Should the poor consider investing as a means to becoming rich?
"Definitions are in order: These definitions are important. Someone making 1,000,000 a year who spends all of it is poor. Someone who makes 500K, spends 450K a year and has three million in stocks and a paid-for million dollar home may be rich but they can't retire. They need another seven to eight million to retire. Someone with a million dollars in assets who makes 40K a year through their job, can be Financially Independent and retire.  This last example is important. In The Millionaire Next Door the authors share their discovery that the average millionaire accumulated their wealth with just a working income of around 50K (the book is a bit dated so the number should be elevated if you adjust for inflation). Finance Independent is a strange thing to wrap your head around and people with high incomes often fall victim to misunderstanding it. When figuring out how much a person needs to accumulate for their ""nest egg"", their working income is not a direct variable. Their spending and savings rate are. A doctor making 500K, who spends 450K needs to work for 51 years if they are planning to keep spending 450K/year (adjusted for inflation) forever. Someone making 60K starting at age 21 who saves 18K (30%), could retire at 49. Someone with a truly low income and poor, say 30K and under and living in a old developed nation, investing will help them a bit. Say they save 10% of their income, by the time they reach 65 (the typical age federal retirement pensions begin), they'll have enough money to live off of in perpetuity and in comfort.  They'll actually have a higher retirement income than income while they were working. But, it is challenging at those levels to save 10% of your net income. Events like your car randomly deciding to break down one day can destroy an entire year's saving." "Given that a poor person probably has much less to invest, how can odds be in their favor? To add to Lan's great answer, if one is ""poor"" because they don't have enough income to build wealth (invest), then there are only two ways to change the situation - earn more or spend less.  Neither are easy but both are usually possible.  One can take on side jobs, look for a better-paying career, etc.  Cutting spending can also be hard but is generally easier than adding income. In general, wealth building is more about what you do with your income than about how much you make.  Obviously the more you make, the easier it is, but just about anyone can build wealth if they spend less than they make. Once your NET income is high enough that you have investible income, THEN you can start building wealth.  Unfortunately many people have piles of debts to clean up before they are able to get to that point. What could a small guy with $100 do to make himself not poor anymore, right? Just having $100 is not going to make you ""rich"". There is a practical limit to how much return you can make short of high-risk activities like gambling, lottery tickets, etc. (I have actually seen this as a justification for playing the lottery, which I disagree with but is an interesting point).  If you just invest $100 at 25% per year (for illustration - traditional investments typically only make 10-12% on average), in 10 years you'll have about $931. If instead you invest $100 per month at 12% annualized, in 10 years you'll have over $23,000. Not that $23,000 makes you rich - the point is that regularly saving money is much more powerful than having money to start with." "What could a small guy with $100 do to make himself not poor? The first priority is an emergency fund. One of the largest expenses of poor people are short-term loans for emergencies. Being able to avoid those will likely be more lucrative than an S&P investment. Remember, just like a loan, if you use your emergency fund, you'll need to refill it. Be smart, and pay yourself 10% interest when you do. It's still less than you'd pay for a payday loan, and yet it means that after every emergency you're better prepared for the next event. To get an idea for how much you'd need: you probably own a car. How much would you spend, if you suddenly had to replace it? That should be money you have available. If you think ""must"" buy a new car, better have that much available. If you can live with a clunker, you're still going to need a few K.  Having said that, the next goal after the emergency fund should be savings for the infrequent large purchases. The emergency fund if for the case where your car unexpectedly gets totaled; the saving is for the regular replacement. Again, the point here is to avoid an expensive loan.  Paying down a mortgage is not that important. Mortgage loans are cheaper than  car loans, and much cheaper than payday loans. Still, it would be nice if your house is paid when you retire. But here chances are that stocks are a better investment than real estate, even if it's the real estate you live in." Yes, you can indeed become rich by investing even small amounts over time. Let's say that you begin with nothing invested, and you start investing $100 per week. Suppose you choose to put your money in an S&P 500 index mutual fund. The CAGR (Compound Annual Growth Rate) of the S&P 500 over the last 35 years has been about 11%. (That 35 years includes at least two fairly serious crashes.) You may get more or less than that number in the future, but let's guess that you'll average 9%. 35 years from now, you would be a millionaire ($1.2 Million, actually). This math works out for anyone, no matter who your parents are, where you are from, where you went to school, etc. Yes, you have a better chance of becoming wealthy the more you invest, the longer you have to stay invested, and the better choices you make in your investments.  