Well, yes, it’s true that the crowdfunding rule amendments have been adopted and will be effective May 16, 2016, and this is a form of private equity. It is also true that, under certain circumstances, there are other opportunities for unaccredited investors to invest in private equity. However, the question was about the kinds of investments that rich people make, and rich people aren’t going to be investing in crowdfunding. If you are not an accredited investor, private equity investments generally are and will be a bad idea, unless (a) you are making the investment for reasons other than strictly investment purposes (e.g., you want to support a new technology, or a venture by a friend or relative, and your return on assets is not your primary consideration), or (b) you have a favorable investment opportunity because of your job.
Yes. I should have added that nothing I wrote corrects anything you wrote. They’re different investments.
Its the Vimes’ boots theory of economic unfairness.
The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that’d still be keeping his feet dry in ten years’ time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
(c) Sir Terry Pratchett, Men At Arms: The Play 2013
No offense to Mr. Vimes, but that is insane. There is no mathematical way to save enough money to become rich through saving money on small expenses.
Quite true. But at the same time we’ve had threads and threads about how a poor person ends up spending outsized amounts, both relative to their income and in absolute terms compared to a more middle-class person.
There are a lot of regressive taxes and even more economic inefficiencies that bite at the very bottom of the economic ladder. So Vimes’ logic is OK insofar as applied to the difference between a ne’er-do-well and his brother the taxicab driver. But not between the taxicab driver and his cousin the stockbroker. Or the stockbroker and his brokerage’s owner.
Investing in real estate would drive up prices, locking many people out of home ownership. Plus it will drive up rents what will result in a transfer of wealth from the working class to the wealthy. Plus of prices get too high you have a bubble which will deflate and cause global financial issues.
The modern equivalent of this is interest and principal I would assume. Many people go into debt to buy education, housing, vehicles, medical care, consumer goods, etc and each one of these purchases requires interest payments. The rich by contrast earn money on principal while most others lose money on debt. Interest on debt (not including principal) can easily top 20% of monthly expenses for many households.
I know a couple who are paying over 2k a month in interest in between student loans, mortgage and car payments (they just graduated so most loan payments are currently interest heavy)
Would? It is happening every day, since London seems to have been declared the global capital. Some of the poshest bits of London are becoming deserted because the house are bought as a reserve currency, not to live in. Newsagents there are closing down because there’s no-one to buy papers.
Worst of all, it is now standard practice, when housing is built (not often) to market it first to Chinese or Russian businessmen. We call it ‘buy to leave’ as the places stay empty.
Our contemptible government calls this ‘Investing in Britain’. Most countries don’t allow it.
Bubble? What’s going to make the demand go away?
I’m probably nitpicking here but there is nothing in the article to suggest that the Waltons’ trusts hold art or that the trusts’ beneficiaries will participate in the appreciation of the art. The trusts do allow residual beneficiaries to participate in the appreciation of the trusts’ assets, but those assets are probably financial investments rather than art. The article says that Helen Walton funded with a stake in Walton Enterprises, LLC. This is a privately-held company that, in turn, holds stock in the publicly-held Wal-mart Stores Inc.
The Jackie O trust must distribute a set amount of assets each year to a charitable purpose. The art connection implied by the article is that, in this case, the charitable purpose of the Waltons’ trusts is seemingly the operation of the art museum. The museum presumably uses the money it gets from the trusts every year to buy art, provide programming, and maintain the museum. Thus, only the art museum itself benefits from the art’s appreciation. The trust’s residual beneficiaries will basically get to keep the excess money in the trust once the charity has received all the money it is supposed to receive over the life of the trust. The article notes that this residual money will likely exceed the actual amount that was put in this trust.
One other point – this trust isn’t an investment, it’s a tax planning structure. The trust still needs to make investments in something for the tax planning to work. Wealthy people people generally try to grow their wealth or at least not lose it (investments) and protect it from taxes and pass it on (with tax planning). Jackie O trusts are where both intersect in interesting ways.
The same thing is happening in New York. Manhattan has a bunch of places like this. High-end apartment buildings that sit mostly empty, the units owned by people in Dubai or Hong Kong, who seldom if ever actually stay there.
I don’t have a crystal ball, but everyone who fell victim to the last housing bubble bought into that line of thinking.
Exactly what has happened (apart from the bubble bursting)
I’m not following; interest and principal are flip sides of the same coin and aren’t mutually exclusive. You can easily have significant investments and investment income as well as debts at the same time… most businesses do as a matter of course.
It’s entirely possible that paying off your debt outright is a worse course of action than continuing to pay it down over time. For example, if you have a student loan of say… $50,000 @ 4%, and you come into a $50,000 windfall, you’re better off overall if you can invest that $50,000 at anything higher than 4% than if you paid off the loan outright.
I think what he is saying is that a 200,000 dollar house costs a rich person one payment of 200,000 dollars, while it costs a poorer person 30 years worth of payments adding up to 350,000 dollars. The difference between the one nice pair of boots or 30 years worth of crappy boots
Rich people are not going to buy a house for 200 grand. They are going to get one that costs millions.
Not just that, but two people with the same middle-class income may have very different standards of living depending on how well they manage their money. Person A has numerous small vices which add up to many thousands per year: smoking, the lottery, fast food, etc. He lives paycheck to paycheck and pays exorbitant rates for payday loans. He uses rent-to-own type places and effectively pays $1200 for a $300 TV. He has maxed out credit card debt. He puts off all car maintenance until it needs expensive repairs. And he buys only the crappiest version of everything, including boots, even though they’ll wear out sooner.
Person B has the same income but managed to save a few paychecks worth of buffer. As such, he doesn’t waste nearly as much income on interest. He loses those small vices but in return can afford nicer things like vacations. Financial surprises like home repairs can be done immediately instead of later when the damage is worse. And he has money left over for retirement.
People act like like there are rich people and poor people with no in-between. In reality, there are people at every income/wealth level you can imagine.
I’m well-off but not “rich rich”. And in fact, I have just over $200k in mortgage debt. I could pay that off tomorrow if I desired. But it doesn’t make sense, because I pay 3% interest on that debt, while my other investments make 5+%. Furthermore, the interest is a tax writeoff and is really equivalent to ~2% in post-tax income. So I’ll continue making the minimum payments on that debt and use the money for other investments.
That’s not the same thing. Time value of money. Paying 350k in the future is not a worse deal than paying 200k today.
Rich people are unlikely to pay off a house since they get very favorable mortgage terms. I read a story that Mark Zuckerberg is paying like 1.5% since he’s such a low risk.
Canada and the US are facing this issue too, the UK isn’t alone.