# Statistics of becoming rich with business, stocks, and real estate **URL:** \ **Category:** In My Humble Opinion\ **Created:** [September 1, 2014, 8:15am UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132 "2014-09-01T08:15:35Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Fuzzy\_Dunlop](https://avatars.discourse-cdn.com/v4/letter/f/848f3c/32.png) [@Fuzzy\_Dunlop](https://boards.straightdope.com/u/Fuzzy_Dunlop)\ **Post date:** [September 2, 2014, 6:09pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/21 "2014-09-02T18:09:11Z")
> [@Gateway](#): > > I got the idea from Robert Kyosaki’s book “Rich Dad Poor Dad” that if you want to become rich, invest in things which put money into your pocket rather than take money out. Practically this translates to stocks, real estate, and owning your own business (entrepreneurship). > > In any case, I was wondering if anyone knew how many people statistically become rich in these areas? > > By the way, in the book “The Millionaire Next Door,” they interview many wealthy people, and one of the points of that book is that _most_ of these people own their own business. > > Thoughts? What are investments that \*don’t \*put money in your pocket? Is he, for some reason, opposed to bona fide asset classes you didn’t mention (debt, derivatives, whatever) or does he mean don’t invest in things that are absolutely not investments anyway, like sailboats and private personal zoos? ---
**Author:** ![Icarus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/icarus/32/72_2.png) [@Icarus](https://boards.straightdope.com/u/Icarus)\ **Post date:** [September 2, 2014, 6:23pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/22 "2014-09-02T18:23:53Z")
> [@Dewey\_Finn](#): > > I’ve seen plenty of stories about “financial advisors” whose principal goal was to get rich themselves by excessive trading in their customers’ account (churning, in other words), choosing investments based on the commissions they offer, or putting their customers in investments unsuitable for their goals. I’m much happier making my own decisions about where and how to invest myself (and that’s mostly in low-cost index funds). IF you go with a financial advisor, make sure it’s a “fee only” licensed financial advisor. They put together a plan for you, the other kind sells you investments. But, I’m with Dewey, you can choose for yourself and put together a simple [Three Fund Portfolio](http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005) of index funds that will beat any managed fund over time. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [September 2, 2014, 6:37pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/23 "2014-09-02T18:37:52Z")
> [@Fuzzy\_Dunlop](#): > > What are investments that \*don’t \*put money in your pocket? Is he, for some reason, opposed to bona fide asset classes you didn’t mention (debt, derivatives, whatever) or does he mean don’t invest in things that are absolutely not investments anyway, like sailboats and private personal zoos? I suspect the latter. You hear morons talk all the time about protecting their “investment” in their cars or other depreciating assets. News flash: If it’s not actually directly earning you income in some fashion, it’s an expense. It may be an asset on your personal balance sheet, but it’s not an investment. ---
**Author:** ![truthSeeker2](https://avatars.discourse-cdn.com/v4/letter/t/7cd45c/32.png) [@truthSeeker2](https://boards.straightdope.com/u/truthSeeker2)\ **Post date:** [September 2, 2014, 6:57pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/24 "2014-09-02T18:57:35Z")
> [@Gateway](#): > > I got the idea from Robert Kyosaki’s book “Rich Dad Poor Dad” that if you want to become rich, invest in things which put money into your pocket rather than take money out. Practically this translates to stocks, real estate, and owning your own business (entrepreneurship). > > In any case, I was wondering if anyone knew how many people statistically become rich in these areas? > > \*\*By the way, in the book “The Millionaire Next Door,” they interview many wealthy people, and one of the points of that book is that _most_ of these people own their own business. \*\* > > Thoughts? If one is investing in stocks, it means that they are owning that business. The business is not run by them obviously but as the business grows, they get rich in the same proportion as the promoter of the company. Probably the key is to identify n invest in businesses that have potential to grow multifolds early enough and then you can just ride the wave. If one tracks the economy, historic high/low P/E valuations of stock markets, selects companies with good growth potential (available at reasonable valuations), builds a diverse portfolio of 10-12 stocks, 20-30% CAGR is expected in stock markets (in India at least). ---