By starting early, you will maximize your time invested, which allows you the flexibility to be more conservative in your investments and to invest smaller amounts.  But for those with a shorter time to invest, it is still doable for most people.  Get your financial life under control by eliminating your debt, setting a household budget, and investing for the future. Investments earn income relative to the principal amounts invested. If you do not have much to invest, then the only way to 'get rich' by investing is to take gambles. And those gambles are more likely to fail than succeed. The simplest way for someone without a high amount of 'capital' [funds available to invest] to build wealth, is to work more, and invest in yourself. Go to school, but only for proven career paths. Take self-study courses. Learn and expand your career opportunities.  Only once you are stable financially, have minimal debt [or, understand and respect the debt you plan to pay down slowly, which some people choose to do with school and house debt], and are able to begin contributing regularly to investment plans, can you put your financial focus on investing. Until then, any investment gains would pale in comparison to gains from building your career. A cautionary tale:  About 25 years ago I decided that I should try my hand at investing in some technology companies.   I was in the computer biz but decided that I might suffer from myopia there, so I researched some medical startups.  And I did some reasonably good research, given the available resources (the Internet was quite primitive).  I narrowed things down to 4-5 companies, studying their technology plans, then researched their business plans and their personnel. In the end I picked a drug company.  Not only did it have a promising business plan, but it had as it's CEO a hotshot from some other company, and the BOD was populated buy big names from tech companies and the like.  AND the company had like $2 of cash for every $1 of outstanding share value, following their recent IPO. So I sold a bit of stock I had in my employer and bought like $3000 worth of this company. Then, taking the advice I'd seen several places, I forgot about it for about 6 months. When I went back to look their stock value had dropped a little, and the cash reserves were down about 20%.  I wasn't too worried.  6 months later the cash was down 50%.  Worrying a little.  After I'd had the stock for about 2 years the stock price was about 10% of what I'd paid.  Hardly worth selling, so I hung on for awhile longer. The company was eventually sold to some other company and I got maybe $50 in stock in the new company. What could a small guy with $100 do to make himself not poor To answer the question directly, not much. Short of investing in something at the exact moment before it goes bananas, then reinvesting into a bigger stock and bigger etc, it's super high risk. A better way is to sacrifice some small things, less coffee, less smokes, less going out partying so that instead of having $100, you have $100 a week. This puts you into a situation where you can save enough to become a deposit on an appreciating asset (choose your own asset class, property in AU for me). Take out a loan for as much as you can for your $100 a week payment and make it interest only with an offset against it, distributions from shares can either be reinvested or put into the offset or in the case of property, rent can be put against the offset, pretty soon you end up with a scenario where you have cash offsetting a loan down to nothing but you still have access to the cash, invest into another place and revalue your asset, you can take out any equity that has grown and put that also into your offset. Keep pulling equity and using the money from the offset as deposits on other assets (it kind of works really well on property) and within 15 years you can build an empire with a passive income to retire on. The biggest thing the rich guys get that the poor guys don't is that debt is GOOD, use someone else's money to buy an appreciating asset then when you pay it back eventually, you own the growth. Use debt to buy more debt for exponential growth. Of course, you need to also invest your time to research what you are investing in, you need to know when you make the decision to buy that it will appreciate, it's no good just buying off a tip, you may as well drop your money on the horses if you want to play it like that. Fortunately, one thing we all have in common regardless of our money is time, we have time which we can invest.
First of all, make sure you have an emergency fund.  Ideally this should be at least 6 months of living expenses in an easily accessible place. Do you have any credit card debt, school debt, or other debt?  Work towards becoming debt free, especially of higher interest debt and debt on things that are only depreciating (cars, for example).  If you have extra income, consider putting it towards debt. If you currently have access to a 403b, you should begin investing immediately.  If not, look into a Roth IRA.  The community has provided suggestions for good places to get one.  With a Roth IRA you take post-tax income money and invest it into this retirement account and when you reach retirement age you get it and all the interest as tax-free income.  You can't withdraw the principal until retirement age.  