ok?" and the guy replied "You know kid, I have a lot of money, really a lot. You know how I made them? I never gifted anyone anything. Now, hand over that change.."

While I don't disagree that your grandfather was wealthy enough to not worry about things, "several millions" isn't in the same ballpark as the people we're talking about in this thread.

My grandfather was similar. Died a millionaire while never making more than $30k/year. He just paid for things in cash and made sure to always invest. The only luxury he ever spent was on my grandmothers car. Everything else was on a budget and cheap as could be.

I feel like a life void of luxury is... not preferable.

I have built up a pretty decent surplus of money for my age. It's not because I deprive myself of things. I buy everything I want. I just happen to not want much. It's all about level-setting.

Spending little money frees up your life from having to earn a lot of it. That trade-off starts looking pretty attractive after you've been chained to a desk for a decade.

Just like most things in life, I feel like it is all about the right balance.

Penny pinching and then dying a millionaire sounds awful, because what's even the point of having all those millions if you lived like you had nothing the whole time? Just a number on some imaginary scorecard?

Wasting away all your earnings and living a life of "luxury" with nothing in your savings is at least just as bad, because if something catastrophic happens, you got nothing.

Gotta strike that happy balance, where you get to enjoy the money, yet still have a substantial chunk of it saved.

> Penny pinching and then dying a millionaire sounds awful, because what's even the point of having all those millions if you lived like you had nothing the whole time?

Building generational wealth for your progeny.

GP said their grandfather died a multimillionaire. That money can go to his children; managed well over their lifetime it will double several times over. And learned frugality on their part means they have an even greater sum to hand to any children they have (like GP!)

And if a catastrophe struck - be it a local one like joblessness or divorce, or a global financial crisis, whatever - grandfather knows that his austerity guaranteed his children shelter, food, and education in the future. That's a powerful reason to make decisions. Hell, in our animal brains, that's probably one of the most powerful drivers of decisions: what should I do to benefit my family?

>GP said their grandfather died a multimillionaire. That money can go to his children; managed well over their lifetime it will double several times over.

The point is, is it worth it if you do not get to enjoy even a part of that at all? What if you don't have children? Assuming there is nothing after death, the personal result of being a penny pinching millionaire vs. just not having that much money at all would be the same.

Your assumption is that cheap living equals unhappiness/misery/etc whereas most unhappiness is caused by the uncertainty of not knowing where your next meal is coming from.

Presumably he had a good family/friends, which is what matters, no?

Investing in your family's future is an incredibly noble/selfless thing to do, it takes real character.

Lol that money went to my grandmother who liked to gamble and gamble she did for a decade until it was all gone.

lmao, ouch. Have a will drawn up, friends ;)

Presumably their grandmother was alive when she was gambling the money away, so I do not see how a will would have helped here :) But a good point regardless, most people with any kind of saving should have one drawn up.

From what I understand, that penny pinching is often why the rich are rich (excluding those born into more wealth than they can spend).

Edit: I'm getting the impression that a large subset of people replying ignored my parenthetical comment.

Penny Pinching does not make people rich and is not "often" why they're rich. This is a horrible misconception.

It's not the sole cause, true. But it'd definitely a differentiator. Sort of how like practice isn't the only contributing factor to being skilled, but talent without practice is useless too, soo...

It sounds like you may hold the misconception. Only ~12% of millionaires inherited their wealth. The remainder are "self-made", in that they lived below their means, and saved.

No I'm not saying most millionaires inherit their wealth. I'm saying that penny pinching isn't how you create it. Most people create wealth via entrepreneurship.

The amount you can create via saving is minuscule compared to starting a business, investment banking, being a lawyer etc. Work creates wealth.

Side note, many of the people I know who are wealthy enjoy spending it which is the antithesis of penny pinching.

There are two ways to becoming wealthy:

1. Have wealth given to you.

2. Live beneath your means (aka save part of your income)

I get "penny pinching" can mean being cheap or something. But ultimately, saving is what makes you wealthy. And it's a much more accessible and in your control than winning the lottery of life by starting a successful business, or being some hotshot lawyer.

Side note: Warren Buffet enjoys not spending his wealth, which is exactly penny pinching ;-)

https://www.scmp.com/magazines/style/people-events/article/2...

Live beneath your means (aka save part of your income)

This is where your premise breaks down. There are millions of people who do this who are not “wealthy”. They’re just “retired”. Acquiring real wealth requiring vastly more then your means to the point where the ratio of income to expenses doesn’t really mean much.

Even if you consider Buffet a penny pincher that’s not how he created his wealth.

