Is saving/investing actually a crappy way to get rich?

[Anonymous]

Saving and investing is relatively low risk. As long as you don’t get fired from your job (the main source of risk really), you can keep stashing money into investments. I’m 30 and by 50 I plan to have 2.5M by myself by saving 50% of my net income. The wife will also have another 2.5M from her savings. All this while living normal life, having travel, going out to eat once a week. We cook at home the other 6 days.
This approach is way safer than entrepreneurship, where your business might fail! And the right tail end of wealthy entrepreneurs compare with the right tail of W-2 employees or jobs like law firm partner.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Wait, you’re saving $100k per year, how many years of that did you put into your calculator?

He said 20 years.

Why do you think OP is a he?

I was going to say the same thing. Its always fascinating (and disappointing) which gender DCUM assumes.

My general rule of thumb is that in the money and finance forum, the dumber the post, the more likely the OP is male. I'm a guy, FWIW.

[Anonymous]

It's not that it's a crappy way, just mostly the only way for most people.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Change that to 30 years? What then? Then 37 years? It's a good way.

At 30 years, it's just over $4M in today's dollars. Plus, since I'd be 62, I could probably withdraw 4% so $160K of income. Definitely better, but then that's just usual retirement age. If I'm going to do that, I'm not going to be as frugal since it's basically my entire productive, working life. Just sad that saving $100K per year FOR ONE PERSON doesn't really get you out of the rat race any earlier; you just have a more secure retirement.

Wealth is built over generations. If you had a kid and were able to give them $1 million in a trust, they would end up even wealthier. If you left $500,000 in a trust for a young grandchild, the returns would be astounding. The first generation sets the stage.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I was just running some numbers in an investment calculator and, frankly, they’re a little depressing. I’m in my early 30s, single, and have finally gotten my income to the point that I make $210K, am debt-free, and I’m able to save $100K per year.

Even saving at that level, which seems like a huge amount, I have to work for decades and would still have to live a modest lifestyle if I retire semi-early.

In the calculator, I assumed 8% returns, 3% inflation, and a 15% tax rate on my investments. With those assumptions, $100K per year invested for 20 years becomes $2.36M in today’s dollars (it’s almost $5M in nominal terms, but of course, that means nothing).

Using the 3% rule at that time, that means I can pull out about $70K per year to live on, which is not that much more than I currently spend trying to live a frugal lifestyle and stack my investments heavily. And of course, that assumes that I stay in relatively good health so I can afford my own insurance and medical bills before Medicare. Throw kids into the picture, and thoughts of early retirement would be over.

I don’t know – that seems kind of…underwhelming. I guess I always thought that saving $100K would be a fast track to riches. But now, more and more, it seems like you really need exorbitant incomes or significant risk-taking/entrepreneurship to be able to live a really good life at a relatively young age. Am I out of touch here? Missing something? Thoughts?

I think what you're doing feels underwhelming because you're heavily restricting yourself to just save 100K so essentially you're suffering for 20 years for barely any outcome.

But also, your math is wrong. You end up with 3.4M after accounting for inflation. Further, accounting for 15% capital gains means that, you take out 4% of 3.4M (136K), but you'll only see 85% of it (115K).

Not sure what you did for your math. Did you assume that you'd be paying capital gains every year or something? You only pay capital gains when you sell, which I assumed would only happen at the time of you actually withdrawing the funds.

Yes, it takes out 15% for taxes every year. It's a basic phone app so it's obviously flawed, but I figure I'll probably be doing some Roth so will be taxed at ordinary income the first year for those. Some brokerage since I want to retire early -- even though I'm only paying taxes on dividends/cap gains, it's 15% plus 8% for MD. Plus, if I factor in a lot of pre-tax contributions, then at early retirement, I have to pay ordinary income tax on my meager $70K of withdrawals. Overall, these are just approximations/back of the napkin numbers.

Why are you taking 15% out for taxes per year for capital gains? Capital gains doesn’t work like that unless you’re selling all of your long term assets every year.

No offense, but you need to read up more on finance. This is personal finance 101 level stuff.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:To answer your question: Yes.

Entrepreneurship is the path to riches.

Most entrepreneurs fail. The real answer is winning the genetic lottery or being able to marry into money

Sure, but someone along that line was an entrepreneur most likely. Instead of sucking on an entrepreneurs tit why not just be an entrepreneur yourself?

Or you can invest your money in already established companies like Apple or Amazon and have equity in a company without the risk that comes with being an entrepreneur.

I think a better way to thread the needle is having a stable, stress free job and being an entrepreneur on the side. Put money into strong companies with historically great track records with your savings.

[Anonymous]

Anonymous wrote:Yes, most wealth comes from entrepreneurship or very high steady incomes. However both of those can also come with stress and anxiety.

Exactly. Risk/reward. Throw money into your Vanguard ETFs and make a fairly steady but not amazing return over time. That's fairly low risk, and it also doesn't require a lot of work. Just send the money to Vanguard and they'll happily charge their (small) fees to do the rest.

Entrepreneurs take enormous risk and put in enormous amounts of time and often $$. If it pays off, it can pay off big -- I have many friends who make millions per year. But most fail too. With great risk comes great reward.. or great loss.

[Anonymous]

Anonymous wrote:
I think a better way to thread the needle is having a stable, stress free job and being an entrepreneur on the side. Put money into strong companies with historically great track records with your savings.

"Entrepreneur on the side" is not a real entrepreneur. Then it's just a hobby.