You should put up to the legal limit into a retirement account - if you can't do this at first work towards this goal. After an emergency fund, becoming debt free, and fully funding your retirement, save for goals such as a house or other things you are working towards. The exact order of doing these things might vary, but in general you need the emergency fund first. &gt; Could you discuss why the lack of restrictions on these subjects would make hedge funds more attractive to wealthy investors as opposed to mutual funds?  Well just think about it this way.   You have two soccer players. They both know the game extremely well, they both have similar styles of plan, and similar strategies. They're *very* good players.   Now, you change the rules for one of the players. He has to wear a 20 pound weight vest on him at all times, and can only kick the ball with his right foot when shooting, but his left when passing.   Who do you think would win in a one v. one?  ________________________________________________  Mutual funds are offered to the *general public* (most of them, anyways), which works under certain assumptions about possible investors. While investments with these funds are still considered risky, the restrictions placed on mutual funds are designed to promote safety of principle. For instance, mutual funds are restricted in short selling and trading on margin. Mutual funds must also clearly state what securities they're going to get into, what strategy they'll follow, etc., and deviations from this can get them into trouble.  Hedge funds have no such restrictions. Therefore, they can pursue any type of investment they want. Hedge funds have invested or tried to invest in everything from stocks to private equity to bitcoin to art to rare violins to property to contracts to get boats to and from the statue of liberty to water rights to lawsuit settlements to....   This relative freedom gives them MUCH more flexibility, and thus they can earn above-average returns. These lack of restrictions also makes them MUCH riskier, and additionally the way they're legally set up means only a specific type of investor, called an *accredited investor* in the U.S., can invest.   What does it take to be an accredited investor? Basically, either be rich in income $200k a year if single, $300k if married), or be rich in wealth (net worth of $1MM, not counting primary house). "First off, the answer to your question is something EVERYONE would like to know. There are fund managers at Fidelity who will a pay $100 million fee to someone who can tell them a ""safe"" way to earn interest. The first thing to decide, is do you want to save money, or invest money. If you just want to save your money, you can keep it in cash, certificates of deposit or gold. Each has its advantages and disadvantages. For example, gold tends to hold its value over time and will always have value. Even if Russia invades Switzerland and the Swiss Franc becomes worthless, your gold will still be useful and spendable. As Alan Greenspan famously wrote long ago, ""Gold is always accepted."" If you want to invest money and make it grow, yet still have the money ""fluent"" which I assume means liquid, your main option is a major equity, since those can be readily bought and sold. I know in your question you are reluctant to put your money at the ""mercy"" of one stock, but the criteria you have listed match up with an equity investment, so if you want to meet your goals, you are going to have to come to terms with your fears and buy a stock. Find a good blue chip stock that is in an industry with positive prospects. Stay away from stuff that is sexy or hyped. Focus on just one stock--that way you can research it to death. The better you understand what you are buying, the greater the chance of success. Zurich Financial Services is a very solid company right now in a nice, boring, highly profitable business. Might fit your needs perfectly. They were founded in 1872, one of the safest equities you will find. Nestle is another option. Roche is another. If you want something a little more risky consider Georg Fischer. Anyway, what I can tell you, is that your goals match up with a blue chip equity as the logical type of investment. Note on Diversification Many financial advisors will advise you to ""diversify"", for example, by investing in many stocks instead of just one, or even by buying funds that are invested in hundreds of stocks, or indexes that are invested in the whole market. I disagree with this philosophy. Would you go into a casino and divide your money, putting a small portion on each game? No, it is a bad idea because most of the games have poor returns. Yet, that is exactly what you do when you diversify. It is a false sense of safety. The proper thing to do is exactly what you would do if forced to bet in casino: find the game with the best return, get as good as you can at that game, and play just that one game. That is the proper and smart thing to do." &gt; itizens we all have the right to shop in public shops and eat in public restaurants.  This is your imagination speaking.  You have no such right by any defintion of the word nor can you cite any philosophical foundation for such a right.  If we have this right, then I have the right to attend your dinner parties without an invitation for exactly the same foundational reasons.  &gt; As a business owner I would happily choose a world in which I   And you should absolutely have that freedom, but not at the cost of denying others THEIR freedoms which is what you want.  You - like so many Saviors Of Mankind - have decided that you are so right, you get to use force to jam it down our collective throats.  &gt; that ensures the poor remain poor and the rich remain rich.   I actually did grow up poor and have far more insight into this than you and your fellow Saviors.  