**Author:** ![Surreal](https://avatars.discourse-cdn.com/v4/letter/s/eada6e/32.png) [@Surreal](https://boards.straightdope.com/u/Surreal)\ **Post date:** [September 2, 2014, 7:04pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/25 "2014-09-02T19:04:09Z")
> [@friedo](#): > > If you invest that in a S&P index fund, assuming a reasonable 11% average long-term rate of return, after 30 years you’ll have $1,104,565.87. Assuming an 11% return is far from reasonable. ---
**Author:** ![Fuzzy\_Dunlop](https://avatars.discourse-cdn.com/v4/letter/f/848f3c/32.png) [@Fuzzy\_Dunlop](https://boards.straightdope.com/u/Fuzzy_Dunlop)\ **Post date:** [September 2, 2014, 7:04pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/26 "2014-09-02T19:04:42Z")
> [@bump](#): > > I suspect the latter. You hear morons talk all the time about protecting their “investment” in their cars or other depreciating assets. > > News flash: If it’s not actually directly earning you income in some fashion, it’s an expense. It may be an asset on your personal balance sheet, but it’s not an investment. I can accept your say so and the fact that Kyosaki exists as evidence that this is common. I’ve honestly never heard anyone talk about their personal expenses as assets. I mean, it’s possible I have once or twice but not to my recollection. I know lots of people who spend everything they earn and don’t save, but none that I know of believe they’re actually investing. If you look at the advice from the standpoint of people with some common sense, it’s almost nonsensical. Hey, if you want your current wealth to increase in the future, invest it instead of spending it. Well, duh. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [September 2, 2014, 7:43pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/27 "2014-09-02T19:43:47Z")
> [@bump](#): > > I suspect the latter. You hear morons talk all the time about protecting their “investment” in their cars or other depreciating assets. > > News flash: If it’s not actually directly earning you income in some fashion, it’s an expense. It may be an asset on your personal balance sheet, but it’s not an investment. Technically it’s still an asset. Just not a good investment. But yeah, morons talk a lot of shit about a lot of stuff they don’t understand, particularly when it comes to money. Mostly because they like to think there is some quick and easy solution to getting rich that doesn’t involve a) hard work, b) time, c) smart decision making and d) a bit of luck and timing > [@friedo](#): > > Attaining a net worth of a million dollars through reasonable investing is very achievable, even for people who don’t have very high incomes. > > Let’s say you make $50,000 a year, and you are budget conscious and frugal and manage to put away $5,000 each year to invest. > > If you invest that in a S&P index fund, assuming a reasonable 11% average long-term rate of return, after 30 years you’ll have $1,104,565.87. > > Of course, real-life calculations aren’t as simple. Most people don’t start off earning $50,000 a year, and most people will earn significantly more towards the end of their career than at the beginning. And the above calculation doesn’t factor in inflation. Ignoring the high yield, inflation and market downturns, another problem is earning $50k a year typically requires incurring a lot of student debt. But while all this advice makes good sense, the real way to get rich is to earn more, not save more. And the way one typically earns more is to either have a successful career in a lucrative industry, start a successful business, or be consistently super-awesome at picking investments with huge yields. And each of these paths has their own risks and rewards. > [@Mr.Nylock](#): > > Aren’t any of these scenarios a bit of a low threshold for rich? Any of those criteria would put you in the top 1-3% of wealthiest people in the US. Remember we are talking net worth as in after debt. > [@jtur88](#): > > Even worse, it destroys the livelihood and hopes and dignity of the few employees you’ve hired, through no fault of their own. Why is that worse for me?😕 Let’s not be overly dramatic. I’ve known plenty of people who worked for tech startups that didn’t work out for one reason or another (including myself). Their “hopes and livelihood” wasn’t “destroyed” when it failed. Sure it may have been disappointing and temporarily inconvenient, but mostly they just used the experience to go somewhere else. And for people starting a restaurant or bar or other non “Silicon Valley startupy” sort of venture, I’m sure the waiters and busboys can find another restaurant to wait or bus in. ---
