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

Anthorn

This used to be a liitle aside in the Maths class when I was in school donkeys years ago. What was found most intriguing was that if we start with capital of £1000 we only need to double our capital 10 times to be a millionaire.

coastline

Looking at the salaries below from recent years I think most people would be well pleased to get a few hundred grand together never mind a million.
Saving in a pension plan for 30-40 years is probably the best bet for most considering your employer might be contributing to it.

http://www.pressure.to/pic/hbai-incdist.png

https://en.wikipedia.org/wiki/File:UK_Equivalised_Income_Distribution.png

https://en.wikipedia.org/wiki/File:UK_Income_Percentiles_After_Tax.png

BananaRepublic

coastline wrote: »

Looking at the salaries below from recent years I think most people would be well pleased to get a few hundred grand together never mind a million.
Saving in a pension plan for 30-40 years is probably the best bet for most considering your employer might be contributing to it.

http://www.pressure.to/pic/hbai-incdist.png

https://en.wikipedia.org/wiki/File:UK_Equivalised_Income_Distribution.png

https://en.wikipedia.org/wiki/File:UK_Income_Percentiles_After_Tax.png

I agree but it can pay to transfer out pension funds to a better provider if the performance of your employer's scheme is poor. By all accounts people contribute too little, although looking at the links, an awful lot of people earn modest amounts. And I bet they work hard too.

jamesd

coastline wrote: »

Looking at the salaries below from recent years I think most people would be well pleased to get a few hundred grand together never mind a million.
http://www.pressure.to/pic/hbai-incdist.png

Equivalised, see next para. Don't know what year either.

coastline wrote: »

https://en.wikipedia.org/wiki/File:UK_Equivalised_Income_Distribution.png

Those aren't real incomes except for couples. For singles their income is increased by dividing it by 0.67. For households with children the household income is divided by one plus 0.33 times the number of children, so a household with three children would have its reported income halved (pages 12 and 13), called equivalisation. The numbers are also after taxes like income tax and NI so pension contributions that may be before those deductions are easier than they seem.

coastline wrote: »

https://en.wikipedia.org/wiki/File:UK_Income_Percentiles_After_Tax.png

Not equivalised but after taxes so pensions look less affordable than they really are. Excludes non-taxable income.

Age is very significant because incomes tend to rise with age but the income distributions there look at just a snapshot rather than showing how a household moves through the various levels over time. As usual this makes pension contributions look harder than they really are over a lifetime.

Still, you're right that long term pension contributions are what it takes. Even a person on minimum wage could with moderate determination be able to retire at age 60 or so if they wanted to and didn't have excessive expenses or spending.

grey_gym_sock

Malthusian wrote: »

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

that depends on your purpose.

i'm interested in whether the outstanding debt is excessively large relative to the size of the economy. for which purpose, the debt-to-GDP ratio is the obvious place to start.

your purpose appears to be an ideological obsession with cutting public expenditure as a proportion of GDP. the greatest advances in general prosperity - most obviously, in the 1945-1971 period - have come when the public and private sectors are both growing strongly, because it turns out that they reinforce one another (e.g. a healthy, well-educated population makes the private sector more productive). but you would prefer the 18th/19th century model, in which the public sector is much smaller, GDP grows more slowly, and much of the population sees no benefit from that growth anyway. (as i might have guessed from your username )

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.

it hasn't fallen back as a percentage of GDP, and nor should it - if the aim is to improve general prosperity, rather than to go back to the 19th century extremes of wealth and poverty.

of course, it's not just how much the public sector spends, it's what it's spent on. PFI (in all cases), and outsourcing (in many cases), have raised costs unnecessarily. but there are other areas where more should be spent (e.g. building social housing; developing clean energy).

but why has the deficit fallen so much more slowly than osborne said it would? and why has debt-to-GDP continued to rise? because we haven't had enough growth: it's been the weakest recovery for about 300 years (as i may have said before).

how do we get more growth? by the government spending more, i.e. with a counter-cyclical fiscal policy. osborne has tried holding down public expenditure, and hoping the private sector will step in to get growth going again - and it's failed. it's only the public sector that can kick-start this process.