Ongoing (inter-generational) poverty in the West is a matter of bad behavior, not oppression.  Go live with your beloved poor for a year and discover the lousy personal choices, the reproductive irresponsibility, the substance abuse, and the laziness that keeps them where they are.  Bluntly, anyone that stays poor -absent the profoundly handcapped - deserves it.  &gt; I would argue that the centers of poverty you listed are much more a symptom of the systematic undercutting  Of course you would ... any actual assesment of Reality would eviscerate such an argument.  The essence of your worldview is to first deny Reality because it is only without reference to Reality that your ideas could possibly have any currency.  &gt; I was a true believer. I did grow up.  You sold out and abdicated because you do not have the moral courage to speak the truth:  The rich are rich for a reason and the poor are poor for a reason.  That reason has nothing (or little) to do with circumstances, oppression, racism, The Man, or any of the other Fairy Tales you've concocted to justify your foolishness.   You've just capitulated to your guilt as a successful person.  Deep down inside you don't think you've earned it so you want to sacrifice all the rest of us on the altar of your limp wristed weakness.   No thanks ... More money doesn't make people richer in the sense that if the govt gave every citizen a $1 they would all still have the same amount of wealth and purchasing power, but their nominal value in dollar terms would be $1 higher. Money is just the denominator in exchange, so lets say a bicycle is $100 and a scooter is $200, you know that 2 bikes equals 1 scooter. So printing $100 for people to each buy a bicycle will just make the price of bikes go up, and they'll end up costing much more than $100, so no real wealth has been created.   The main problem that I think you're trying to identify i that we've had an over-expansion of credit by central banks around the world. The scarcity of credit is a good thing because it forces only the best, most productive ideas to be allowed to be undertaken. If a bank only has $10 to loan, and business man A can use that to have a return of 50%, business man B can have 25%, and business man C can have 5%, then the obvious choice is to give the loan to business man A because he is using the resources most productively, and depending on the details of his business model, is the least risky person to loan to (ie the bank is most assured he will be able to pay his money back). But with central banks controlling interest rates, and reserve requirements for banks, the banks can lever themselves up and lend out much more money than they've taken in. After all if a bank can finance its reserves with low interest rates, but make additional money from increased lending, then they are incentivised to seek higher profits. Especially with the FDIC insuring everyone's bank deposits. So now businessmen A, B and C all get their loans and are able to start their businesses, but they're all in the same line of work and need to utilize the same resources. So now instead of just businessman A buying materials he has two other buyers looking to utilize a scarce amount of resources. The price of those resources is now higher since supply is limited but demand has tripled. So now businessman A can only make 40% through his business, B can make 5% and businessman C loses money in his venture. A and B pay their loan back but C is unable to. Ignoring interest, for the sake of simplicity, the bank has essentially broken even. Before leveraging up they loaned out $10 and got back $10. After leveraging they loaned out $30 and got back 20. So the problem you're seeing is excessive credit permitting ventures to be undertaken that should not have been allowed to be. The problem is interest rates that are not set by the market, but by a centralized bureau who couldn't possibly have enough information to determine what the cost of financing should be. You are implicitly making that assumption. It doesn't matter if the rich are taking and increasingly large percentage of the pie, as long as the size of the pie is growing fast enough that the absolute wealth of the poor is rising at a reasonable rate over time.  The correct and reasonable measure is to compare the wealth of the poor, today with the wealth of the poor in the past in terms of real buying power.  I understand what you're saying and I disagree with your analysis. I disagree that relative proportions have any meaningful impact of human well being. "If they could really do this, do you really think they would be wasting their time offering this course? You are being lied to. (Or more accurately: It's certainly possible to gamble and get lucky, but those gambles are  more likely to result in your rapidly  losing your money than in your rapidly gaining value.) It is possible to make money in the market. But ""market rate of return"" has historically averaged around  8%. That won't make you rich by itself, but it's better return than you can get from banks... at higher risk, please note. There are places in the market where, by accepting more risk of losing your money, you can improve on that 8%. For me the risk and effort are too much for the potential additional gains, but de gustibus." "seems like a dumb idea to me. Will these people know what to do with $1000? Will they know best how to invest it or will it be squandered on booze, or just plain living expenses? It might be better spent giving it to them with a string such as ""buy a cow or chickens that can produce"" or seed for a patch of land. I expect some will fall in each of the three catagories. Question now is what will be the distribution?"