**Author:** ![Hampshire](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hampshire/32/4887_2.png) [@Hampshire](https://boards.straightdope.com/u/Hampshire)\ **Post date:** [September 2, 2014, 7:46pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/28 "2014-09-02T19:46:42Z")
My Dad once told me that there are two things that make money. People make money, and money makes money. A lot of people are really hung up on the “money makes money” side of it and focus on how, when, and where to invest the money they make. This is all well and good and a very important piece of your worth but I see a lot of people neglecting the “people make money” side of it. People get a job in their field, get comfortable with it, and are content with their salary and possible annual raise each year to keep up with inflation. They are all too content to see their income as a “fixed” piece of the puzzle. The “smart” people I know, (unfortunately I can’t include myself), are always looking at the next step up the ladder in earning potential. They know what the next job up the ladder is, what it pays, and what skills they need to get there. Instead of focusing on how to get their money to make 8% next year, they focus on how they’re going to get a job that pays 8% more next year. Both my best friend and my wife have figured this out while I’m still slow to follow. My best friend climbed corporate ladders over 20 years with nothing more than a 4 year state school degree in arts and is now very much a millionaire. My wife started as a temp with no college degree with a company 10 years ago making 30K and has done the same climbing, surpassed my salary, and just hit six figures not long ago. Her friends she started with 10 years ago are still there in the same jobs they had 10 years ago. ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [September 2, 2014, 7:48pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/29 "2014-09-02T19:48:40Z")
> [@Gateway](#): > > I got the idea from Robert Kyosaki’s book “Rich Dad Poor Dad” that if you want to become rich, invest in things which put money into your pocket rather than take money out. Practically this translates to stocks, real estate, and owning your own business (entrepreneurship). I’m not thinking of a lot of other ways to get rich. The lottery, something you have a miniscule amount of control over. The genetic lottery, being born rich, something you have no control over. You can live a spartan life style while you sock away a million dollars, but you may end up too old to enjoy it, or need it to maintain that spartan lifestyle, all while losing a fortune in taxes because you didn’t invest it. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [September 2, 2014, 7:49pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/30 "2014-09-02T19:49:52Z")
[QUOTE=friedo] If you invest that in a S&P index fund, assuming a reasonable 11% average long-term rate of return, after 30 years you’ll have $1,104,565.87. [/QUOTE] Of course the biggest issue with this approach is that you aren’t rich until you are an old man! ---
**Author:** ![MsRobyn](https://avatars.discourse-cdn.com/v4/letter/m/90ced4/32.png) [@MsRobyn](https://boards.straightdope.com/u/MsRobyn)\ **Post date:** [September 2, 2014, 10:32pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/31 "2014-09-02T22:32:55Z")
> [@Icarus](#): > > IF you go with a financial advisor, make sure it’s a “fee only” licensed financial advisor. They put together a plan for you, the other kind sells you investments. > > But, I’m with Dewey, you can choose for yourself and put together a simple [Three Fund Portfolio](http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005) of index funds that will beat any managed fund over time. Any financial advisor worth his/her salt (and I do agree with using a fee-based advisor) is going to consider an overall strategy. It doesn’t matter how much you’ve got invested if your ass is hanging out, so to speak. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [September 2, 2014, 11:05pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/32 "2014-09-02T23:05:28Z")
> [@msmith537](#): > > Of course the biggest issue with this approach is that you aren’t rich until you are an old man! That’s the way most rich people get rich. Outlive the guys in the fast lane. Then take all their stuff. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [September 2, 2014, 11:31pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/33 "2014-09-02T23:31:03Z")
