How to Become a Millionaire (Seriously)

Alexander Green
by Alexander Green, Chief Investment Strategist, The Oxford Club
michael shermer freedomfest 0

I was supposed to debate New York Times columnist Robert Frank, the author of Success and Luck: Good Fortune and the Myth of the Meritocracy, at FreedomFest in Las Vegas next week.

Mr. Frank argues that if you are so economically successful that your income and net worth put you somewhere near the top of the heap, the deciding factor was not talent, education, hard work, risk-taking, persistence, resilience or all of the above.

It was luck.

You were just fortunate to be born to good parents in a nurturing environment, with an average or higher IQ... and to meet the right people at the right time and get the right breaks that ultimately led to your financial success.

Unfortunately, Mr. Frank has backed out of the debate. So Dr. Michael Shermer - best-selling author, monthly columnist for Scientific American and founder of Skeptic magazine - has agreed to step in and take his place.

I expect a lively and entertaining discussion. (And, incidentally, there is still time to attend. For more information, click here.)

In a series of columns earlier this year, I began launching salvos against Mr. Frank’s thesis. However, I started by conceding as many points as I could.

Good and bad luck permeate all our lives. There is no way of quantifying how much of each we’ve had, of course, and no doubt some of us have experienced a lot more of one than the other.

No argument there.

But setting aside especially good luck, like inheriting a fortune or marrying into it, and truly awful luck - like being born into abject poverty or experiencing a tragic accident or debilitating disease - are “lucky breaks” and “fortunate circumstances” really the primary determinants of economic success in this nation? Does this provide us with the most rigorous and intellectually satisfying account of how most Americans become rich?

Next week, I will argue an emphatic “no.”

Throughout his book, Mr. Frank relates one anecdote after another about the super-rich. Yet Bill Gates and Warren Buffett are emblematic of nothing but Bill Gates and Warren Buffett. Their economic success is so far out on the bell curve that it tells us almost nothing about how most people in this country become millionaires.

And, make no mistake, there are a lot of them. According to the 2013 Survey of Consumer Finances - released in September 2014 - 9.5% of American households have a net worth of a million dollars or more. That’s almost one in 10.

Of course, a millionaire is not someone who makes a million dollars a year - or even someone who has a million dollars. (If you have a million dollars in assets and $800,000 of debt, for example, you are not even a quarter-millionaire.)

A true millionaire is someone with a net worth - total assets minus total liabilities - of a million dollars or more.

Using this metric, and according to brand-new research by market researchers Spectrem Group, at the end of 2016, there were 10.8 million millionaires in the U.S.

That’s not just 400,000 more than there were at the end of 2015 - it’s the largest group ever. Our country has never had more men and women with at least a seven-figure net worth.

Here’s a more specific breakdown: There are almost 9.4 million individuals with net worths between $1 million and $5 million; almost 1.3 million individuals with net worths between $5 million and $25 million; and 156,000 households with net worths of $25 million or more.

(In case you were wondering, it takes a net worth of at least $1.7 billion to squeeze onto the Forbes 400. And the great majority of those on the list did not inherit their fortunes, but rather, they built them.)

But here’s the part about the one in 10 households that has a million-dollar net worth that may surprise you: Most of them used the same technique to build their fortunes.

Most did not found a computer company in their garage, play third base for the Yankees, or make a multiplatinum, Grammy-winning album. Instead they followed nearly identical principles of wealth accumulation and wealth management.

These precepts are simple and straightforward and should be taught in every public high school in America.

But they’re not. (Yet another reason to end the public education monopoly.) In fact, I find that even intelligent, well-read people with advanced degrees and broad experience don’t know or understand them.

Fortunately, I will lay them out for you in Monday’s column. So stay tuned...

Good investing,

Alex

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