MMM Readers -- The Billionaires Next Door?

[Bob W]

I love simple numbers – Like adding, subtracting and percentages.

So I thought I would run some theoretical numbers on the mustache crowd. There are a lot of assumptions here and this is pretty much back of the napkin, cell phone calculator, stuff.

Comments are highly encouraged!

      Estimated blog/forum followers = 100,000

      Estimated average net investments (excluding house) = $ 500,000 (US)*

      Total estimated investments of blog/forum readers = 50 Billion US (That number is pretty impressive!)

Most of us will continue earning post FI, so I assume there will be no draw down on the investments.  This is for simplification but also a reality as most of us will be able to live on such a low income that retirement plans and social security will easily cover our daily living needs. 

We are also tax efficient and will reinvest all dividends.  Many of us are real estate investors as well.
___________________________________________________________________________________
I like to look forward 70 years and I refer to this as the “Grandkids Theorem.”

I also like to use 10% as an average annual rate of return, because let’s face it I’m lazy and like simple math. 

10% average annual return over 70 years means your investments double 10 times.    (no need to argue with me on the 10%.  Just extend the years for any reduction in anticipated returns)*

Given all the above numbers and assumptions, in 2084 our combined portfolios will be worth 50 Trillion US dollars.  Adjusting for inflation that will equate to approximately 8 Trillion.   (about  80 million per reader)

By comparison the total current value of the US stock market is somewhere in the 15 to 20 Trillion dollar range.  The total value of all US assets including real estate, equipment, gold etc.  is about 200 Trillion. 

So our kids and grandkids could potentially own ˝ of the entire US stock market or 5% of all US assets.   Not bad since we represent only 1/1000th of US households. 

Just for fun do some napkin math of your own.  At 10% return what year will your portfolio reach 1 Billion?


*apologies to all non US readers

*some people here have better crystal balls than I do

[Prairie Stash]

Unfortunately never. Eventually I'll retire and the compound growth will stop. If you assume I never draw down then there's no reason to have saved.

[Bob W]

Unfortunately never. Eventually I'll retire and the compound growth will stop. If you assume I never draw down then there's no reason to have saved.

I figured that many would respond with that.  MMM is not doing that and I know many other folks who chose to continue earning enough money to support themselves after reaching FI.   MMMs definition of "retirement"  includes a healthy amount of work and earning.  He also appears to be amassing enough funds so that 1% is his SWR.

An interesting exercise to do is "what will happen to all the money I worked hard to save if I should pass away?"   

A lot of the SWR talk here assumes a long life when the reality is that many, many readers will not make it past 67.    (I'm 54/55 and can almost count the days till I'm gone)

The answer for me is to arrange my assets in such a way that they continue to compound and to educate and teach my children the philosophy,  so that they will not be trust fund kids but stewards of the family money. 

A billion might be 100 years off still at my rate and assuming the kids draw some down.   Just about the time many readers grandkids are in their 50s.   

[RWD]

10% average annual return over 70 years means your investments double 10 times.    (no need to argue with me on the 10%.  Just extend the years for any reduction in anticipated returns)*

Given all the above numbers and assumptions, in 2084 our combined portfolios will be worth 50 Trillion US dollars.  Adjusting for inflation that will equate to approximately 8 Trillion.   (about  80 million per reader)

By comparison the total current value of the US stock market is somewhere in the 15 to 20 Trillion dollar range.  The total value of all US assets including real estate, equipment, gold etc.  is about 200 Trillion. 

So our kids and grandkids could potentially own ˝ of the entire US stock market or 5% of all US assets.   Not bad since we represent only 1/1000th of US households.

Wouldn't the stock market go up at a similar rate (10%), rather than at the rate of inflation? So the $20 trillion stock market now would be $15 quadrillion ($15,000 trillion) in 70 years. So it'd be 0.25% of the US stock market, not half.

[dragoncar]

      Estimated average net investments (excluding house) = $ 500,000 (US)*

I think this is quite optimistic (http://forum.mrmoneymustache.com/index.php?topic=727)

Still, with numbers like that, I wonder if this is a shadow operation by Vanguard.

[Mod Edit: Link fixed.]

[mcneally]

Imagine if you wait 140 years-- mustachians will own several hundred percent of the entire stock market!

[Cheddar Stacker]

Fun exercise I guess. I agree with dragoncar though, I think this is quite optimistic.

