[barrow-rider]

Depends on risk tolerance and how flashy they want to be.

Donald Trump, if his public finances are to be believed, would have roughly the same net worth had he just invested the money his dad gave him in mutual funds. Instead he managed to create a series of failing companies and questionable ties... but managed to live the high life and stamp his name on bloody everything.

[alehul]

To offer a better and less political answer: the reason that an UHNWI doesn't park their entire net worth in an index fund is because there is some probability, however minute, that the markets will collapse and never recover.

Additionally, we could say that success in active investing is (often) a function of how much you're willing to spend to find the right opportunities. For an UHNWI, this is likely enough to beat the market, especially if a high percentage of investors are passive, leaving more opportunities for corrections open.

As another commenter said, the goal is usually to avoid becoming poor first and foremost, rather than becoming richer.

[philwelch]

> To offer a better and less political answer: the reason that an UHNWI doesn't park their entire net worth in an index fund is because there is some probability, however minute, that the markets will collapse and never recover.

Sure, but it seems like the solution to that isn't "new and innovative private investments", it's "invest more money in treasury bonds from stable first-world governments and maybe precious metals".

[petra]

>> we could say that success in active investing is (often) a function of how much you're willing to spend to find the right opportunities

Is this also true at the level of the small investor ?

Say I'm willing to spend a few hours a day learning and researching about stocks. Does this mean that over time, I'll be able to significantly beat the index funds ?

Or is it, more likely, a fool's errand, because that as a small investor, I don't really have enough bandwidth and money to significantly diversify ?

[compiler-guy]

It's a fool's errand. There are people who spend 80 hours a week doing this kind of analysis at firms that pay millions of dollars a year for the most sophisticated data and analysis, and those folks still don't beat the market more than randomly. These firms pay hundreds of millions of dollars to improve their trading systems' latency by just a few milliseconds.

You don't have a chance unless you are doing the same amount of work with more sophisticated tools, with the same trading tools.

You might win based purely on chance, but you are extremely unlikely to.

[jjeaff]

I'll just add my agreement. Fool's errand.

Some of the high frequency traders can rake it in. But they are using teams of highly paid analysts to look for opportunities and those opportunities don't last long before they have to move on to the next thing. And I would assume it's getting harder and harder for them as time goes on and more enter that market.

[auiya]

> there is some probability, however minute, that the markets will collapse and never recover.

This is why people invest some money, however minute, into shorting the entire stock market.

[Scoundreller]

Why have equal and opposing holdings when you could hold cash?

[thaumasiotes]

> Donald Trump, if his public finances are to be believed, would have roughly the same net worth had he just invested the money his dad gave him in mutual funds.

There was a factoid going around years ago that said Donald Trump's net worth was equal to the value of his inheritance if it had been invested in an index fund.

But note that under that hypothetical, he never would have spent any of it. Do you think the historical Donald Trump ever made any splashy purchases? Where did that money come from?

Having a high net worth while living the high life involves a lot more money than having a high net worth while living an ascetic life, and implies that his returns were a lot more than the index fund experienced.

[philwelch]

Trump's net worth is actually measurably lower than what his inheritance would have been worth if it were invested in index funds.

Also, while some of Trump's lavish expenses are pretty much just lavish expenses (business jets and the like), some of his superficially ridiculous personal expenses, like gold-plating half of his entire penthouse apartment in Trump Tower[1], don't necessarily hurt his net worth that much because he could always sell the tower with the tacky gold-plated penthouse to someone else who could extract some value by removing the tacky gold plating and having two valuable assets left over: (a) a penthouse apartment in a Manhattan high-rise and (b) gold.

Most of Trump's losses came from a variety of failed business ventures, which isn't necessarily a huge criticism. Some people just like doing a bunch of business ventures and they don't all have to succeed to be a net positive. It's just that if Donald Trump spent the same lavish amounts of money and invested less money in his own ventures and more money in index funds, he would be richer today.

Of course, in this hypothetical scenario, would he become a cartoonish real-life personification of American capitalism, host a reality TV show, get a lot of Twitter followers, and develop the dedicated fanbase necessary to eventually be elected President? Probably not.

[1] I'm not entirely making this up, though my only source is a foggy memory of the first season of The Apprentice, when Donald Trump invites the guests to tour his penthouse apartment.

[spaceman_2020]

Of all the very rightful criticisms leveled at Trump, ridiculing him for not putting his money into index funds is one of the worse ones. Building businesses is its own reward. People don't get it that just like painting or writing, people can get satisfaction from seeing a venture to completion or inking a good deal

[philwelch]

And if he enjoys building businesses enough to make up for the massive opportunity costs for investing his money in Trump Steaks instead of index funds, that’s entirely up to him, but let’s not laud him as a business genius for it.

[superhuzza]

>that said Donald Trump's net worth was equal to the value of his inheritance if it had been invested in an index fund.

Incorrect, it would have been worth substantially more, at about 13 billion (his current wealth is around 3-4 billion). So he still would have been able to spend billions and be further ahead than he is today.

