How the rich get richer (2020)

&gt;The data show that an individual in the 75th percentile of wealth distribution who invested $1 in 2004 would have yielded $1.50 by the end of 2015—a return of 50 percent. A person in the top 0.1 percent would have yielded $2.40 on the same invested dollar—a return of 140 percent.<p>I may be mistaken but I think investing in VTI (total stock market index) and reinvesting dividends from 2004 to 2015 would yield you close to that 140 percent. Maybe 120 to 130? No need to be a top 0.1 percent to invest in that.<p>The &quot;rich are getting richer&quot; is a natural consequence of compound interest (which works for those with assets, and against those with debts) and the stagnation of some wages.

Did I read this correctly? One&#x27;s background rate of making it to the top 1% is 0.89%? That&#x27;s amazing isn&#x27;t it? It&#x27;s effectively almost completely random.<p>Not a massive surprise that someone who goes from 10% to 90% has something going for them that means they reach 99% more frequently than the base rate but that appears to then only by 2.1%, or twice what you would achieve by chance alone.<p>I must be missing something.<p>&gt; Controlling for age, parental background and earnings, moving from the 10th percentile to 90th percentile of wealth distribution increases the probability of making it to the top 1 percent by 1.2 percentage points compared to an average probability of 0.89 percent.

Isn&#x27;t the theory of compound interest sufficient to explain why the rich get richer faster than that poor get richer?

Mentioned in the article but it seems many commenters missed it:<p>The rich get richer because they have access to more choices than the plebes do. There are lots of non-publicly traded investments out there. They have a minimum investment amount that many people cannot afford. A friend sets up and manages RE investment syndication deals - these are where a bunch of people pool their funds and buy RE properties (commercial offices, or large apartment complexes).<p>He used to require $50K as a minimum investment. He now asks $75K. He is on the low end. I&#x27;ve encountered many that require $100K <i>and</i> require you to be an &quot;accredited investor&quot; - you need either $1M in assets (excluding your home) or earn over $300K if married to qualify.<p>These investments are potentially higher risk (e.g. if they use your funds for 80% downpayment on a mortgage, and the value of the property drops 10%, you&#x27;ve lost half your investment). But their returns are quite high. For a deal that exits well, the investors typically get over 20% return (annualized). I used to be all about index funds, and then I saw these. You have to find an operator with a good track record, understand the factors at play well enough to evaluate their offering, and if you do your due diligence, then you pretty much always get <i>at least</i> 15% annualized. Most investors wouldn&#x27;t even consider the investment if they felt it is less than that.<p>But you need a lot of money to get in.

Wasn&#x27;t this the entire thesis of Capital in the Twenty-First Century?<p><a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Capital_in_the_Twenty-First_Century" rel="nofollow noreferrer">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Capital_in_the_Twenty-First_Ce...</a><p>A great read if you haven&#x27;t already.

Poor people don’t have money to invest. At best, they squirrel a little bit away in a savings account and earn a low interest rate that maybe matches inflation if they’re lucky.<p>Rich people invest in stocks. Richer people also invest in private equity etc.<p>The results should surprise no one.

&gt; This suggests that while money is perfectly inheritable, exceptional talent is not.<p>It&#x27;s pretty funny that they assume these original generation returns being higher are due to &quot;exceptional talent&quot;, no one even bothers to consider the possiblity that the original wealth accuulating generation were just more mercilessly exploitive assholes...

From the article&#x27;s conclusion:<p>&gt; This suggests that while money is perfectly inheritable, exceptional talent is not.<p>Unless I&#x27;m missing something, it also suggests that the rich get richer because they are more talented in the first place.<p>Which kind of makes the point of the entire article rather moot.

its simple, the rich have the spare money to invest. the poor do not. the poor must use that money to survive.

It&#x27;s odd how the collapse of the soviet union turned the world into a dystopian capitalist nightmare, yet everytime somebody mentions the abuse of capitalism, immediately people starts to argue about the soviet union like a strawman.<p>It&#x27;s such a disgrace. I loathe the US for this. I dislike Putin and the chinese CCP too, but the war of economic ideology is such a blatant pain, it&#x27;s really frustrating how people debate about those things.<p>I&#x27;m dumbfounded everytime I read people trying to defend american capitalism. I quit that debate so many times, it&#x27;s really bad for my mental health.

The rich get richer for 2 simple reasons. Half is because they are better with money management, they think about incentives and trends constantly and financially position themselves appropriately. The other half is that our money doesn&#x27;t achieve its foremost goal of a store of value, leading to the monetization of assets like real estate and stocks; since rich people have a higher fraction of income&#x2F;wealth towards investment, they capitalize on inflation that redistributes wealth towards assets; compared to lower income&#x2F;wealth people who have a higher fraction towards consumer spending. The idea that the average income earner doesn&#x27;t yeild the same as the rich is partly true, they have better access to advanced financial instruments, but its also that they are better at analyzing the incentives.