Investing STILL Won't Make You Rich (Probably)

hey guys richard you're watching the plane bagel i was thinking of videos i could do while i'm kicked out of my studio uh while i'm kind of stuck in this office and i thought it'd be a good idea to revisit an older video i did over two years ago titled investing won't make you rich probably this is a video i put out fairly early on in my youtube career if you want to call it that where i talked about these get rich quick ads that i was getting on youtube it was kind of the first time i had seen these sorts of ads where these people were in front of their private jets and their fast cars and their mansions talking about how easy it was to get this sort of lifestyle through a trading program or course or whatever it was they're selling and i was very frustrated by them because i saw them as taking advantage of the market exuberance at the time because as i put it in the video 2018 was a crazy year i didn't know i i didn't know and the video did really well it seemed to circulate the online finance youtube space i received the blessing of the level 100 finance youtuber graham steffen it garnered a smaller at the time but quickly growing meet kevin response video and even spawned a few copycat videos which uh i'm flattered that the video is worth copying and honestly just finding kind of funny so really no gripes there but i want to revisit this topic because i think the message i was trying to get across is even more applicable today things have kind of only gotten worse from them we've seen an endless list of new nfts and crypto projects many of which don't have any merit but are simply trying to take advantage of that hype around them we've seen celebrities promoting these cryptos and being paid to you know pump up these assets and unfortunately it seems like a lot of everyday investors are the ones who are passionately posting about these things you know talking about how it's going to be the thing that changes their life now i know i'm a chronic party pooper but i can't appreciate that some people are me mean when they say to the moon or see you at the top but some people aren't so i want to put out another party pooper video to reiterate the points from my original video but i also wanted to take the time to clarify my original message because obviously with the admittedly more clickbait title uh some misconstrued the message as being anti-investment in fact the meet kevin video was a critique of mine that labeled the section that talked about my video investing makes you poor which obviously i don't believe so let me clarify upfront what i mean when i say investing won't make you rich probably because as you hopefully know i'm an advocate for investing it is my whole channel first of all by rich here i'm not referring to being financially independent or set for retirement because i do believe that investing can take a lot of people to that point uh you know there's still work you have to put in but investing is that great tool that closes that gap between where we are and where we need to be for retirement what i'm referring to is that kind of wealth that's being marketed in these videos say being like a multi-millionaire where you can afford a fast car and it's not really going to put a dent into your retirement savings and i'm also referring to gain rich in the short term as in say under 10 years because obviously the longer time you have the more money you can compound and really anyone can become the richest person in the world if they have all the time in the world so probably a better way to word it would be investing or even speculating won't make you rich in the short term probably and i always include that probably because yes there are stories of people you know making a killing off of bitcoin or whatever but the point here is that investing can only do so much 99.9 of the time it's not a miracle worker and you need to fuel your returns with savings with money that you've earned from active income say and put into the market it's very rare for individual positions to skyrocket by such a degree that it changes your financial situation and anyone who tells you that you can go from a minimum wage working cashier to a private jet flying yacht-riding millionaire through just investing through taking you know that small amount of savings and putting into promising positions that will skyrocket they're likely trying to scam you or at the very least sell you something that's probably not in your interest and to try to exhibit the limits of investing i want to go through a few exercises to show you the numbers of certain scenarios so you can better kind of comprehend what investing is capable of you know the great tool that it is but also its limitations as you probably know the long-term average of the s p 500 is roughly 10 so you could view that as being the market return that most people are able to access if they just put their money into say an index fund and 10 is a solid return over the long term not many people actually are able to achieve that amount but the thing is this 10 is both before taxes as well as before inflation and when you consider those two variables with some assumptions the return that you actually see is closer to 5.4 almost half of the original return it's not nothing and certainly better than a savings account return but it's not exceptional either so now to demonstrate what that return might mean for an investor let's say that you start off with ten thousand dollars you want to reach a million dollars just by investing that ten thousand dollars at this market rate in real after tax terms it'll take you 87.6 years to become a millionaire to reach that one million dollar mark which obviously