Monevator: The UK's leading website for private investors

Can you invest your way onto the Rich List?

by The Investor on May 15, 2019

Cover of the 1999 Sunday Times Rich List.

I have long had a guilty fascination with The Sunday Times’ Rich List.

I remember its launch in the 1980s. It seemed a fanciful publication. As a teenager in a comp in the provinces, I saw TV skits about yuppies in London getting rich, but I doubt my family knew a higher-rate taxpayer. The Rich List was about as real as the Lord of the Rings.

Later, as a lefty student and then a mildly hedonistic 20-something, I continued to check in with the annual tally of the UK’s top 1,000 multi-millionaires. My parents kept it for me to read on my visits, and I watched as the List was transformed from a running scorecard of post-1066 jockeying to feature more financiers, entrepreneurs, and later oligarchs and other wealthy incomers.

Then, somewhere around the LastMinute era1, digital start-ups became sexy and I became more annoyed that I hadn’t made my fortune.

True, it was hardly surprising. I was working in a low-paying media job mostly for the perks. I hadn’t started a dotcom, and indeed I hadn’t even begun investing!

But that’s what the Rich List does to you.

Just as other people are frustrated by six packs in Men’s Health or long legs in Cosmo, the future founders of financial blogs probably can’t help comparing themselves to the Monaco-going Joneses.

Friends (or acquaintances) in high places

Of course I should write a bit here about how enjoying an ice-cream on a windy British beach with your loved ones is the height of life’s riches.

Or how you can live like a billionaire on the cheap.

Certainly my co-blogger would pen a missive about the folly of chasing unicorn-founding unicorns.

Agreed, yes yes, the denizens of the Rich List have more money than most of us will ever need (some of them may be excused a requirement to fund small private armies in suspect states) and there’s much more to life than money. I learned that young, too.

Still, it would have been nice to have made the cut by now. I manifestly haven’t – I’m not sure I would even if the supplement was expanded to the thickness of a Yellow Pages. (There’s a lot of asset-rich oldies out there nowadays.)

Adding to my angst, the Rich List is no longer the outright fantasy it was back when Kentucky Fried Chicken was my birthday treat.

I’ve met hundreds of very rich people in the years since then. I’ve several wealthy friends (universally good sorts, but I pick them that way) and there are even a few people on the Rich List who’d reply to my emails. One or two I might conceivably have dinner with. And most of them got on to the list in the time I’ve known them.

So it Can Be Done. Just has not by me!

In the compound

This isn’t a shocker. I tried starting a business with some friends a decade or so ago but bailed out after a couple of years. It wasn’t for me.

Investing is for me, but even here I’ve not pursued some opportunities that presented themselves. (Specifically, I’ve never tried to set up or even get a job running a fund. Maybe that wouldn’t have worked out either – I didn’t pursue the slender openings for a reason – but who knows.)

So that leaves compounding my own wealth, on a decent but pretty average by successful Londoner standard’s income.

Is it feasible? Can you invest your way onto the Rich List?

Zero-ing in on millions

I turn reflexively to the last page of the Rich List first, to see the current cut-off. This year it’s £120 million to make the final 1,000.

Can I compound my way onto the List before I’m more likely to trouble the obituaries?

Obviously we need an expected return rate to plug into the Monevator compound interest calculator. And since my last dalliance with revealing more about my active investing stalled, I don’t propose revealing precise figures here.

Additionally, my income is still rising and I’m not even rich enough for savings not to make a big difference to the final sums.

I’m also now using leverage, effectively, with an interest-only mortgage set against my flat.

And I’m only going to do rough-and-ready sums anyway. This is just a thought experiment, not a submission to the FCA!

In consideration of all that, let’s pick a reasonable ‘rate of wealth growth’ (ROWG) to plug into the compounding machine.

If I consult my investing logs, I can see that over the past ten years my ROWG has been about 23% annualized.

Nice!

However that’s growth pretty much from the nadir of the financial crisis – a time when I was literally selling possessions to buy more shares.

Clearly that was a generational basing opportunity for anyone who wants to produce a high ten-year return figure. What about over five years?

My five-year annualised ROWG comes down to about 16%.

We need to knock a bit off for inflation, so we can compare the £120m today with the same amount in 2040 or 2050. In practice the rich are getting richer ahead of the rate of inflation, but I’m going to ignore that to keep things simple. And who knows if it will last, anyway.

My investment returns would surely become constrained as my wealth grew in this (fantastic) scenario, although I’d hope to offset some of that drag with more direct investing in businesses and property, and perhaps a bit more debt-juicing. Savings will eventually be irrelevant to growing my net worth, too, whereas they have definitely been a factor in reality.