This is hard to guage. Look at the link provided. 1,001 votes, and that's a huge voter turnout based on most of the other polls I've seen around here. I think the biggest variable in your thought experiment is the 100,000 MMM readers and their NW. I would wager the average reader would fall extremely short in the NW category than the average active forum contributor. Who knows?

Just for fun I extrapolated that poll into some real numbers. A few caveats:

1) The poll is 2 years old, so much of the data is stale.
2) The poll is flawed (mandatory complaint for Dragoncar and Rebs) as there is no category > $1M.
3) I used the highest possible NW for everyone in each category, so $100k-$250K I used $250K for everyone.
4) For anyone that answered > $1M, I used $2M as an average.

So if you take 73 members at -$100K, 69 members at $0, 242 members at $100K, etc., etc. you end up at $478,650,000. That's quite an impressive # for 1,001 people, and it averages out to $478K per member. Not bad.

[dragoncar]

Fun exercise I guess. I agree with dragoncar though, I think this is quite optimistic.

This is hard to guage. Look at the link provided. 1,001 votes, and that's a huge voter turnout based on most of the other polls I've seen around here. I think the biggest variable in your thought experiment is the 100,000 MMM readers and their NW. I would wager the average reader would fall extremely short in the NW category than the average active forum contributor. Who knows?

Just for fun I extrapolated that poll into some real numbers. A few caveats:

1) The poll is 2 years old, so much of the data is stale.
2) The poll is flawed (mandatory complaint for Dragoncar and Rebs) as there is no category > $1M.
3) I used the highest possible NW for everyone in each category, so $100k-$250K I used $250K for everyone.
4) For anyone that answered > $1M, I used $2M as an average.

So if you take 73 members at -$100K, 69 members at $0, 242 members at $100K, etc., etc. you end up at $478,650,000. That's quite an impressive # for 1,001 people, and it averages out to $478K per member. Not bad.

Don't forget that poll includes home equity.

[clifp]

I am only seeing 13K members signed up and while I am sure there are active lurkers, who have never registered. I am also sure there are plenty of folks who stopped by a couple of times and never returned.

[Bob W]

Hey you kids are ruining all my fun!   lol   I said I was making wild ass assumptions but I am so relieved, Cheddar,  that with your CPA degree you were able to extrapolate 473K vs my WAG of 500.

A couple of points worth considering ---   avoiding taxes and passing wealth in a structured manor has an extremely huge long term potential.

Long term multigenerational for me is about 225 years.   I knew my grandfather very well and he was born in 1890.   I also anticipate knowing my as yet unborn great grandchild who would potentially live until 2114 at age 80.    That is a pretty cool and very real concept!

An yes,  as one poster noted,  if my grandfather had saved $1,000 in 1910  and it wasn't taxed and grew at 10% the inflation adjusted number would be pretty large.    If he had continued to add $1,000 per year for 50 years.   The number would be extremely large.

So the take away is to not draw down the funds and grow them in a tax free setting.  (that would probably rule out the US). 

Of course the most important thing to pass to the kids and grandkids would be how to manage money.   Unfortunately my grandfather neither invested the money or passed along any knowledge of that manner.  So it will be up to me to start that tradition.   

[Cheddar Stacker]

Just for fun, here are the real billionaire's next door:

http://finance.yahoo.com/news/forbes-400--the-richest-people-in-america-2014-155843156.html

It think it's worth noting 4 of the top 10 in the US are siblings, so dad (Sam Walton) would've been #1 if he were still alive with their combined net worth.

Another 2 in the top 10 in the US are brothers, but I believe their riches were mostly due to their efforts even though dad started the company.

[Bob W]

10% average annual return over 70 years means your investments double 10 times.    (no need to argue with me on the 10%.  Just extend the years for any reduction in anticipated returns)*

Given all the above numbers and assumptions, in 2084 our combined portfolios will be worth 50 Trillion US dollars.  Adjusting for inflation that will equate to approximately 8 Trillion.   (about  80 million per reader)

By comparison the total current value of the US stock market is somewhere in the 15 to 20 Trillion dollar range.  The total value of all US assets including real estate, equipment, gold etc.  is about 200 Trillion. 

So our kids and grandkids could potentially own ˝ of the entire US stock market or 5% of all US assets.   Not bad since we represent only 1/1000th of US households.