> [@msmith537](#): > > Ignoring the high yield, inflation and market downturns, another problem is earning $50k a year typically requires incurring a lot of student debt. You can make $50k a year driving a truck with about a $3k investment in trade school. Not the first year, and you’ll do long haul and sleep in your truck, and have to really put on the miles, plus having a hazard certification helps, but its doable. And we as a country are so desperate for long haul drivers that getting someone to pay for school isn’t too hard. You do need to pass a drug test - a serious one - have a fairly clean driving record and pass a physical. ---
**Author:** ![TimeWinder](https://avatars.discourse-cdn.com/v4/letter/t/bcef8e/32.png) [@TimeWinder](https://boards.straightdope.com/u/TimeWinder)\ **Post date:** [September 2, 2014, 11:54pm UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/34 "2014-09-02T23:54:05Z")
> [@MsRobyn](#): > > Kiyosaki is an idiot, as is every other personal-finance self-help author out there, including Dave Ramsey, Jim Cramer, Suze Orman, and whoever the current flavor of the month. Their advice is generic, simplistic, and useless for most people. With a little less inflammatory wording, the problem with most self-help (and for that matter business) books is that they never correct for survival bias, which makes them useless as science or indicators of anything. As others have pointed out, following their advice perfectly will still result in failure for most people. It’s not even clear that these traits are _necessary_ ones for wealth building, but it’s very clear that they’re not _sufficient._ Chance plays a much larger effect–particularly in the US where medical emergencies can destroy basically anybody’s wealth overnight–than is ever accounted for by these feel-good books. > [@truthSeeker2](#): > > If one is investing in stocks, it means that they are owning that business. The business is not run by them obviously but as the business grows, they get rich in the same proportion as the promoter of the company. Also no. It means they get rich in proportion to the price (and perhaps dividends) of the stock, which has zip-all to do with the success or failure of the company. Don’t believe me? Look at the current market cap (stock price times number of outstanding shares) valuations of Amazon, Facebook, Google, Apple, and Microsoft, five companies in roughly the same field. Compare these to their last few quarterly earnings statements, and note that they have effectively no correlation: the most successful company on the list has the lowest P/E ratio, and the ones that have failed to even produce a profit several of the last few quarters often have hundred-year-plus current payback P/E rates. Extra credit: based on the above, explain how stock valuations are not just random numbers. If you can do it, collect your Nobel prize in economics. Aside from some corporate share holdings, companies “make” money on the stock at the time of the stock offering, and never again. That one instant of time is the only time that the stock price necessarily tracks the value to the company. After that, it’s effectively gambling, albeit in a way that has a positive expected return across the market as a whole. ---
**Author:** ![Namkcalb](https://avatars.discourse-cdn.com/v4/letter/n/c89c15/32.png) [@Namkcalb](https://boards.straightdope.com/u/Namkcalb)\ **Post date:** [September 3, 2014, 12:26am UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/35 "2014-09-03T00:26:10Z")
> [@Mr.Nylock](#): > > +1000 > > There was a book written that looked at the hard numbers behind owning a small business, generally they found that small business owners make about 15% less than people with the same experience do working for a company. I’d really appreciate if you could find out the name of the book. No rush ---
**Author:** ![truthSeeker2](https://avatars.discourse-cdn.com/v4/letter/t/7cd45c/32.png) [@truthSeeker2](https://boards.straightdope.com/u/truthSeeker2)\ **Post date:** [September 3, 2014, 3:20am UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/36 "2014-09-03T03:20:02Z")
> [@TimeWinder](#): > > Also no. It means they get rich in proportion to the price (and perhaps dividends) of the stock, which has zip-all to do with the success or failure of the company. Don’t believe me? Look at the current market cap (stock price times number of outstanding shares) valuations of Amazon, Facebook, Google, Apple, and Microsoft, five companies in roughly the same field. Compare these to their last few quarterly earnings statements, and note that they have effectively no correlation: the most successful company on the list has the lowest P/E ratio, and the ones that have failed to even produce a profit several of the last few quarters often have hundred-year-plus current payback P/E rates. > > Extra credit: based on the above, explain how stock valuations are