Wealth comes from knowing what others do not know. — Aristotle Onasis
Have you ever thought that — with all the pervasive fear mongering by our politicians and media alike — we are all living a better life than those who lived hundred years ago, or even 30 years ago?
I know that you are going to look at me — if I am telling this to you in person — as if I am living under a rock for the last four years or so. As oxymoronic it may sound, it’s easier to build wealth now than ever.
I stumbled upon an interesting article recently. Albeit the article is about the economy, it has uncovered facts that are worth pondering about.
1. The unemployment rate for college graduates is 3.9%. For high school dropouts, it’s 13%.
This shows that job market is not that bad as long as you do your part — to invest in your own education for skills that are in demand. After all, only 4 out of 100 college graduates are without work. And, I suspect that some are willingly taking a sabbatical to map out their next career.
2. From 1929 to 1932, the total amount of money paid out in wages fell by 60%, according to historian Frederick Lewis Allen. By contrast, from 2007-2009, total American wages fell less than 5%. What we experienced in recent years was nothing close to the Great Depression.
It’s hard to save when you start making 60% less, but you can’t blame the current recession for not saving more just because you are making 5% less due to the tough economic conditions. For all the hype and sound bytes about the great recession, it only exists if you watch too much television.
3. At the height of his success, Andrew Carnegie’s annual income was 20,000 times the average American’s wage, according to historian Frederick Lewis Allen. That’s the equivalent of about $720 million in today’s economy. In 2010, hedge fund manager John Paulson earned $4.9 billion, or nearly seven times what Carnegie earned in his prime. The key difference: Carnegie made steel to construct buildings. Paulson bought derivatives to bet against them.
These figures reveal an amazing fact — at the turn of 19th century, Carnegie made his fortune from the industrialized revolution; John Paulson made his fortune from betting against what worked for Carnegie about hundred years ago. It proves that you can build wealth by knowing the current trends, and even betting against what once was in demand.
4. In 1914, Henry Ford made the unprecedented move of paying line workers $5 for an eight-hour shift — double the going rate. Adjusted for inflation, that works out to around $14 an hour in today’s dollars. By contrast, a New York Times article broke down an average auto worker’s 2008 salary, including insurance and paid vacation, and came to $45 to $55 an hour.
This fact teaches a fundamental rule of supply and demand. American car makers are less competitive because they are over paying union workers. You can build wealth by creating value in the market place. If you demand more than your true worth then either your employer will go out of business or you will be without work.
5. Five of every six American families earn more than their respective parents did, according to the Pew Economic Mobility Project.
How can you not save more for your retirement knowing that you are likely making more than your parents did? Start with at least 20% savings, and make commitment to increase savings by 3-5% each year by cutting unnecessary expenses like eating out or buying things that you don’t need.
6. A composite hedge fund index has returned 1.3% year to date as of July 11. The S&P 500 returned 8.3% during that time. People call the former “smart money.”
It’s lot easier to research and invest in an index fund on your own due to the information age that we live in. It was much difficult 30-40 years ago to manage your own investments. You can save thousands of dollars in fees, and let that money work for you.
7. According to the Pew Research Center, every one of the eight largest EU nations ranks Germany as the hardest working — except for Greece, which ranks itself as the hardest working. Five of the eight rank Greece as the least hardworking.
This proves that those who overrate their own performance are doomed to fail miserably — Greece can rank itself hardest working, but the rest of the world knows the truth. Those who learn from their mistakes can always do well, always!
8. According to Manpower’s 2012 Talent Shortage Survey, 49% of U.S. businesses report difficulty filling available job openings.
This fact proves that there is no dearth of jobs, if you find a niche skill in demand. For all the political rhetoric about high unemployment rate, it is only 3.9% among those who have a 4 year degree. And, if you are among those with graduate degree, your chance of not finding job is less than 2%.
9. According to analyst JW Mason: “In 2007, [nonfinancial corporate] earnings were $750 billion, dividends were $480 billion, and netstock repurchases were $790 billion.” In other words, businesses paid shareholders nearly double what they earned.
If you invest in 10 or 15 highest quality stocks with high dividend yield, and reinvest your dividend income, you are destined to build wealth. With the advent of the Internet, it’s easier to perform your own research to invest in these safe, reliable securities on your own.
10. According to economist Christina Romer, real GDP per capita in American grew 0.58% a year from 1800-1840; 1.44% from 1840-1880; 1.78% from 1880-1920; 1.68% from 1920-1960, and 1.82% from 1960-1991. We not only grew richer, but at an increasing rate.
This proves that — despite all the gloom and doom — Americans are getting richer since early 1800s. Nonetheless, most Americans don’t have more than few month worth of savings to survive income loss.
It’s not the economy or the crisis in Europe to blame for not saving for your future. They key to build wealth is to find a high paying job and live way below your means to save 40-50% for 5-10 years. I told you so — It’s easy to build wealth now.
Man was born to be rich, or inevitably to grow rich, through the use of his faculties. — Ralph Waldo Emerson
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Shilpan, I love your take. I am big fan of data vs. emotion. For some tough situation may look as a disaster, for others it’s an opportunity. The trick is to properly assess it and take action based on the data. And you did great job showing data.
Alik, that’s the fun part. With data, you seldom need to make much effort to prove your argument as facts don’t lie. 🙂
I would agree. It is all in perspective and concrete proof. This is definitely some story telling data you have. I always like to approach negative situations as an opportunity to improve.
It’s all about your own perspective. A pessimist sees difficulty in every opportunity; an optimist sees an opportunity in every difficulty. 🙂
Despite challenges, opportunity still abounds in the U.S. Industrious, creative, optimistic people will always do well I think.
