If you can't beat them join them
Rich people get richer. Normal people fall back. The system is rigged. It's not fair. Someone should do something about it.
The Guardian ran a fantastic incendiary article last week. According to the author, if present trends continue the top 1% will hold 64% of the world’s wealth by 2030. Even if there is another financial crash they will probably continue accumulating assets while the wage slaves live paycheck to paycheck.
I get it, I really do. The wealthy have successfully lobbied to lower taxes for decades and income from investments and inheritances enjoys preferential tax treatment compared to income from employment in many countries. The value of labour is decreasing as automation spreads, and capital becomes more valuable.
Thomas Picketty brought this conversation into the public eye with his doorstopping Capital in the Twenty-First Century (which everyone, including me, references but hasn't read -The Economist has a good summary here) and no doubt some kind of political/social response is due.
However, for the individual, this kind of thinking is counterproductive. Of course the rich are getting richer, they are investing wealth, and compound interest can allow growth in investments to dwarf that of income growth.
Harry Browne's libertarian take on this is much more useful than outrage in my opinion. He advocates doing what you can for yourself and ignoring wider society. After all, the only thing you have control over is yourself and your actions. I really recommend his book How I Found Freedom in an Unfree World. He also invented the permanent portfolio as well as running for the US presidency, so he might know a thing or two about investments and politics.
I have seen the power of capital myself even with the relatively small amount I have invested so far. My wife and I only started investing in the last decade, and already we have seen years when our investments grew more than our annual income. I imagine this trend will only accelerate as we accumulate more and more capital.
Apparently most millionaires are self-made (you can read a lot more about this in excellent book The Millionaire Next Door) so to me the most logical response to news stories like the above is not to get angry about the rich, but to join them.
How to do that? Well, it's very simple. Not easy, by any means, but simple. Actually following through on this is hard, but it is not complicated.
All you need to do is earn as much as possible, spend as little as you can without being unhappy, and invest the difference. Over time you too will benefit from the power of capital, and maybe even join the 1%.
The nice thing about this is that it isn't all or nothing. Even saving a little means that you are more protected from financial setbacks. Investing a little means you can grow your income/wealth, which makes it easier to save more going forward. Repeat until financially secure.
How about you? Are you on the road to riches? Do you disagree with my pragmatic approach? Are the odds hopelessly stacked against the little guy?