I’m going to settle on a real2 ROWG figure of 10%.

You may well feel that’s ludicrously high. Fair enough. As I say, all this is just for fun.

I will ignore the rampages of tax. I’ll assume everything is in a tax shelter and not withdrawn, or else is locked-up as capital gains.

Plug all that into the interest-upon-interest adder-upper, where does that leave me?

Well, unless I’ll be approaching my telegram from an equally geriatric King William to brighten up my mornings, I will probably not be making it onto the Rich List through my active investing prowess alone.

Stand down The Sunday Times!

Loadsamoney

What about you? Maybe you’re very rich already, much younger, or a true once-a-generation investing genius?

All of that will help. Could you become one of the UK’s 1,000 wealthiest simply by compounding savings from your 9-5?

Here are a few scenarios showing how you could hit that £120m in today’s money, and how long it would take to get there. (Position your mouse over the footnote numbers to see my assumptions.)

Future Rich Listing Non-Professional Investor	Starting pot	ROWG3	Years
Young inheritor4	£20m	3%	60
The Next Spare Room Warren Buffett5	£20,000	17%	46
The New DIY George Soros6	£20,000	27%	32
Ultra high-earning global indexer7	£50,000	5%	75
The cryogenic investor8	£5,000	2%	275

Note: You probably don’t want to try anything but saving-and-indexing at home. Especially the cryogenic stuff.

You can see the assumptions I’ve chosen for my table in the various footnotes. And I am sure that in the time it takes to read them, many of you will find objections.

Fair enough. This is just an arbitrary illustration of a few scenarios as a conversation starter. Feel free to plug in your own numbers. Let us know what you discover in the comments.

However I think the table does illustrate:

Why nobody on the Rich List got there by investing their down-to-earth wages.

Why it’s important to remember that even Warren Buffett first made his starting pot by running a hedge fund.

Ditto George Soros, whose legendarily high returns weren’t actually achieved for a period as long as 32 years. (I strongly suggest you don’t use 27% for your sums. Try 7% if you’re bold.)

It does help to start very rich to end up truly filthy rich, but even that’s not enough unless you take some risks. If our inheritor had put the family silver into a global tracker it would still take 37 years to turn their pot into the £120m in today’s money that’s required. Most rich people are more concerned with wealth preservation.

Grow very old to get rich and be remembered.

As I’ve said before, if you want to make easy money do something hard. Starting a business that becomes a household name – or at least big enough to get into scraps with governments – is the only real chance most of us have of making the Rich List. (That or starting a hedge fund.)

Deflated? Oh well, remember net worth =/= net wealth.

Feel better now? Thought not!

Who wants to be a multi-millionaire, anyway?

To conclude, I’ll stress that if I actually was loaded enough to be in the running for Rich List positioning, I’d do my damnedest to keep it a secret.

I’m a very private person. The last thing I’d want to see is a photo of myself in print standing next to my wife/dog/double oven trying to appear smugly relaxed.

When it comes to my Rich List daydreams, it’s more the thought that counts. Agreed, it’s not a good thought. It’s not a good competition. But I’m only human.

Luckily it seems the maths will save me from myself.

Anyone out there feeling punchier? (Any Monevator readers actually on the List?)

c. 1999. [↩]
i.e. Inflation-adjusted [↩]
Inflation-adjusted, and unlike the ROWG figure I used above NOT including savings from income. Those are plugged in separately. [↩]
Assume a 3% safety-first real return, no spending capital, no net savings from fun Trustafarian job. [↩]
20% annual returns, adjusted down 3% for inflation. Savings add flat £10,000 a year. [↩]
30% annual returns, adjusted down 3% for inflation. Savings add flat £10,000 a year. [↩]
5% annual real return. Saves flat £75,000 a year over period. [↩]
Saves £10,000 a year, much kept in cash. Freezes her brain in a jar. [↩]

{ 11 comments }

Weekend reading: We need to see a shrink

by The Investor on May 10, 2019

What caught my eye this week.

For some people, news that the population time bomb may be spluttering gives hope we can halt – or even reverse – environmental calamity.

For others, it’s the harbinger of a demographic shift that will hole portfolios below the line and lead to a great deflation.

Given the huge numbers involved – billions of lives, trillions of dollars – there’s naturally some debate about exactly when Facebook will have to start reporting shrinking user numbers.

This graph from Bloomberg plots several schools of thought:

(Click to enlarge the population projection!)

I argue quite often with friends – some whom I’d never expect to have such a debate with – about the desirability of a radical reduction in the human population.

