Is it possible to become a millionaire (or near to) through investments?

grey_gym_sock

jamesd wrote: »

It can also happen where you control your own currency but there you have a not so secret weapon: you can deliberately increase inflation to deflate away the debt. Which is one part of what issuing more gilts does.

i agree inflation is the limiting factor. but the way i'd look at it is: where is the inflation now? there's almost none (even if you strip out the effects of falling commodity prices, as a mostly external factor). which suggests that we don't have a high enough deficit.

it is not directly the deficit which causes inflation: it's total demand (from public + private sectors) greater than the capacity of the economy. if you have too much demand, you can reduce it either by reducing public spending, or by increasing taxes (which reduces private sector demand by some extent - though generally by less than £1 for every £1 rise in taxes).

too much demand, and you get inflation; too little demand, and you get unemployment or under-employment. we currently have the latter.

and to look at it from another point of view: gilts are currently paying about 2% on the longest-term issues, less on shorter-term. even meeting the 2% inflation target would reduce the real return on gilts to slightly less than 0% . a bit of growth would also help, to keep the deb-to-GDP ratio down. but really, not much inflation, and not much growth, is needed.

There are limits to how far you can take this, as Zimbabwe discovered a couple of years back when they did a rerun of inter-war German inflation rates courtesy of massive money "printing".

i do think a big siren should go offer every time somebody makes an irrelevant analogy to zimbabwe or weimar inflation. both of them were trying to pay debts that weren't denominated in their own currency - zimbabwe in US dollars, germany in gold. and i keep on mentioning debt-to-GDP ratio - which is very relevant to zimbabwe, since they'd just completely messed up their agricultural sector, reducing their GDP.

jamesd

In the case of Zimbabwe I don't think it was much to do with their external borrowing, they were more doing it to pay unaffordable internal debts. Though agreed about the agricultural sector there.

Malthusian

this is why we should have a counter-cyclical fiscal policy, i.e the government should spend more when the economy is doing badly, less when it is doing well (though it should still usually have a deficit then, just a smaller 1 - because the debt-to-GDP can fall even when you have a deficit, providing you have enough growth).

A pipe dream. Works in economics textbooks but not in reality. When the government increases spending it doesn't come down again. Not without a seismic political shift, a Winter of Discontent followed by a Thatcher. Those kinds of shocks happen once a generation, not once an economic cycle - too rarely for Keynes' idea to work.

Governments increase spending in bad years "because Keynes" and then in the good years they increase spending again "because look at all the money we've got! Let's make the NHS the envy of the world! Run a surplus? Why? We have abolished Tory boom and bust!" This continues until reality intervenes.

EdGasket

In answer to the original question then yes of course it is possible; if you are lucky and take a risk. You won't become a millionaire with £1000 in the post office but might trading high-risk shares (although more likely lose the lot).

If it helps, in my case I could easily have been a millionaire by just selling sharesI have bought at the optimum time. The trouble is one doesn't know and I have often sold shares for a 10 or 20% gain only to find out months or years later I might have made 10 times my initial investment. As it turns out I haven't done very well but at least I tried; that is important to me.

grey_gym_sock

Malthusian wrote: »

A pipe dream. Works in economics textbooks but not in reality. When the government increases spending it doesn't come down again. Not without a seismic political shift, a Winter of Discontent followed by a Thatcher. Those kinds of shocks happen once a generation, not once an economic cycle - too rarely for Keynes' idea to work.

as i said, we get most of the counter-cyclical fiscal policy from the "automatic stabilizers", i.e. more benefits being paid out, and less tax being collected, in recessions. this reverses automatically after a recovery.

that's reality, not a pipe dream.

and do you think it's a bad thing? would you rather have another depression like the 1930?

Governments increase spending in bad years "because Keynes" and then in the good years they increase spending again "because look at all the money we've got! Let's make the NHS the envy of the world! Run a surplus? Why? We have abolished Tory boom and bust!" This continues until reality intervenes.

OK, let's look at the post-WWII period. the debt-to-GDP ratio was over 200% . and the government started spending more on the NHS, eduction, social security, housing, etc. and they never cut that spending. it must have been a disaster, right?

but wait, actually it wasn't: by the 1970s, the ratio had fallen below 50% . how was that possible? economic growth. if the economy grows enough, you can run a deficit all the time, and the debt ratio can still fall.

and meanwhile, the population benefited from better healthcare, housing, eduction, etc. and this spending is part of the reason we've had economic growth: a healthier, better educated population makes for a better workforce.

when you try to cut spending in the face of a recession or a weak recovery, as osborne has done, the debt ratio continues to rise, as it has done. and the population suffers from the cuts. it's cruel, and it doesn't work.

Malthusian

Debt to GDP ratio is an irrelevant statistic. Proportion of state spending to GDP is what you need to look at.