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?

oh dear, it's our old friend, the analogy of government finances to household finances. which is, to put it technically, complete !!!!!!!!.

government debt is supposed to rise over time. the savings of the non-government sector are (by definition) equal to the borrowing of the government sector. as ppl get richer, they want to save more. that means that the government must borrow more.

but is that bad for the government's finances? no, because
1) government debt never has to be, and never should be, repaid - because that would imply wiping out the savings of the non-government sector; and
2) the government borrows at lower rates than anybody else, and can control those rates (since we have our own currency).

in addition, the government doesn't even have control over the size of its deficit. this is unlike a household, which can start saving by cutting their expenditure to less than its fixed income. when the government cuts expenditure, that is a direct cut in somebody else's income, and as a result that person/business will pay less tax (so the government's income goes down) and spend less, cutting the income of other people/businesses, who will also pay less tax (cutting the government's income again), and spend less, and so on. so a £1 cut in public spending doesn't reduce the deficit by £1; it might reduce it by a fraction of that, or it might even increase it, depending on the circumstances. cutting government spending also directly cuts GDP, and the indirect reductions in other people's spending cuts it further, hence the debt-to-GDP ratio worsens.

Improved healthcare, housing and education is due to improved technology delivered predominantly by private research and capital. Not government spending.

untrue. basic research in technology, and even a large part of the commercialization process, is mainly funded by government. read mariana mazucatto. for technological progress, we need a strong State, as well as a strong private sector.

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.

as you apparently are not aware: there was a huge programme of building council houses in the 1950s. the pace of building accelerated under the (conservative) housing minister, harold macmillan. this was so successful that he went on to become PM.

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.

but apart from the recent changes, what about setting the NHS up in the first place? with huge gains in health of the population. do you think that was a disaster, because it increased public spending as a proportion of GDP?

more recently, i can think of 3 broad reasons for rising costs in the NHS, 2 good, and 1 bad:

1) healthcare is labour-intensive. as average wages goes up, it costs more to do the same things. and average wages are a lot higher than 70 years ago (though no higher than 10 years ago).

2) improvements in healthcare. this can involve courses of treatment that didn't exist before (partly because, as healthcare improves, people live longer, and hence go on being treated for longer), and expensive equipment/drugs, and more skilled staff. (i actually like the side-effects of having more skilled staff, because that helps to spread wealth among the population, whereas you presumably dislike it, because you'd rather keep the peasants down )

3) PFI schemes taking an increasing proportion of NHS expenditure, at inflated costs; and increased costs of tendering / contracting out processes; and the simpler contracts being creamed off by the private sector, with the NHS left with the difficult, expensive bits.

this is of course not at all a case of "labour good, tory bad". the biggest expansion of PFI took place under labour.

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.

how much is spent on teaching assistants? (i don't know, but i'm surprised at the idea that that would explain all increases in education spending.)

there are many issues about how to improve education. but your apparent starting point, that we should try to hold down education expenditure, is pretty ridiculous. however you look at it, a well-educated population is a key part of a successful economy.

grey_gym_sock

BananaRepublic wrote: »

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.

yes.

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.

on pre-crises spending, you're talking about the debt-to-GDP ratio rising from a percentage in the low 30s to the high 30s. the crisis made it balloon to about 80%, and because of austerity's failure, it's since risen to about 90%.

i doubt we can get rid of bubbles altogether. but we could certainly regulate the finance sector properly - i.e. both regulate how credit is granted, and simply ban a lot of the use of complex derivatives (since it serves no useful purpose). the general consequence of financial deregulation - that it was going to lead to a crisis - was predictable, though not the exact form it took. and the risks in the finance sector are mostly still there.

