Your mother and I are so proud that in less than a week you'll be graduating college, and from my alma mater, no less! So this seems an opportune moment to share some thoughts about what you might look for in a career. And as luck would have it, I've just finished a new book, "Capital in the 21st Century," which has helped crystallize in my mind some things you ought to consider.
The book has caused a predictable stir among the pro-equality set because the author, Tom Piketty is a French economist with the gall to propose a global tax on wealth. But putting aside this naïve, socialist claptrap, the book is a veritable treasure trove of advice on getting into (or staying in) the top 1%.
The book confirms what you already know firsthand: The rich are getting richer; the really rich are getting really richer; capital is hot; labor is not.
The obvious implication is that you must find a job where the distinction between capital and labor is blurry. A job where you can take a slice off the top by getting paid as if you owned a piece of action even though you don't. Because without some capital working on your behalf, no amount of even the hardest and most skillful labor will get you anywhere near the top. (How many doctors or engineers join the country club these days? Virtually none.)
The great news is that there is a record amount of capital out there to work on your behalf. Piketty estimates that total capital is up almost threefold since I graduated from college 30 years ago. And these days, the real owners of capital don't seem to notice if people take a little off the top or are largely powerless stop it when they do.
This was not always the case. Indeed, Adam Smith -- the first economist -- felt that even a "principal clerk" (his word for CEO) would always be paid based on his "labour and skill" and never in "proportion to the capital of which he oversees the management."
Fortunately, times have changed in part because economists -- Smith's intellectual heirs -- invented myriad ways like the "principal agent problem," "competitive assignment models," or the "marginal product of labor" to justify otherwise outrageous levels of compensation, provided there is enough capital in the picture. Smith must be turning in his grave!
Now you may be wondering: "How much capital will I need working on my behalf?" It's a tricky question, but Piketty provides the answer.
Let's assume that you won't settle for mere membership in the top 1.0% but have your sights set on the top 0.1% with a corresponding annual income of roughly $4 million. Piketty's analysis of long-run returns (4% to 5%) suggests that this would require you to have roughly $100 million of capital working on your behalf. Although this seems daunting -- it's what the average American makes in 2,000 years -- fear not, for there are a few places where this type of money can be found:
Listed stocks: The average Fortune 500 company has a market value of $28 billion (280 times more than you need) and its real owners -- the shareholders -- are virtually powerless to stop senior management from taking 3.0% or more off the top. So even if the company's performance is lackluster, and the pot is split between you and four or five other top guys, there's plenty to go around. So while the corporate ladder can be long and greasy, it's worth the climb. I'd suggest you steer clear of smaller companies as they're just as hard to run as the bigger ones but don't hold enough capital -- the average Russell 3000 company has a market value of only $1.4 billion -- to be worth your while.
Venture-capital-backed start-ups are also a decent bet provided you get in early and abandon ship at the first sign that the organization is not steadily progressing toward an IPO, or a buyout from Facebook, Google and the like. You might try a few ventures in your 20s and then go back to business school if it hasn't worked out.
Private Equity and Hedge Funds: This industry is a dream come true. The standard take is generous -- a 2.0% fee plus 20% profit share -- which should net out to at least 3.0% assuming average performance and even after deducting the operating expenses of the fund. At 3.0%, you'll need $130 million working for you, which is more than achievable when private equity and hedge fund assets are a record $4.5 trillion (35,000 times more than you need) despite lackluster aggregate performance. This mountain of capital attracts a lot of competition, so don't be discouraged if you fail to break into the industry the first few times. Just keep at it, but please don't be tempted to cheat, as the government appears to be getting tougher on the insider stuff these days.
Asset Management: This is a decent fallback if the hedge fund thing hasn't worked out by age 35. The take is much lower -- probably 0.6% after costs -- so you may need $600 million or more working on your behalf but don't be daunted. Despite strong evidence that the industry destroys value compared with lower-cost index funds, it still manages trillions. And the lifestyle is decent as many people secretly accept that they can't beat the market so they don't work that hard trying.
Personal Services: If you're satisfied with being toward the middle of the top 1% then consider offering personal services to those with capital or access to it. They tend to be very brand/quality conscious and willing to pay top dollar for services, particularly when spending the real owners' money. Most well-paid service positions are in investment banking, law, and management consulting, though the occasional doctor, psychotherapist, real estate agent, or art adviser can make the cut.
It goes without saying that you must steer clear of government and the nonprofit sector at all costs. Although the Citizens United decision suggests that the Supreme Court may one day allow it, explicit profit sharing by government officials remains strictly illegal at the moment. As a result, you should only consider public service as second career after you've made the money you need. The nonprofit sector is even worse because it holds little capital, has no profits, and generates nothing but a "social" return that would hardly pay the bills even if you got to keep it all.
Finally, never fear that mooching off someone else's capital is somehow second-rate compared with earning income from your own. I've never felt that way, and nothing could be further from the truth. You'll seldom be exposed to meaningful losses (even the London Whale gave back only two years of compensation), and your slice is often in addition to, not in lieu of, a decent salary.
Furthermore, if you mooch long enough, you can build your own capital provided you avoid profligate spending, multiple divorces and the like. I'm not denying that there is a certain nostalgic appeal to building your own capital the old-fashioned way by starting a business, or by saving gradually over a lifetime of work. But these are risky and time-consuming strategies in the low-growth, high-capital environment you'll likely be living in.