isn't gonna work for most people but if you add savings to the mix that time period shortens quite a bit so let's say that every year you put three thousand dollars into the market in addition to that initial investment so it's about two hundred dollars a month that you're putting into your investment account at this market rate that you're able to achieve it would take you 52.8 years to turn that 10 000 plus your savings into a million dollars so great we've shaved off a lot of time but that's still a bit bigger than most people's average career length you're still spending a lot of your life just to get to a million dollars so how do you get there sooner well you can increase your savings you know try to earn a bigger income so that you can get more money going into the market whether that be starting a business or taking on education to earn a better job anything that lets you save more money but let's say that instead of saving money you focus instead on the return aspect you say you know i only have this ten thousand dollars i can only put aside two hundred dollars a month let's focus on bumping up that return figure and you know while we're at it let's try to get to that goal of a million dollars in real terms again um within a 10-year period like we mentioned earlier with these variables to reach that million dollars in a 10-year period you would need a after tax real return of 51.5 which means that you need a pre-tax nominal return so what you actually earn with your investments of 72.7 now admittedly that's a little high for reference some of the best investors in the world like peter lynch and warren buffett are on record for only earning a only a long term average return of 20 to 30 percent roughly in that range so it's kind of foolish to assume that you'd be able to beat the market to such a degree that you would earn roughly triple or more than triple what these famous investors themselves are on record achieving but you might say richard this time is different this is the age of the pudgy penguins and nfts of rocks this is an opportunity that we've never had before not really it's not the first market exuberance you know rally if you will that we've had around certain assets automobiles biotech computers the internet these are all things that had rallies around them and especially with the dot-com bubble we saw returns like we've seen with some of these positions but importantly these returns were all temporary they were all short-term returns that moderated over the long term they weren't able to consistently offer that return that would be needed to like i mentioned revolutionize your life not to mention that on top of all this there's the research that shows that a most people aren't even able to achieve the market return thanks to behavioral biases and limitations with their trading and investing strategy but also b that asset allocation so the asset class that you put your money into tends to play a bigger role in the return you see than security selection than the individual things you pick so chances are picking the right pudgy penguin will pay for your retirement uh they're a little slim so hopefully i've demonstrated just how rare it is to completely change your lifestyle thanks to the specific stocks or nfts or cryptos or whatever that you pick but i think it also helps to talk about how people do get rich then how do people get to that point where they're able to own these fast cars and private jets or even less so to just be a multi-millionaire and be sound financially and not have to worry about how much money you're bringing in well in my original video i highlighted a spectrum group survey that talked to households with net worths between 100 000 and million dollars outside of their primary residence and they asked these people you know how did you get to where you are and one of the things they did was they asked them to rank certain principles in terms of how important they were to getting to where they are today and one of the highest ranking sentiments was the following statement a dedicated and regular savings program is something i consider very important it earned a 81.98 score on the 2016 survey now this was the main premise of me kevin's video was that in the survey i was focusing on the lowest bucket of these households and then if you go to the higher buckets you know the 1 million to 5 million in the 5 million and up ranges that these people have more of their assets invested than the lower buckets and that's true you know these people are investing a lot of their money which is exactly the opposite of what we were told in plain bagels video that saving is actually what makes you rich and investing is not but i don't view a savings program as being mutually exclusive from investing and i don't think that's how it was interpreted in the survey i think it's just saying you know these people tried their best to not spend all their money and in fact if you actually look at the millionaire in the ultra high net worth groups they actually scored higher on the same statement the millionaire group scored at 84.14 and the ultra high net worth group scored it at 85.52 so it seems to be that when you ask people who are millionaires an important factor for their success is their prudence how they save their money didn't spend it and use that money to grow their wealth at least anecdotally this lines up with my own experience working in the field as many of you know i work for a money manager where we have a minimum investment amount of five hundred thousand dollars so a lot of our clients are high net worth clients if not ultra high net worth and the vast majority of clients have gone to that point by either owning a business having