[Anonymous]

Anonymous wrote:Saving and investing is relatively low risk. As long as you don’t get fired from your job (the main source of risk really), you can keep stashing money into investments. I’m 30 and by 50 I plan to have 2.5M by myself by saving 50% of my net income. The wife will also have another 2.5M from her savings. All this while living normal life, having travel, going out to eat once a week. We cook at home the other 6 days.
This approach is way safer than entrepreneurship, where your business might fail! And the right tail end of wealthy entrepreneurs compare with the right tail of W-2 employees or jobs like law firm partner.

I don’t know if I agree that saving and investing is really that “low risk.” It’s easy to say that, but when SHTF, the market is down 40%, and you see years of savings wiped away over a few weeks, it’s not that easy to stay the course.

In the case of one of my siblings, both they and their spouse went to Harvard, one to Harvard Law. When Covid hit, they panic-sold and lost a lot of money. They were in their late 30s and had decades to recover. They have the intelligence to understand the long-term nature of investing, and they still sold.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Saving and investing is relatively low risk. As long as you don’t get fired from your job (the main source of risk really), you can keep stashing money into investments. I’m 30 and by 50 I plan to have 2.5M by myself by saving 50% of my net income. The wife will also have another 2.5M from her savings. All this while living normal life, having travel, going out to eat once a week. We cook at home the other 6 days.
This approach is way safer than entrepreneurship, where your business might fail! And the right tail end of wealthy entrepreneurs compare with the right tail of W-2 employees or jobs like law firm partner.

I don’t know if I agree that saving and investing is really that “low risk.” It’s easy to say that, but when SHTF, the market is down 40%, and you see years of savings wiped away over a few weeks, it’s not that easy to stay the course.

In the case of one of my siblings, both they and their spouse went to Harvard, one to Harvard Law. When Covid hit, they panic-sold and lost a lot of money. They were in their late 30s and had decades to recover. They have the intelligence to understand the long-term nature of investing, and they still sold.

Yes, if you try to time the market and you panc, you'll lose. But if you just invest steadily, you'll do OK over time.

Or for even more risk-averse, there's CDs and money markets, currently paying about 5% and FDIC insured. Of course, it's not always 5%, but it's no-risk.

[Anonymous]

What other ways are there for MC or UMC folks to accumulate wealth for retirement besides saving/investing in the market? Inheritance, criminal activity, real estate, and lucrative career choices. Not trying to be flippant, but not everyone is suited to be a partner in Big Law or a successful entrepreneur.

So over time you but quality stocks or ETFs, and stick with them. It is important to build the passive income off the investments. So even in times of 35% downdrafts in the markets, your passive income is reliable. Gives you solace to not sell during bear markets.

[Anonymous]

Anonymous wrote:Saving and investing is relatively low risk. As long as you don’t get fired from your job (the main source of risk really), you can keep stashing money into investments. I’m 30 and by 50 I plan to have 2.5M by myself by saving 50% of my net income. The wife will also have another 2.5M from her savings. All this while living normal life, having travel, going out to eat once a week. We cook at home the other 6 days.
This approach is way safer than entrepreneurship, where your business might fail! And the right tail end of wealthy entrepreneurs compare with the right tail of W-2 employees or jobs like law firm partner.

It's relatively low risk but it also takes a lot of time to build wealth. By the time you have built it, you are too old.
Moreover, it won't make you rich. You are 30 and you plan to have 2.5M by the time you are 50. I'm sorry, that's not rich. This is just enough to maintain your current UMC lifestyle in retirement.

[Anonymous]

OP just used some shitty assumptions and a bad calculator or both. Here is a better one.
https://app.honestmath.com/

I tried to approximate what op was planning to save and it looks to be plenty even adjusted for inflation

[Anonymous]

Anonymous wrote:What other ways are there for MC or UMC folks to accumulate wealth for retirement besides saving/investing in the market? Inheritance, criminal activity, real estate, and lucrative career choices. Not trying to be flippant, but not everyone is suited to be a partner in Big Law or a successful entrepreneur.

So over time you but quality stocks or ETFs, and stick with them. It is important to build the passive income off the investments. So even in times of 35% downdrafts in the markets, your passive income is reliable. Gives you solace to not sell during bear markets.

There aren't many and that's why this is still the best option for most people. But it's a slow process that will make you comfortable, not rich.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Saving and investing is relatively low risk. As long as you don’t get fired from your job (the main source of risk really), you can keep stashing money into investments. I’m 30 and by 50 I plan to have 2.5M by myself by saving 50% of my net income. The wife will also have another 2.5M from her savings. All this while living normal life, having travel, going out to eat once a week. We cook at home the other 6 days.
This approach is way safer than entrepreneurship, where your business might fail! And the right tail end of wealthy entrepreneurs compare with the right tail of W-2 employees or jobs like law firm partner.

It's relatively low risk but it also takes a lot of time to build wealth. By the time you have built it, you are too old.
Moreover, it won't make you rich. You are 30 and you plan to have 2.5M by the time you are 50. I'm sorry, that's not rich. This is just enough to maintain your current UMC lifestyle in retirement.

I guess everybody has different definitions of rich. My UMC lifestyle feels rich to me. I want for nothing. And I’ll have a good, rather luxurious retirement (I’ll likely have as much income as a retiree as when I’m working thanks to pension and social security).

I agree with you I won’t be CEO-level rich. And that’s okay!