Source: https://www.forbes.com/sites/katestalter/2016/09/01/would-do...

[ars]

You clearly did not read your own article. He would only be worth that if he was margined to the hilt.

If he invested without margin then he would have made half of what he actually made. And that's without any spending at all.

[superhuzza]

First of all you're wrong, I did read the article. Secondly, the author directly addresses that point. He was leveraged when buying real estate too, so why not assume he would be leveraged up in the stock market? It's not an uncommon practice at all, and the comparison wouldn't make sense without factoring in loans.

Frankly I would have done the same, I think running a bunch of different businesses would be more stimulating than maximizing wealth through stocks. But objectively he's paid a financial price for that.

[wil421]

Well it got him into the White House. I guess for Trump the image of being an important business man is worth much more than money.

[jjeaff]

Which is why it's so interesting that the NY Times article ( that exposed his success as a product of a huge inheritance) didn't get much traction among any of his followers.

[pesmhey]

I remember listening to an interview with the bylines. Everyone in that interview sounded so sure it would dent Trump’s reputation. Man, I’m really not a fan of the guy, but his opponents have absolutely no idea what they’re up against, and haven’t for a long time.

Trump is the harbinger of a return to patrimonialism. Family offices, a return to patrimonialism. You get a bunch of people who never really understood civics or finance and you try to govern them technocratically, and you’re going to struggle. But everyone in this demographic understands families. They see this dude being passed down wealth, and ‘making something’ of it, and setting his kids up. People understand that, especially the type of person who doesn’t necessarily understand how the neoliberal world works, in ways that are both in their favor and against it.

Family offices are another data point in this trend towards capital accumulation, stark income inequality, and a retreat from public exposure.

[wil421]

The people promoting Trump do not care in the slightest. I doubt they’ll even care if any serious allegations come out of Muller’s probe.

[gberger]

Wait, you're telling me he could have turned $1M into $3B just through investing in mutual funds?

[magicnubs]

According to the NY Times, he actually received $413 Million

https://www.nytimes.com/interactive/2018/10/02/us/politics/d...

Where's the $3 billion number coming from?

[lixue]

Assuming a 10% return, which is about the max I could find for a single fund over 20 years, it'd take 84 years to turn $1M in to $3B.

Conversely, plenty of funds do 15-20% in the short term. 15% only takes 57 years, and 20% brings it down to 44.

So, doable, but you'd be considered a pretty amazing investor. And this all assumes the money was invested from the day he was born.

[jjeaff]

Except the premise is in accurate. He wasn't left with $1m. He was left with hundreds of millions in cash and cashflowing assets. Had he invested $250mm in the markets back then, he would be much ticket today.

[charlesdm]

Except it was likely property, and he couldn't liquidate those properties without incurring capital gains taxes (set at 49% in 1970)?

I don't know, perhaps you couldn't very easily leverage properties back then for cash (i.e. once they had been paid off), or interest rates were very high (a quick google teaches us that in 1970, the interest rate was 8.5%)?

[munk-a]

It actually wasn't property, a large portion was cash in terms of salary collected as an infant or various gifts. There was a report by NYT not too long ago.

https://www.nytimes.com/interactive/2018/10/02/us/politics/d...

[jackhack]

agreed -- not likely, and it assumes those gains every year which is not reasonable. More, it ignores one very important fact, the destructiveness of losses. A one-year loss can be devastating to a fund. which is why many favor "safety" over "gains".

It's not uncommon for aggressive growth funds to take a 20% tumble in a year. Downside is much, much more destructive than many understand especially when one must also account for fund management fees (typically .7%) which are collected whether the fund gains or loses!

But the simple fact is that a 50% loss requires a 100% gain just to get back to even, which is still a loss once inflation and operating costs are factored in.

Here's a simple question that most people fail: Q: A mutual fund loses 50% in a year. In order to break even the next year, your fund must earn ? 1) inflation 2) 50% + inflation 3) 50% + your income tax rate 4) 100% + inflation 5) 100% + inflation + operating costs + 'it depends'

The correct answer is 5. The correct answer is nearly 106%- One must make up for actual loss (100%) PLUS operating expenses for both years (usually 0.7% per year: 1.5%), plus inflation for both years (2%/annum: 4%). Of course there are tax implication for gains/losses taken outside of a qualified retirement plan (401k,403b,etc.) and sheltering losses can complicate substantially, but hopefully this illustrates a point about the impact of losses.

[superhuzza]

You're not considering a) leveraged stock purchases (using debt, like he did with real estate) and b) that his inheritance was significantly more than 1MM. Check out this analysis from forbes:

https://www.forbes.com/sites/katestalter/2016/09/01/would-do...

[lexs]

$1M as "small loan" in 1968, then becoming president of his fathers real estate company 1974 (shares divided among Donald Trump and his 4 siblings) estimated at $200M ($40M for him but not liquidated at that point), and then inheritance from his father in 1999 estimated between $20M and $300M. Slightly more than the infamous small $1M loan then.