I’m all for it. Presuming it happens slowly, and without plague, nuclear bombs, or grey goo.

But many friends are perturbed by the idea.

Some are parents who tell me their kids will pay my pension, and theirs. A handful are religious. But unexpected friends fear it, too. Determinedly childless singletons, and one who otherwise seems a confirmed misanthrope.

Our two million-year-old family tree was populated by those with genes that willed them to spread far and wide (and trimmed the likes of me) so I shouldn’t be surprised.

I suspect it’s also a cultural thing. The very idea is alien.

I have daydreams of half a billion people living in beautiful megalopolises, serviced by robots, surrounded by wilderness, and connected by Hyperloops and electric helicopters.

They see a lack of consumers. And, I suspect – though it’s unspoken – a lack of Europeans.

Bye bye birdies

Whether a plateauing population can save the planet is as debatable as whether capitalism could withstand it.

From the Bloomberg piece:

Let’s assume that their lowest population projection is correct, and global population will peak in 2045. That’s still a quarter-century from now, and population wouldn’t return to current levels until the 2090s — more than enough time for us to drive hundreds of thousands of plant and animal species extinct and perhaps boost global average temperatures enough to bring polar-ice-cap-melting chaos.

The “rapid development” scenario behind that population forecast also requires that poorer countries, well, develop more rapidly, which in the past has meant rising per-person environmental stress.

If India’s population were to stop growing tomorrow but its per-capita carbon emissions kept rising to current U.S. levels (a nearly tenfold increase), that would lead to a 59 percent rise in global carbon emissions, all else being equal.

Before anyone types it, yes I’ve read stuff by Hans Rosling and Bjorn Lomberg. The former is great but very anthrocentric. The latter was weak on biodiversity, as I recall.

Personally, about the only reason I have for not wishing I was 20 years younger – apart from genuine gratitude at the life I’ve had along the way – is the mess we’re making of the planet.

(Oh I know, I know, you wouldn’t change a thing… but think of the compound interest!)

Related reads this week:

A good primer for private investors on global warming – DIY Investor
The UK just went a week without using coal. Here’s how it did it – WIRED
Scientists test radical ways to ‘fix’ the Earth’s climate – BBC [continue reading…]

{ 23 comments }

Why I’m saving and investing for the disaster to come

Updated by The Accumulator on May 7, 2019

Some people are preparing for the end of days. A fall or retreat of civilisation, linked to peak oil or the collapse of the global financial system or environmental disaster. Or whatever.

The solution is extreme diversification – up to and including living off-grid, or buying your own remote and defensible farmstead, complete with independent water supply, power generation capabilities, and the ability to feed your nearest and dearest until the smoke clears.

Anyone with an imagination is surely visited by such visions of the Apocalypse.

But the disaster scenario that preoccupies my mind is purely personal.

What are the chances that life will turn out as I dream it will – contented, productive, and blessed with good financial and physical health – without the intervention of some catastrophic event that leaves the long-term plan in ruins?

Financial disaster strikes

Whatever the odds, I’ve known a number of people who’ve suffered irreparable loss of income due to a bad roll of the dice:

One was forced out of a job they loved by workplace bullying. Their loss of confidence has meant they’ve never returned to the same level.

Another rose to lofty heights before being sidelined by management politics. Redundancy followed, and equivalent positions are often impossible after a period out of the workforce.

The trajectory of many other lives has been permanently damaged by misfortune such as:

A rapid deterioration in physical or mental health – either their own or somebody near and dear.

Loss of funds due to fraud, scandal, or naive decision-making.

Loss of reputation or freedom.

Divorce, addiction, abuse, or the death of someone they depend upon.

Ill-advised ‘all-in’ investments/bets that ended in failure.

The foretelling

Whatever the cause, I doubt many of the affected thought it would happen to them, nor did they plan for it.

Because how can you plan for an ill wind?

I’m a relatively optimistic person – this post aside – but witnessing the casualties of life has caused me to assess my personal risk exposure to a reversal of fortune.

I don’t work in a job that exposes me to a high degree of accident or danger.

My health should be okay, too, especially given my family history, my familiarity with kettlebells, and my all-you-can-eat approach to vegetables.

But the industry I work in is being rapidly transformed by the creative destruction of the digital age. It’s an opportunity for some, but the inevitable outcome will be fewer people being employed doing what I do.

There’s every chance that I could get caught up in the fallout – my skills deemed obsolete, or at least worth a lot less in the era of globalisation.

