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The Rags To Riches Trap

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We are impressionable animals. Our biology evolved to help us pay attention to the unusual in the pattern.

In the natural world, this is indeed helpful, because the opportunities and dangers usually show as a rupture of the background pattern. However important for us, those out-of-the-ordinary occurrences are just that, things that may not repeat themselves for a long time. We give them an overwhelming weight, but we shouldn’t let them be the center of attention for longer than their existence.

The American society is still great on its mobility. But it is important to understand that the rags to riches stories are statistically few enough to create the illusion of possibility without helping to create the conditions for a real change that affects the majority of the population. If it happens to you, great for you, but do not assume that is going to happen to everybody else. If it did not happen to you, do not worry, there is nothing wrong with you. Statistically you have the same chances to become filthy rich by your own effort than by winning the lottery. The only difference resides in that, if you achieved wealth by your own means, you are more likely to retain your gains for longer.

The history of Wall Street is fraught with stories of rags to riches. The American stock market is purported as the means that society has for redistributing wealth. The most recent chapter on this propaganda saga is the movie “The pursuit of happiness“. A more apt title for the movie should had been “The pursuit of a bunch of money”. I am pretty sure you can imagine thousands of ways to pursue happiness that are not exclusively related to money.

Regardless of the old cliché of equating happiness with money, the movie perpetuates and reinforces the Wall Street social carrot by showing the story of a 1/300,000,000 of the American population as proof that it is possible to move up on the social ladder.

Again, the odds of that happening to you are 1 in 300,000,000. By contrast, the odds on the worst American lottery (US PowerBall) are just 1 in 80,089,128.

This illusion (if you want to be polite) or outright lie, drives American workers to blindly loan interest free money every month to faceless Wall Street guys who don’t have any legal obligation to produce a return on the investment.

As a matter of fact, why don’t you try a simple exercise. Go to your local bank and ask a manager to give you a percentage of their gross income for the next 30 years so you can invest it for them. It is important that you mention that it has to be out of the gross income before taxes. If the manager raises an eyebrow, you can push your case. Tell them the wonderful benefit they will have because they will not have to pay taxes on that money, provided they don’t use it. If the manager does not start laughing then, you can provide the punch line. Tell them that, of course, since the markets are unpredictable, you may make or lose money on the investment, but that regardless of that, you still will receive a salary for managing their money. You see the absurdity of it. And yet, that’s what you do when you put money blindly in a 401k or other form of managed savings with risk exposure.

I can think, off the bat, of a few investments that can provide equal or better results than a 401k, regardless of employer contributions, and with lower risk. Any form of positive cash flow real estate investment (not the silly get rich speculation of the past few years), any form of long term investment on some wide-market ETFs (basically investing in the whole European economy, the whole Asian economy, etc.). And in general, any form of investment that does not runs after short term mad profits, will provide a more rational foundation for long term savings.

I do not provide investment advice, but if you spend one hour a day for the next two months on the web researching long term investment strategies, you will find out that the opportunities are plentiful. However, you will most probably get sucked in the next “big thing”, the next get rich overnight scheme of investing in gold, real estate, oil, or whatever is fashionable at the time.

How this is possible? Because in the paradigm of the “we can all be millionaires” social carrot, enough money to have leisure and to work until you feel like (not until you are not longer usable to your employer) does not seem to play a roll. And a dream of happiness on your own terms seems to be no dream at all. I say no, let’s create our own dreams. Dreams that entail a balance life that provides happiness as a way of life, not as a goal. And above all, that does not equate happiness with excess.

Dream Big

We got convinced that dreaming big is dreaming a life of excesses that can ignore, in the short run, our families, that cares nothing for the environment, does not care for our fellow citizens, or our fellow human beings (let alone the future of the species). I say that dreaming big is dreaming of a life of balance with ourselves, our families, our communities, our species, and our environment.

Whether you are trapped in the mad dash to riches and you can’t remember the names of your kids, or you are trapped on the rush to make rent and you can’t remember when was the last time you saw your kids awake, you need to understand that a better life is possible and it is at the tip of your fingers.

Stop running. Redefine your goals. Make a plan. Simplify your life. Go for it.

Finishing My Longest Post To Date

If we forget the rags to riches stories, if we dream big, if we are able to redefine our pursuit of happiness, we may be able to make the best of a bad situation. To do so, we will need time to learn how to manage our money, how to achieve financial objectives commensurate with our goals, and how to do it on our own.

This article is part of the series "Redefining Riches"

  1. How Your 401k And IRA Rob You
  2. The Rags To Riches Trap
  3. You Are Not Going to Be Rich
  4. It’s the History, Stupid
  5. Ghosts and Demons

Franklin @ December 7, 2007

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