Wouldn't the stock market go up at a similar rate (10%), rather than at the rate of inflation? So the $20 trillion stock market now would be $15 quadrillion ($15,000 trillion) in 70 years. So it'd be 0.25% of the US stock market, not half.

Oh my,  I think you have caught me!  lol

It would seem at some point that if we were all buyers and never sold that we would eventually own it all?

[iris lily]

Unfortunately never. Eventually I'll retire and the compound growth will stop. If you assume I never draw down then there's no reason to have saved.

I figured that many would respond with that.  MMM is not doing that and I know many other folks who chose to continue earning enough money to support themselves after reaching FI.   MMMs definition of "retirement"  includes a healthy amount of work and earning.  He also appears to be amassing enough funds so that 1% is his SWR.

An interesting exercise to do is "what will happen to all the money I worked hard to save if I should pass away?"   

A lot of the SWR talk here assumes a long life when the reality is that many, many readers will not make it past 67.    (I'm 54/55 and can almost count the days till I'm gone)

The answer for me is to arrange my assets in such a way that they continue to compound and to educate and teach my children the philosophy,  so that they will not be trust fund kids but stewards of the family money. 

A billion might be 100 years off still at my rate and assuming the kids draw some down.   Just about the time many readers grandkids are in their 50s.

I'm with Prairie Practicality and plan to draw down the assets I've been accumulating. The main sticky in that wicket is my own feelings of horror that will kick in when I see that stache reduce in size.

I don't have children and have no plan to preserve this wealth. I imagine that I'll die first and DH can than do what he wishes with it, I don't care. If he dies first then I'll be spending a fair amount of it, and that include charitable donations while I'm still alive.

[Gone Fishing]

Not quite a billion, but by my figuring, if a Mustachian that can accumulate $1mm by 35, continues to work, save and get returns of 12% a year, they could be worth close to 1/2 a billion by age 85. Waste of a life if you ask me though...

[Elderwood17]

One can debate the return rates, the future plans of drawing down or not drawing down, but the numbers are still pretty impressive and fun to consider!

[Bob W]

Just for fun, here are the real billionaire's next door:

http://finance.yahoo.com/news/forbes-400--the-richest-people-in-america-2014-155843156.html

It think it's worth noting 4 of the top 10 in the US are siblings, so dad (Sam Walton) would've been #1 if he were still alive with their combined net worth.

Another 2 in the top 10 in the US are brothers, but I believe their riches were mostly due to their efforts even though dad started the company.

My guess is that there are many, more billionaires than Forbes has a line on.  For the most part, assets are not a public or trackable thing.   Most people don't go around advertising their wealth or where it is at. 

It is fun to know that Bill Gates could fund the US deficit spending for 25 days if he sold everything.   I guess a billion ain't what it used to be. lol   

[Cheddar Stacker]

We have at least one billionaire client who owns 100% of a privately held company. I don't know his exact worth, but his tax return is hard to believe.

[sol]

Though Bob's math is fuzzy, the central point is sound.  The rich get richer.

Income inequality increases over time.  The poorest workers will always stay poor, while the richest investors enjoy exponential growth and pull farther and farther away from everyone else. 

Which side of the divide do you want to be on?

[Cheddar Stacker]

Though Bob's math is fuzzy, the central point is sound.  The rich get richer.

Income inequality increases over time.  The poorest workers will always stay poor, while the richest investors enjoy exponential growth and pull farther and farther away from everyone else. 

Which side of the divide do you want to be on?

I'd like to position myself on the fence, squarely in the middle, just like I try to be politically and in most discussions I'm involved in. I'd like to work towards helping people on the poor side and bring them closer to the middle as well. I have no interest in becoming a billionaire for many reasons.

[dragoncar]

Though Bob's math is fuzzy, the central point is sound.  The rich get richer.

Income inequality increases over time.  The poorest workers will always stay poor, while the richest investors enjoy exponential growth and pull farther and farther away from everyone else. 

Which side of the divide do you want to be on?

Do we have a choice?  I don't think any amount of saving/working hard can get us over that line (luck, on the other hand, could get me that >$1 million/year income).  Trying to move up to the next echelon is like trying to level up in a video game -- you keep getting points faster, but you keep needing more points to level up.


http://www.theatlantic.com/business/archive/2014/03/how-you-i-and-everyone-got-the-top-1-percent-all-wrong/359862/

[Beric01]

Do we have a choice?  I don't think any amount of saving/working hard can get us over that line (luck, on the other hand, could get me that >$1 million/year income).  Trying to move up to the next echelon is like trying to level up in a video game -- you keep getting points faster, but you keep needing more points to level up.