Well said Kurt. Standard of living around the globe has improved in last century. When we complain about our difficulties, imagine that there was no hotel with private bathroom until 1907.
These are some great numbers, Shilpan. While I believe everything you say I’d suggest that income and opportunity aren’t the issues these days. The issue lies within the amount of money we spend and the lifestyle we expect to live. The modest homes are long gone and a myriad of other changes have increased budgets for all Americans.
Agreed. It’s not that opportunities are not there; it’s that we are spending more as a collective generation than previous generations. A poor in America has a decent shelter, car and a TV set. That was considered luxury just hundred years ago.
We definitely make more than both of our parents did, but I think that inflation must have risen more quickly than salaries. It seems harder to me, but maybe we’re just not as good at budgeting as our parents were. I’m very optimistic and we are determined to meet our goals of financial freedom, but it hasn’t been easy imo!
Agreed. It’s not easy, but your commitment speaks a volume about decisions you are making to become financially free. That’s awesome.
“If you invest in 10 or 15 highest quality stocks with high dividend yield, and reinvest your dividend income, you are destined to build wealth. ” – 100% true.
I would also look for top 10 companies in Europe/UK/BRIC that are global company. They are less expensive today than 2009 at the height of the crises based on earning per share.
Go for quality. Don’t settle for mediocrity.
I knew that you will like that approach, AJ.
I think it’s time to short a few stocks. I like the Carnegie Paulson segment.
That’s one thing I’ve never done. It may be due to my thinking, but you can short if you have done research, and feel comfortable doing it.
These facts are amazing Shilpan! I feel like I could single out each one of these and discuss them with you for hours (but I’ll keep my post short!) I do believe that despite the everyday doom news about our economy, there are plenty of opportunities out there for us and that we don’t have it anywhere NEARLY as bad as our parents did.
You’ve succinctly captured the gist of the article, MMD. Well said my friend.
You can maximum make 100% when you short, but you can make infinite % when you long stock. Key is you need to know which one to go long.
BTW John Paulson lost more money for his client during 2010 to mid 2012 (long financial, china companies, gold) than he made during 2008-2009 (shorting REIT related mortgage securities). So far he has been one time wonder.
That’s a very good observation about short position, AJ. Indeed, your profit potential is no more than the current value of the stock(if it ever goes to zero), but you can lose infinite amount of money if stock keeps climbing.
This is an inspiring post. I definitely beleive that most Americans earn more than their parents did. I think that there are opportunities out there, we just have to be willing to grab them when we see them.
Not only most Americans make more money than their parents, but also enjoying lifestyle that was considered middle-upper class lifestyle just 30-40 years ago. With pervasive gloom and doom, think about not having electricity for even one day. Or not having internet access for few hours. We’ve come a long way in last hundred years.
Hm.. I don’t think it is easier to build wealth especially in this era. Those who make money more is luckier.. Okay, this is based on my country.. Maybe American easier.
Thank you for stopping by.
I believe life is a series of near misses. A lot of what we ascribe to luck is not luck at all. It’s seizing the day and accepting responsibility for your future. It’s seeing what other people don’t see And pursuing that vision. — Howard Schultz
The internet has really changed the way we CAN live. Just 15-20 years ago, there was no way myself and many others could retire so early and just be our own little bosses with our small slice of the internet world.
I’m so thankful for the development of technology, and I hope I can keep up and ride the wave for as long as possible.
The internet alone makes everything easier.
S
You are right on the money, Sam. Internet has not only created behemoths such as Amazon and Google, but also millions of individuals like yourself to make great living all the while enjoying a quality life.
Article is very informative. I would like to share my point of view regarding dividend stripping. Dividend stripping is the process of buying a stock and selling it after it goes ex-dividend. The objective is to capture the dividend with the objective that the dividend (plus franking credits) exceed the losses incurred in holding the stock. Of course the stock makes a profit that is a bonus!
I’ve never heard of dividend stripping. Thank you for stopping by.
Great article. I agree that the recession only exists if you watch too much TV. When I look around me I don’t see hardly any difference. I think the fear of the recession is what sustains it. No one has confidence to spend, so this obvioulsy effects demand.
I like your thinking, Jon!
Interesting and inspiring numbers! With today’s generation making more than their parents, though; the cost of living has gone up considerably. We may make more, but do those numbers account for this inflation?
That’s interesting observation. I will do research on the inflation side of the equation; nonetheless, it’s obvious that quality of life has improved drastically in last 50 years.
Thanks for the optimistic article. I know my kids are making more than I did at their age and experience level – and they are in the same industry I was.
Thank you for Stopping by!
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These reasons are great, Shilpan! It’s so unfortunate that the media puts such a negative slant on the economy and job growth. What’s worse is that many people buy into the noise. Just as you put it, you just have to do your part in preparing yourself academically and socially to achieve high earnings.
Your success relies on your dedication and hard work. Political rhetoric is for those who are naive enough to buy in instead of focusing on how to achieve success on their own.
Property is simply an investment that can give good returns if you do your research. It can also be a horrible investment if you get it wrong. For a property to be an investment, it generally means that you will not live in it but will rent it out to other people.
[…] 10 Reasons Why it’s Easier to Build Wealth Now by Street Smart Finance […]
Regarding point #9, don’t dividends just reduce the value of the company by the same amount they’re paying out? In other words, should dividends really be a concern since in theory if a company pays out 1% to the shareholders that’s 1% that would have otherwise shown up in the share price?
I realize that dividends are a good way to produce income from stocks without tapping into the basis, but is there a fundamental difference between buying dividend stocks and reinvesting the dividends and just buying non-dividend stocks?