Son, the time for internships is over, and now your real quest begins. In the 21st century, a man without capital runs a grave risk of finding himself squeezed towards the bottom of the top 10% and possibly even lower. This is not a place you want to be. Somewhere out there is a $100 million slice of capital with your name on it just waiting to be found. Your mother and I have given you everything money can buy, and your children deserve no less. I know that you won't disappoint us.
So that is what it's like to be the Son of a 1%er...
"Your mother and I gave you everything money could buy"
Yeah, but what about the things money can't buy?
"Blessed is the man who finds wisdom, the man who gains understanding, for she is more profitable than silver and yields better returns than gold. She is more precious than rubies; nothing you desire can compare with her. Long life is in her right hand; in her left hand are riches and honor. Her ways are pleasant ways, and all her paths are peace. She is a tree of life to those who embrace her; those who lay hold of her will be blessed."
-Proverbs 3:13-18
"Merchants and Bankers have about as much chance of walking through the gates of heaven as a camel has to jump through the eye of a needle" - Jesus Christ
[This message has been edited by jediperk (edited 06-11-2014).]
"Merchants and Bankers have about as much chance of walking through the gates of heaven as a camel has to jump through the eye of a needle" - Jesus Christ
Are you paraphrasing Matthew 19:23?
quote
23 Then Jesus said to his disciples, “Truly I tell you, it is hard for someone who is rich to enter the kingdom of heaven. 24 Again I tell you, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.”
25 When the disciples heard this, they were greatly astonished and asked, “Who then can be saved?”
26 Jesus looked at them and said, “With man this is impossible, but with God all things are possible.”
Clearly it's impossible for a camel to go through the eye of a needle. So it is with a rich person, or anyone else, to enter the kingdom of heaven ... except that with God all things are possible.
Y'up, paraphrasing. It was late in this part of the world and I was too tired to look it up. It is also written in the other Gospels besides Mathew. Including a few Gospels left out of the canon. The wording is slightly different in those...
Getting rich and becoming a millionaire is a taboo topic. Saying it can be done by the age of 30 seems like a fantasy. It shouldn't be taboo and it is possible. At the age of 21, I got out of college, broke and in debt, and by the time I was 30, I was a millionaire.
Here are the 10 steps that will guarantee you will become a millionaire by 30.
1. Follow the money. In today's economic environment you cannot save your way to millionaire status. The first step is to focus on increasing your income in increments and repeating that. My income was $3,000 a month and nine years later it was $20,000 a month. Start following the money and it will force you to control revenue and see opportunities.
2. Don't show off — show up! I didn't buy my first luxury watch or car until my businesses and investments were producing multiple secure flows of income. I was still driving a Toyota Camry when I had become a millionaire. Be known for your work ethic, not the trinkets that you buy. 3. Save to invest, don't save to save. The only reason to save money is to invest it. Put your saved money into secured, sacred (untouchable) accounts. Never use these accounts for anything, not even an emergency. This will force you to continue to follow step one (increase income). To this day, at least twice a year, I am broke because I always invest my surpluses into ventures I cannot access.
4. Avoid debt that doesn't pay you. Make it a rule that you never use debt that won't make you money. I borrowed money for a car only because I knew it could increase my income. Rich people use debt to leverage investments and grow cash flows. Poor people use debt to buy things that make rich people richer.
5. Treat money like a jealous lover. Millions wish for financial freedom, but only those that make it a priority have millions. To get rich and stay rich you will have to make it a priority. Money is like a jealous lover. Ignore it and it will ignore you, or worse, it will leave you for someone who makes it a priority.
6. Money doesn't sleep. Money doesn't know about clocks, schedules or holidays, and you shouldn't either. Money loves people that have a great work ethic. When I was 26 years old, I was in retail and the store I worked at closed at 7 p.m. Most times you could find me there at 11 p.m. making an extra sale. Never try to be the smartest or luckiest person — just make sure you outwork everyone. 7. Poor makes no sense. I have been poor, and it sucks. I have had just enough and that sucks almost as bad. Eliminate any and all ideas that being poor is somehow OK. Bill Gates has said, "If you're born poor, it's not your mistake. But if you die poor, it is your mistake."
8. Get a millionaire mentor. Most of us were brought up middle class or poor and then hold ourselves to the limits and ideas of that group. I have been studying millionaires to duplicate what they did. Get your own personal millionaire mentor and study them. Most rich people are extremely generous with their knowledge and their resources.
9. Get your money to do the heavy lifting. Investing is the Holy Grail in becoming a millionaire and you should make more money off your investments than your work. If you don't have surplus money you won't make investments. The second company I started required a $50,000 investment. That company has paid me back that $50,000 every month for the last 10 years. My third investment was in real estate, where I started with $350,000, a large part of my net worth at the time. I still own that property today and it continues to provide me with income. Investing is the only reason to do the other steps, and your money must work for you and do your heavy lifting.
10. Shoot for $10 million, not $1 million. The single biggest financial mistake I've made was not thinking big enough. I encourage you to go for more than a million. There is no shortage of money on this planet, only a shortage of people thinking big enough.
Apply these 10 steps and they will make you rich. Steer clear of people that suggest your financial dreams are born of greed. Avoid get-rich-quick schemes, be ethical, never give up, and once you make it, be willing to help others get there too.