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.

so labour, and the IMF, have flip-flopped on their line a few times. but the reality is that relying on monetary stimulus (even "unconventional" monetary policy, i.e. QE) has failed to give us a strong recovery. fiscal stimulus is needed.

even the OECD seems to agree now: http://touchstoneblog.org.uk/2016/02/where-does-the-chancellor-now-stand-as-calls-for-public-spending-and-ending-reliance-on-monetary-policy-grow-ever-louder/ (though they are liable to flip-flop again, like the IMF)

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.

it's the slowest recovery from a recession since the south sea bubble. and it's even worse when you look at the distributional effects: real wages are down, and most ppl are poorer.

the eurozone has done worse than the UK, not because it is more socialist, but because it's gone for much more severe austerity than the UK. which is largely because eurozone governments' actions are constrained by the pro-austerity ECB.

meanwhile, the USA has done better than the UK, because they went for hardly any 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.

yes. that was the wrong way to pay for it. i think the government should be spending far more in this area, but it should be paid for via public borrowing, not via household fuel bills, so that it can provide a fiscal stimulus to the economy (as well as the benefits from more secure and cleaner energy supply).

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.

low wages and low productivity are closely connected. employers have lost interest in improving workers' skills, and instead gone for the strategy of using more workers at lower pay. real wages per hour are down since the pre-crisis point. all economic growth has come from extra hours worked (partly increased population, partly more hours per worker).

you have to look not just at the employment and unemployment figures, but at how many are working part-time who'd like to work full-time; at how much employment is insecure and low-paid; and at fake self-employment (which the DWP pushes some people into). overall, we have a seriously under-employed, under-skilled, under-paid workforce.

i think it would a good thing if increased public sector employment pushed up wages generally. because then employers would have to think about raising skills and automation (since they would have to pay their employees more anyway), instead of relying on the pool of cheap labour.

Glen_Clark

You keep talking about GDP - but isn't their GDP figure inflated by the increase in BTL and inflated rents?
Wheras building more houses (like Germany) would bring down rents, making the GDP figure lower?

bowlhead99

Glen_Clark wrote: »

You keep talking about GDP - but isn't their GDP figure inflated by the increase in BTL and inflated rents?
Wheras building more houses (like Germany) would bring down rents, making the GDP figure lower?

I know this subject of "high rents equals high GDP" is your pet peeve, Glen. But whether you look at GDP on an expenditure basis or an income basis, rent is legitimately an item to include. So there is nothing "artificial" about it.

Besides, as you have noted before, home ownership in Germany is the lowest in Europe and they have a rental culture. So while we might have high rent because of scarcity in some parts of the country, they have lots more renters, so if your argument is that you can't include rent in GDP because nothing is being "produced", then that would certainly depress German GDP a lot because renting is a way of life.

Part of the German renting culture in cities is driven by the fact that the rest of the world bombed the !!!! out of them in the war and the only way to get things going again was to build from scratch starting from the 50s with a mixture of public and private entities to pile in, building places under the new regulations.

UK also had a bit of a crisis for similar reasons at the same time but addressed it more with housing subsidies which were only available to public sector, local government or non-profits, squeezing out the private sector. Arguably it was our stringent rent and construction cost caps on developers of rental/public housing which led to a marked difference between publicly and privately financed construction which meant that mass produced low end rental properties got a stigma and made every aspirational capitalist in the UK really really really want their own home.

While Germany loosened its regulation of rental caps relatively sooner than many other countries, in the UK we had harsher regulation on rented housing up until recent decades, which pushed landlords to cut back on maintenance etc and drive down quality of rented stuff further, with associated stigma.

So, Germany is the kind of place where lots of people rent due to a whole bunch of historic issues, and as there are lots of them doing it they now have more protections against rent rises and so on imposed on the landlords. The German banks aren't as risk tolerant when it comes to handing out mortgages and the government doesn't encourage the private housing market really, it has no need to, because what they have, works.

Still, that doesn't mean you should instantly somehow transplant their rules into our economy and cross your fingers and hope. Or that you should eliminate rent from GDP just because it costs a lot to live in a big city like London which has high demand.

Glen_Clark

You make good points as usual bowlhead.
But it makes a nonsense of his statistics when the supposedly free market capitalist Osborne restricts housing supply through planning constraints, whilst subsidising housing demand with taxpayers borrowed money, and then claims the increased rents as increased GDP!!!!:rotfl:

Thrugelmir

grey_gym_sock wrote: »

it's only the public sector that can kick-start this process.

At an operational level the public sector is grossly inefficient in the way it manages and spends money. In the short term GO's approach is the right one. Squeezing the public sector is forcing those within it to think with a commercial hat on. After all it's taxpayers money of the future they are spending.