not just random numbers. If you can do it, collect your Nobel prize in economics. > > Aside from some corporate share holdings, companies “make” money on the stock at the time of the stock offering, and never again. That one instant of time is the only time that the stock price necessarily tracks the value to the company. After that, it’s effectively gambling, albeit in a way that has a positive expected return across the market as a whole. sorry to say, but this has no context to what I said in the earlier post. For ex. people who identified the potential in facebook, google, microsoft when they were small companies and invested in them, their wealth increased (roughly) in same proportion as the wealth of the promoters of those companies, this is regardless of the company we are talking abt. Ofcourse, the companies that capture market fancy command higher valuations. For that, following things among many other things matter aside from the intrinsic value of the stock, management’s ethics, growth shown and growth expected etc - 1. Whether or not that company builds Brands. Brands get higher valuations than say companies that have no brand. 2. Sectors - In India for ex. , large FMCG companies trade at trailing P/E of 40+ . Pharma/IT/Auto trade at 18-25. And companies say in an ‘unsexy’ sector like chemicals or oil & gas would trade at 10-18. PSU’s take cheap too(as their motive is public welfare too aside from just profits). Ofcourse there are quite a few aberrations (those have good reasons too). ---
**Author:** ![truthSeeker2](https://avatars.discourse-cdn.com/v4/letter/t/7cd45c/32.png) [@truthSeeker2](https://boards.straightdope.com/u/truthSeeker2)\ **Post date:** [September 3, 2014, 3:52am UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/37 "2014-09-03T03:52:28Z")
^ Ofcourse, for companies like amazon which have high sales but very low profits , sales to market-cap criteria is used many times. For highly leveraged companies Enterprise value to EBITDA criteria is used. ---
**Author:** ![Princhester](https://avatars.discourse-cdn.com/v4/letter/p/3e96dc/32.png) [@Princhester](https://boards.straightdope.com/u/Princhester)\ **Post date:** [September 3, 2014, 3:59am UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/38 "2014-09-03T03:59:26Z")
> [@MsRobyn](#): > > Kiyosaki is an idiot, as is every other personal-finance self-help author out there, including Dave Ramsey, Jim Cramer, Suze Orman, and whoever the current flavor of the month. Their advice is generic, simplistic, and useless for most people. You’re confused. These authors may be unethical and they may have no worthwhile advice to provide. However, I don’t see any evidence they are idiots. There’s an old joke about a guy who sees an advertisement saying “Send me $10 and I’ll tell you how to get rich!”. The guy sends in his $10 and he gets back a letter saying “To get rich, place an ad saying ‘Send me $10 and I’ll tell you how to get rich!’” There are certain things which many, many people want but which are difficult or impossible to achieve: weight loss, cures for incurable diseases, wealth, increase in physical attractiveness, contacting your dead loved ones etc. Getting people to pay you for a method of achieving those things is an age old, very smart, entirely unethical means of getting rich. ---
**Author:** ![Mr.Nylock](https://avatars.discourse-cdn.com/v4/letter/m/77aa72/32.png) [@Mr.Nylock](https://boards.straightdope.com/u/Mr.Nylock)\ **Post date:** [September 3, 2014, 4:21am UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/39 "2014-09-03T04:21:53Z")
> [@msmith537](#): > > Any of those criteria would put you in the top 1-3% of wealthiest people in the US. Maybe so, but if you have just a million dollars you still have to get up and drag yourself to work every day, just like every other schmuck; you would run out of money in 20 years if you lived a modest middle class life on that amount. It’s kind of a depressing statistic if you ask me. ---
**Author:** ![Mr.Nylock](https://avatars.discourse-cdn.com/v4/letter/m/77aa72/32.png) [@Mr.Nylock](https://boards.straightdope.com/u/Mr.Nylock)\ **Post date:** [September 3, 2014, 4:25am UTC](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132/40 "2014-09-03T04:25:18Z")
> [@Namkcalb](#): > > I’d really appreciate if you could find out the name of the book. > > No rush I’ll set my google u on it this weekend, I’ll type some of the phrases I remember and see what comes up. Amazingly this book never made the best seller list. [Previous page](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132.md?page=1) [Next page](https://boards.straightdope.com/t/statistics-of-becoming-rich-with-business-stocks-and-real-estate/697132.md?page=3)