If you think you can save your way to wealth, you’re
wrong. Spending less than you make is not the path to riches. Instead, wealth
comes and goes as asset prices -– real estate, stocks, and bonds -– rise and
fall.
This is why most Americans have no shot at ever
being wealthy, while the already-wealthy people who own those assets just keep
getting wealthier.
Investor and blogger Steve Roth recently crunched
government data and found that household saving -- whatever income people have
left over after their spending -- has little effect on boosting wealth.
Charted, Roth’s conclusion looks like the above:
The huge red swings -- representing major asset
classes like stocks and real estate -- dominate the up and downs of household
wealth.
The tiny sliver that is saving is small -- and, Roth notes, getting
relatively smaller. (Note that saving, in this case, does notinclude the
capital gains people get from selling assets for a profit.)
Letting speculation work for you, not saving, is how
wealth is truly built in America. Net worth is tied to the market value of some
illiquid things (houses) and some liquid things (stocks, bonds).
Saving money isn’t necessarily a bad idea. It can
help you in lots of ways. But, in the aggregate, it’s not how we get rich.
Recent years have shown just how misleading and
harmful homilies like “work hard. Spend a little. Save the difference. Let your
assets work for you,” from the Motley Fool, are: misleading because saving is not the
primary way wealth is accumulated; harmful because people when saving fails,
people think they are the failure.
Millions of Americans missed out on the
wealth-spinning party by selling when stocks were low, or by being unable to
afford to invest at all. Saving money won't come close to helping them make up
that wealth.
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