State spending has not yet fallen back to the level it was at in 2006 / 2007 before the credit crisis hit, and we were at the top of the boom cycle then. Of course debt is continuing to rise. What did you expect? Suppose someone posted on this forum and said "I'm spending £100 a month more than my income, and I'm £20,000 in debt. They told me I should cut back so I cancelled my Sky Sports subscription which saves me £50 a month. But my debt balance is still going up, so cutting back was a waste of time!" Would you sympathise and tell him he's absolutely right, that austerity is stupid?

Improved healthcare, housing and education is due to improved technology delivered predominantly by private research and capital. Not government spending. If in the 1950s the government had decided that it was going to massively increase its investment in housing, every council house in the contry would have acquired two outhouses. When the government decided to massively increase spending on the NHS, the standard of healthcare improved not one iota, but we acquired thousands more middle managers and the nurses all got degrees. Increases in education spending mean every other class now has a teaching assistant who stands in the corner and doles out question sheets, but more children than ever leave school unable to add up or write a letter.

maxie014

Surely its possible in the long term,i had an uncle who won the spot the ball in about 1980 about £40k a big win at the time,he shared a bit around to family and then invested the rest in various things as well as regular savngs.He died youngish 50s but had built a fair old wedge up by then by all accounts,if he had carried on till old age he would have had a big pot would he not?

BananaRepublic

grey_gym_sock wrote: »

perhaps it is more that you have fallen for the austerity narrative, including the notion that part of the problem was labour spending too much. the real problem was entirely to do with the finance sector, and failure to regulate it.

The problems were two fold. Firstly numerous banks found themselves saddled with large amounts of bad debt due to the selling of mortgages to people without the finances to pay for them, in the US. No-one knew which banks were susceptible to collapse, so no-one was willing to lend to banks. And banks turned off the taps, strangling the economy. Secondly our spending was too high such that when a crisis hit, we were suddenly faced with a huge deficit. It could be argued that the underlying cause was a failure to spot the bad debt, and the fact that it was 'hidden' in complex financial instruments. We have had bubbles before, they seem to be a feature of market economics, but this one was so severe because of the bad debt.

grey_gym_sock wrote: »

it is true that labour kept spending down for about the first 5 years they were in government, and spent a bit more freely in the next 5 years. however, the effects on outstanding government debt were pretty small: the debt-to-GDP ratio first fell from about 40% to the low 30s, and then rose again, retracing most of the fall. then the financial crisis hit, and the ratio rocketed to about 80% .

complaining about the 5 pre-crisis years of slowing growing debt is a bit ridiculous, when that 5 year trend would have had to continued for about 50 years before it took the debt ratio to where the financial crisis took it in just a few years. and the current ratio is not even worryingly high (compared, say, to a ratio over 200% after world war II). it would be worrying if it rocketed up again, but its being around the current level is not a crisis in public debt at all: that is pure fiction.

the UK's credit rating was downgraded, in 2013. perhaps the reason you missed/forgot that is that it's of no importance. the cost of government borrowing has continued to fall since the downgrade.

why is it of no importance? because if you are, say, a UK pension fund, with liabilities in sterling, then gilts (which are promises to pay amount in sterling, made by the UK, which has the power to create any amount of sterling) are the ultimate safe asset for you. credit ratings can't change that. of course, if you invest in corporate bonds, you may well look at their credit ratings, because their are many issuers of corporate bonds to choose from - but there is only currency issuer for sterling, the UK.

forget the liberal democrats. (and balls to balls .)

the austerity narrative is economically illiterate. it ignores some basic economic principles which keynes explained over 50 years ago.

go back to the 1920s and 1930s. "laissez faire" economists thought that the State should do as little as possible to interfere with the economy; and in the name of "sound finance", the State held down spending in the face of recessions. these policies were a complete disaster: they led to the Great Depression of the 1930s.

the economy turns out to be an inherently unstable system. when things start to get worse (for whatever reason), employers cut jobs, and cut investment, and households spend less when they lose - or fear losing - their jobs, which leads employers to cut further, and so on. the process does not automatically fix itself: it can become trapped in a depression.

the 1 economic actor who is in a position to do something about this is the government. it alone has the scale to make a difference. it can choose to create jobs, and the workers who get those jobs will spend more, which leads to further indirect job creation. (this is what the 1930s New Deal in the US was trying to do, with partial success - though the government didn't spend enough to completely shake off the depression until world war II.)

now this can work even if the jobs which the government initially creates are doing something completely useless - hence keynes' comments about how they could just bury money underground, and leave it to private enterprise to dig it out. but of course it is even better if the spending is on things which increase the productive capacity of the economy, i.e. investment in infrastructure, and improving the workforce's skills. this is where investment has some relevance - though it would be a mistake to overlook skills, too, though they don't count as investment because you can't put them on a balance sheet.

this is why we should have a counter-cyclical fiscal policy, i.e the government should spend more when the economy is doing badly, less when it is doing well (though it should still usually have a deficit then, just a smaller 1 - because the debt-to-GDP can fall even when you have a deficit, providing you have enough growth).