If you do the math on what living a Mustachian lifestyle while working from 21 until age 65/70 would allow you to save, it's pretty incredible. Most of us don't want to work that long, but it doesn't mean it's not technically an option. I could have almost a million/year income (in today's dollars) if I worked until age 70 with my entry-level job. The power of compound interest combined with extreme savings rates.

[dragoncar]

Do we have a choice?  I don't think any amount of saving/working hard can get us over that line (luck, on the other hand, could get me that >$1 million/year income).  Trying to move up to the next echelon is like trying to level up in a video game -- you keep getting points faster, but you keep needing more points to level up.

If you do the math on what living a Mustachian lifestyle while working from 21 until age 65/70 would allow you to save, it's pretty incredible. Most of us don't want to work that long, but it doesn't mean it's not technically an option. I could have almost a million/year income (in today's dollars) if I worked until age 70 with my entry-level job. The power of compound interest combined with extreme savings rates.

Yeah, but the .1% income level (currently ~1 million) would probably be 10 million or 100 million (yes, in today's dollars) by the time you are 70.  That's the point of the graph -- the entry point for that group is increasing faster than your paltry 8% or 12% returns are going to provide.

[Apples]

There are definitely billionaires out there that Forbes doesn't know about.  This is a little off topic, but really cool so I wanted to share.  I got a scholarship to college of $12,000/year from the Lenfests (Gerry and Marguerite) who became billionaires when he sold his cable company.  They used to make the Forbes 400 list, but they've given away so much money they no longer make the list.  They are certainly spending down their fortune, but it's almost all through giving.  They still live in their original house from when they had kids, and only rent out part of a private jet shared with others (which, at their income level, is extremely cheap-and useful for getting to the various meetings around the country).  Anyway, these are billionaires who I think live out the MMM philosophy in their own way.  A letter that Gerry wrote:

Best at summing up his motives, and in characteristically terse fashion, is Gerry Lenfest who made a fortune selling his cable business to Comcast in 2000. Lenfest and his wife Marguerite have given so much money away they no longer make the Forbes 400, which is precisely the goal of the Giving Pledge. Most of their philanthropy has been focused on causes around the Philadelphia area. He writes to Melinda Gates:

Dear Melinda,

I have been asked why Marguerite and I made the Giving Pledge.

The first and compelling is the joy we experience in giving to worthwhile causes. Marguerite and I have given the bulk of our fortune away. Over the last ten years, we have created a scholarship fund to send needy young scholars from rural areas to the better colleges, have sponsored research used by others to introduce legislation protecting our oceans, have started the center for sustainable energy at Columbia University, have been the principal supporter of Teach For America in Philadelphia and have given to over a hundred other cases during that period.

The second reason is that we do not want to give excessive wealth to our progeny. Giving wealth to young and future unborn children, in our opinion, reduces or eliminates the character building challenges ahead of them in life that they would otherwise face.

Perhaps a third reason is that one is not measured by how many homes, yachts or airplanes you have. The ultimate achievement in life is how you feel about yourself. And giving your wealth away to have an impact for good does help with that feeling.

Sincerely,

H. F. (Gerry) Lenfest

So they really could be (well, were) billionaires next door.

[HawkeyeNFO]

I don't really care about being a billionaire, although that would be nice.  My goal is simple.....

TO TAKE OVER THE ENTIRE TRI-STATE AREA!!!!!

[Bob W]

We have at least one billionaire client who owns 100% of a privately held company. I don't know his exact worth, but his tax return is hard to believe.

That is extremely cool.   Curious,  does he live fancy pants or in a 3 bedroom ranch purchased 30 years ago?

[Cheddar Stacker]

We have at least one billionaire client who owns 100% of a privately held company. I don't know his exact worth, but his tax return is hard to believe.

That is extremely cool.   Curious,  does he live fancy pants or in a 3 bedroom ranch purchased 30 years ago?

I don't know too much about him, only hear stories, I don't work directly with/for him. What I've heard though is he will only take business meetings during happy hour at a very posh restaurant known as an active pickup scene for the wealthy. That should give you some indication.