I guess it depends on your value of wealth. I'd pin it somewhere around the "never needing to work again" level. Sounds like your definition is quite a bit higher.

Funny enough, though, Buffet got started working a pretty regular job, saving over a million in inflation adjusted dollars before starting his business.

There's a difference between spending below one's means and penny-pinching. Penny-pinching is refusing to tip the waiter, it just makes you an asshole.

Millionaire doesn't mean too much these days considering you can take a long road there with fairly conservative investing and a decent income.

That's a myth. Most people are rich because their parents were. Most of the rest is rich because they were/are lawyers or medical doctors. (For the super-rich, business and finance becomes more important. But for your average "middle-class rich", lawyers and doctors just dwarf their numbers. Business also has highly unequal outcomes).

As to why this myth persists, I guess it goes well with American puritanical roots. Many possibly don't belief in a strict correlation, if not causality, of everyone's financial situation and their individual moral character, but still promote the idea. See also: prosperity gospel, Ayn Rand.

Fidelity found that only 12 percent of millionaires inherited at least 10 percent of their net worth-- 88% are self-made.

https://money.usnews.com/money/blogs/on-retirement/articles/...

But the parent doesn't say that.

It says that most people are rich because their parents are rich. Not because they inherited their wealth. Stable home life, good schools, good network, good attitude and a financial backstop in the event of disaster (which allows a higher risk appetite) are all things that correlate positively with becoming rich. Your parents can give these without a penny of inherited wealth.

> It says that most people are rich because their parents are rich. Not because they inherited their wealth.

Fair enough. It's an astute observation, but it's misleading to say the first sentence, yet not imply the second, since most people aren't going to read into it that deeply. You'd just say: "Most people who are wealthy are so due to their stable home life, good schools, good network, good attitude and a financial backstop in the event of disaster". Why would you lead with parent wealth? It pre-supposes inheritance without additional context.

I guess it depends on the definition of "rich". "Stable home life, good schools, good network, good attitude" usually attributed to somebody being in the "middle class" and is not necessarily considered "rich".

That statistic sounds highly suspect: if I inherited $5M 30 years ago and am now wort $50M, do I count as "not having inherited my wealth"?

They say the first million is the hardest, so I imagine getting that for free makes the rest of it much easier if nothing else.

Nobody ever got anywhere without at least some luck involved. I think people deserve credit for any wealthy growth above and beyond what you'd expect for the asset they started with.

“Being rich because your parents are rich” can happen by a lot more ways than inheritance. In addition to gifts at death, there are gifts throughout the parents’ lives, equity gifts (you can buy one of the family houses for cheap or live in it for free), fully paid Ivy League education, prep schools, the parents can finance a startup, provide low interest loans, etc. I wouldn’t consider any of these as “self made” but they are not inheritance.

And?

You can pay for someone's top university education (~$250k) and pay their food and rent for the first 10 years since they graduate (another ~$240k).

Notice how there's no direct contribution to their net-worth.

A top university education isn't essential to becoming wealthy. Saving habits likely have more influence. You can go to Harvard, and then secure a well-paying job, but if you're going to spend your income on a penthouse in Manhattan, you're not going to be saving anything. Is it a leg up? Sure. I hate to use anecdotal evidence, but I went to a virtually no-name CS school, and ended up in the top ~5% of the income distribution 4 years after graduating.

Having a high income doesn't make you rich if you just spend it all... By definition, being rich requires spending much less than you make, unless you inherited it. Whether that counts as "penny pinching" is a different matter, but the ability to live within your means is certainly accessible to most people if they're willing to delay gratification.

Isn't the problem that rich people are better at accessing the "value" of something...

i.e. if there is no / limited value then it should be cheap...

Is value synonymous with ROI in this case?

"The wilfully idle man, like the wilfully barren woman, has no place in a sane, healthy, vigorous community." -- Theodore Roosevelt

In America, we pretty much all agree that wealth originates in labor. The crucial open question is, 'Whose labor?'

Yeah. The very rich intrigue me. I wonder what they think, where they go, what they eat, and what they watch. Can't be the same shit we got.

From what I've observed, the very rich don't generally "watch" much at all. For example, Gates, Buffet, and Musk are all widely reported to read voraciously. Its almost impossible to have a big TV watching habit and also a big book habit. As for the rest of your verbs, I'd expect the spread to so wide as to be unusable in forming a singular data point. While certainly having access to institutions I could never approach, even billionaires have been known to eat McD's, and I'm sure that Bezos has eaten at Whole Foods. They're just people, after all.

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