now, in fact we do have a counter-cyclical fiscal policy automatically nowadays, in a way we didn't in the 1930s, because some kinds of government spending (e.g. unemployment benefits) rise automatically when the economy falters - and this is good, not just for ppl who lose their jobs, but also as a stabilizer on whole economy, to make recessions less severe; and we have taxes which automatically take less money out of the economy in a recession. this is why things are not anywhere near as bad in the 1930s (in the UK, or in most countries - though they may be as bad in, say, greece).

so these automatic stabilizers are very useful, and they work even with no changes of policy from the government. the question is about what the government should do on top of that. a sensible policy, in the face of a major crisis, is to go further than the automatic stabilizers, and spend more, for instance by bringing forward proposed infrastructure projects, increasing support for training, and so on. the austerity line is to do the exact opposite, i.e. to hold down government spending - it will still increase, due to the stabilizers, but to make the increase smaller than it would otherwise be. this is an insane policy, because it deepens and prolongs the recession, or - if the austerity is milder - makes the recovery very weak and slow.

this is exactly what we've seen. in the last couple of years of labour government, they did do a few things to try to try to stimulate a recovery - e.g. temporarily cutting VAT. did they do enough, or the right things? i doubt it. where was the massive housebuilding programme, or big investments in clean energy? but at least they were going in the right direction, i.e. providing some policy stimulus in a recession.

then the tories got in, and started with austerity policies. they nearly killed the nascent recovery, and in 2012 they backed off on austerity, which allowed some recovery. but it has been the weakest recovery from a recession since the south sea bubble, almost 300 years ago (if we should rely on such old statistics - perhaps we should just say the weakest since we have decent statistics).

That is the Labour party line. They claimed that the solution to the crisis was to keep on spending. They said Osborne's cuts would severely damage the UK, as did the IMF under Largade. Both later executed a U turn, with the Labour party agreeing that cuts were needed, and Lagarde stating that the IMF were mistaken.

The crisis was very severe and almost brought down the banking system, according to Alastair Darling, and in an extreme scenario could have led to civil war in several countries. We were hit hard because we have a large financial services sector.

In the last few years we have seen rapid drops in unemployment and increases in employment as well as healthy increases in GDP. Our unemployment is low compared to other EU countries and much lower than France which practices your Socialist economics:

https://en.wikipedia.org/wiki/Economy_of_the_European_Union#/media/File:EU_Unemployment.svg
https://en.wikipedia.org/wiki/Economy_of_the_European_Union#/media/File:Unemployment_in_Europe.jpg

Hardly the signs of a sick badly managed economy as you would have it.

grey_gym_sock wrote: »

we've had enough austerity to keep the economy very weak, and they appear to be planning stronger austerity again (mainly with the actual cuts delegated to local authorities), though of course they may water it down again.

i've hardly mentioned the deficit, and mostly talked about the state of the economy. because, if we look after the economy, the deficit will look after itself. get the unemployed and under-employed ppl fully employed, and better paid, and they will claim less in benefits, and pay more taxes, and spend more, and hence the private sector will create more jobs, and invest more, and you get a virtuous circle. as long as we have a weak economy, the deficit will remain stubbornly high. that is why osborne has failed to cut the deficit quickly, despite trying both more and less severe versions of austerity.

Regarding green energy, subsidies for green energy, which in part go to business people and shareholders, have increased fuel bills for the elderly and the poor.

Government spending means that the public sector competes with the private sector for workers, driving up the costs of employment in the private sector.

Incidentally one of the problems with the UK is low productivity and issue not addressed by either party. Importing large amounts of cheap labour does not help.

talexuser

maxie014 wrote: »

Surely its possible in the long term,i had an uncle who won the spot the ball in about 1980 about £40k a big win at the time

Agreed, but a lot easier if starting from 30 or 40k in the 1980s. The difficult bit is getting to the 30 or 40k in the early years when buying a car and hopefully a house, starting a family etc. If you can stash several thousand every year in a S&S ISA you can get a lot closer by the time you retire, but may have to give up a foreign holiday or two along the way?

maxie014

talexuser wrote: »

Agreed, but a lot easier if starting from 30 or 40k in the 1980s. The difficult bit is getting to the 30 or 40k in the early years when buying a car and hopefully a house, starting a family etc. If you can stash several thousand every year in a S&S ISA you can get a lot closer by the time you retire, but may have to give up a foreign holiday or two along the way?

Your right a house and family take a lot of money along the way!
Im trying to get my kids to start investing as well as myself,retirement projections of working to 76 for them don't sound too good to me.
The thing is every generation seems to get a bit wealthier,i know what my grandfather left after a lifetime of toil and it wasn't a lot.
If I start investing myself now at 52,i own my house,maybe have a share of two houses inheritance,cant count on anything though,ive toyed with the idea of leaving some investments tied up for the long term for my 3 sons,not touchable till they are 55ish say,would that be a good idea? stop them blowing it too soon anyways!