Given the increased volatility of the global economy, I could be a casualty of a dip-of-the-curve sometime in the next five or ten years. And there’s no guarantee that I’ll be able to make good the loss.

Prepare for the worst, hope for the best

That’s a big part of the reason why I’m not relying on a 25-year plan to pay off the mortgage or an optimistic investment strategy that relies on my life going like clockwork until I can retire at 65.

I can’t plan for a quantum universe in which I’m struck by a debilitating illness1 when I’m aged 55 and 11-months.

But I can give myself plenty of room for error.

I’m saving and investing much more than I need to, by conventional lights. I want to do the hard work upfront while I still can.

The way I see it, by spending less on fancy caffeine now I either reach my goals more quickly, or I am better insulated against my personal apocalypse, if and when it happens.

Take it steady,

The Accumulator

Of course there’s insurance, but it’s hard to insure against every possible calamity that can afflict you and yours without paying well over the odds. [↩]

{ 45 comments }

Weekend reading: What a drag* it is getting old

by The Investor on May 3, 2019

What caught my eye this week.

How are you feeling? Pretty comfortable? Enjoying the stock market recovery? Ready for a relaxing weekend?

Well I’m here like the Angel of Bad Breath to cause a stink with the following miserable graph, which comes courtesy of The Retirement Field Guide via Abnormal Returns:

The graph shows how after the age of 60, financial literacy decreases by about 1.5% a year.

As author Ashby Daniels says:

Nobody likes to think about getting older. Even less so, nobody likes to think about the decline of their mental health.

But the harsh truth is that as we get older, our cognitive abilities decline. This is especially true with regard to personal finances.

In an era when we’re being charged with taking control of our finances as never before – from how we save for retirement to how we invest our pensions – this seems to me a wrinkled grey elephant in the room.

Older and not wiser

Even worse of course is that we don’t want to admit to any decline. Just as we’re all better-than-average drivers, so we’re destined to believe we’re on top of our finances long after we’re not.

And let’s face it, older people aren’t exactly receptive to being reminded of these issues. My mother already thinks young people have it in for her generation by questioning its stance on Brexit.1 It’s easy to guess how they’d take to being told they don’t know best what to do with their own money.

I’m saying “they” but I appreciate not a few of you are in this older age group. Besides, I know what I’d say if confronted for the first time at 75 by someone saying they needed to take control of my investments (er, “f…lounce off!”) so we’re all in this together.

Clearly there needs to be more discussion – not least on our own site – as to how to guard against the potential downsides of poor decision-making in our later years. Children should be involved before they’re needed if they’re around, capable, and willing. If they’re not all three, there’s a role for trusted friends or professionals.

Many of us may aspire to remain mentally agile Warren Buffett types at 90 – that’s long been my goal – but it’s not in our gift to make it so, however many crosswords we do and new languages we try to learn.

“I’m mismanaging my own money”

Incidentally, this decline also has a potential impact on asset allocation decisions and other aspects of portfolio management that you rarely see referenced in the literature.

At the least it’s a tick in the box for underwriting your minimum income requirements with a simple annuity.

I also wonder if I should better incorporate it into my arsenal in my on-running guerrilla war against the “Screw income, total return is all that matters, sell capital each year!” passive orthodoxy.2

I’ve noted in previous skirmishes that calculating how much to withdraw and selling down your capital each year might seem a fine plan at 45, but it could be terrifying prospect for a mentally slipping and frightened 80-year old.

Monevator contributor The Greybeard has pondered this quandary, too.

Perhaps relying on a portfolio of income generating funds dumping cash into a current account (i.e. not even bucketing) would also be beyond me in that state but it seems intuitively to be a lower hurdle.

Again, what a shame (most) financial professionals don’t have the same reputation as say doctors. There’s an obvious need here. But not an all-encompassing obvious solution.

Enjoy the weekend, whatever age you are!

*A drag on your returns. Geddit grandpa? What, you’re only 26? Oh, it’s sort of a pun.

p.s. I’ve closed the poll in our great debate about whether to include your house in your net worth number. In the end 54% of you voted yes and 46% said no, with nearly 1,200 readers voting. The comments on that article were excellent, too – well worth a read if you’ve only seen the post over email. Thanks to everyone who chipped in!

[continue reading…]

No, not every young person. No, not every old person. But a valid generalisation. See: https://twitter.com/SkyData/status/746700869656256512 [↩]
Which includes my own co-blogger, who I have immense respect for so obviously I’m teasing a bit with my language here. Also as I’ve said many times, living off income is a richer retiree’s game, and it leaves a lot of cash on the table when you die. [↩]

{ 55 comments }

Next Posts Previous Posts