a very high paying job having a you know more average paying job but being very prudent with their spending or the fourth bucket being inheritance that's actually surprisingly a very high group so that's a strategy as well for getting rich so all that is just to say that if you put millionaires into different categories the group that you know got to being a millionaire thanks to a certain investment kicking off is probably one of the smallest groups out there and it's clearly not the most reliable way to get into that stage in your life and if you see someone who's wealthy promoting something using their wealth to try and prove to you that this thing works most of the time they didn't make their own money from that thing but rather either the selling of that program or some other thing that's totally unrelated or different from what they're selling you logan paul obviously didn't get rich from dink doink and that's not to say that people shouldn't be able to make cryptocurrencies and nfts and all this stuff that's truly not what i'm trying to get at here i'm not trying to say that we should heavily regulate the space but i do think there needs to be more protections in terms of how these things are marketed that applies both to trading courses and to actual assets there's a reason that you don't see financial advisors saying guys this stock is going to the moon it's because they're heavily regulated and that's incredibly unethical and yet you can have people who made a cryptocurrency promote it as an incredible revolutionary investment opportunity that will make you a billionaire and then you know when you challenge them it's oh it's not financial advice this is just a social experiment if you will but guys one that will make you a lot of money trust but until we see more action we are largely left to fend for ourselves so if you see an opportunity that's being presented to you as life-changing as something that will make you rich that you know is very easy very short-term and could change your life just ask yourself why are they selling it to you why are they selling to you say a youtube viewer instead of a higher net worth person with more money ytu and not a hedge fund that could pay millions if not billions up front for a proven investing strategy or asset why sell you this thing up front instead of just agreeing to manage your money on your behalf and earning these returns themselves and earn a very sizable fee doing so over a long period of time the answer of course is because they don't have a promised method for earning these returns and in taking this approach where they sell you the asset they sell you the course or whatever it is they are transferring the risk of that thing not turning out as they said it would to you the buyer so of course they'll say whatever it takes to get you to buy that thing because once you've taken it they've made their money they're done and they don't need it to pan out anymore so that's a lot of rambling for me but what's the takeaway well really it's just there's no cryptocurrency nft stock or trading course that substitutes being financially responsible and in some cases earning an active income you can't go from zero to hero there's only so much investing can do and really like i said it's not a miracle worker you do have to give it something to start compounding it's a bummer but the sooner you recognize that the sooner you can start investing responsibly and seeing your returns compound i know after all this some people call me a hater or a fuddrucker a party pooper hopefully actually if i did my job right but hey look i would love it if you could buy a single nft or crypto or whatever and make all the return that you could ever need i would love to see people who are in a desperate financial situation get to a point where they're okay all thanks to a single asset but that's just not how it works there's just nothing out there that's a quick fix pill that is easy to take and that solves all your problems and you shouldn't be using investing as a crutch for very real financial problems because in many ways these programs these assets are just selling you a false sense of relief and if you're someone who made a fortune from these things that's awesome it's unlikely but certainly there are people out there all i'm saying is that for most people it's not a reasonable strategy to focus on that kind of return when it's very rare to see that and please don't interpret this as a bear case for cryptocurrencies or assets or programs or whatever you know like i said i don't care if you make a crypto i don't care if you sell a trading course or whatever it's just how these things are marketed that really gets to me and i hate seeing these dreams sold when they're all usually just fluff so that's all the energy i have for this video i'll wrap it up there and i hope you found it useful i know a video is not going to solve this problem but at the very least it's event for me to voice my frustration with these kinds of things as someone who works in the field and you know has studied and has seen people you know go through these things but alternatively have seen people improve their financial life through investing and through responsible financial strategies i just don't like to see this kind of stuff and i felt like i wanted to address it again given that compared to 2018 things seem even crazier anyway thank you for joining me today i hope you enjoyed the video please do comment like subscribe it all helps the channel and i very much appreciate it and as always be safe out there

Channel: The Plain Bagel

Views: 735,972

Keywords: Investing, Meet Kevin

Id: H5jPJQ5cVGU

Length: 14min 43sec (883 seconds)

Published: Fri Oct 22 2021