The wealth-building thread

[tmtomh]

Where's the incentive to work harder and earn more in that?

Contrary to popular belief among us Americans, the total tax burden - federal income tax, federal Social Security and Medicare payroll taxes, state and local income (and property) taxes, and so on - is not necessarily lower in the US than in a lot of European countries. Putting aside any political debates or questions, it's simply a fact that a portion of taxes paid in European countries (and Japan, and others) covers healthcare costs that American must pay out of pocket. Again, this not - or at least should not be - controversial; it's simply a fact and you can conclude whatever you want from it.

And to look at it another way, the tax to GDP ratio in the US is higher than in Ireland - in other words American taxes are higher relative to economic output.

 

[Timcognito]

Contrary to popular belief among us Americans, the total tax burden - federal income tax, federal Social Security and Medicare payroll taxes, state and local income (and property) taxes, and so on - is not necessarily lower in the US than in a lot of European countries. Putting aside any political debates or questions, it's simply a fact that a portion of taxes paid in European countries (and Japan, and others) covers healthcare costs that American must pay out of pocket. Again, this not - or at least should not be - controversial; it's simply a fact and you can conclude whatever you want from it.

And to look at it another way, the tax to GDP ratio in the US is higher than in Ireland - in other words American taxes are higher relative to economic output.

You are right about what they have and get for taxes they pay which is a competitive advantage over the US companies but tax/GDP is much higher there. Ireland is an exception as they keep taxes low to lure in foreign investment and it is working. Many EU posters here complain about VAT they have to pay. You are right in-place policies are not necessarily politics just differences, and in fact the EU has aligned many countries with common policies where there are different politics.

 

[bachatero]

Ruh roh!

https://twitter.com/x/status/1926103852048150765

 

[ahofer]

Returning to the subject of asset allocation, I just ran across this, which is the sort of thing I was looking for earlier amidst the discussion about investing 100% in stocks:

https://thepoorswiss.com/updated-trinity-study/

My objections (and endorsements) are encapsulated in the section beginning with "The Success Rate is Not Everything". Your investment strategy and your withdrawal rate are key independent variables.

If we only look at the first graph, the conclusion is that higher allocation to stocks is always better. But if we look at the second graph, 100% stocks is the worst one!

First, the paper’s original conclusions still hold even with much more data being considered. And it still stands accurate up to 2024! It is excellent since it shows that the 4% rule of thumb still works!

If you increase the simulation time to more than 30 years, a 4% withdrawal rate is no longer safe. With 50 years of retirement, you have a 90% chance of success with a 4% withdrawal rate at most. A withdrawal rate of around 3.5% would be safer for most people.

If you want real chances of success, you will need more than 50% of your portfolio allocated to stocks. The stocks allow us to fight inflation and cover the withdrawal rate year after year.

If you choose a reasonable withdrawal rate, you will likely have much more money than when you started! For instance, a 3.5% withdrawal rate over 30 years with 100% stocks would leave you about six times more money than when you started!

 

[bachatero]

From my favorite trader

https://twitter.com/x/status/1911179133104885951

 

[bachatero]

Weekend index futures are down over a percent! Just waiting for the major selling on Globex opening tomorrow

 

[JeffS7444]

It's been awhile since I checked on the state of my investments, and at the moment, things look ... okay. FSGGX Fidelity Global ex-US in particular has done nicely for me, though my S&P 500 index funds aren't far behind. Why, given all the uncertainty reported in the news, I haven't got a clue.

For grins, maybe I should put some money-I-can-afford-to-lose on 9992.hk aka Pop Mart, makers of the viral Labubu.

 

[ahofer]

The non-U.S. stuff has only outperformed recently. That Fidelity fund is lagging its index.

 

[Mart68]

S&P now where it was when I bought in back in February.

 

[kmanusa]

I have no special insights into being successful at investing. However, one famous quote from the famous financier Bernard Baruch always resonated with me: "I made my money by selling too soon."

 

[Timcognito]

A warning about the current account gap

https://www.reuters.com/markets/us/us-current-account-gap-clocks-pre-2008-crash-milestone-2025-06-25/

 

[levimax]

A warning about the current account gap

https://www.reuters.com/markets/us/us-current-account-gap-clocks-pre-2008-crash-milestone-2025-06-25/

While none of the deficits the US is running is great this recent "spike up" could be "tariff front running" as much as anything. No matter what none of these long term marco deficit trends have any predictive value for what stocks are going to do in the short to intermediate term. They don't matter until they do but trying to predict when they will matter is pretty much impossible.

 

[Timcognito]

While none of the deficits the US is running is great

What? $1.8 Trillion

 

[levimax]

What? $1.8 Trillion
View attachment 459604

To be more clear I should have phrased it "While none of these deficits are good long term"... I was using "great" sarcastically to mean "bad". I was not referring to the size of the deficits which is certainly a "great big" deficit.

For some context it is really not clear what if any level of debt for a country is optimal. It is different than "household debt" especially if you have a reserve currency like the US. Somehow Japan is managing to muddle through (probably suboptimally) with much higher debt levels even though they don't have a reserve currency. It's not that I think irresponsible deficit spending is desirable or sustainable, I just don't think it has any short or medium term predictive value for the direction of the capital markets.

 

[blueone]

To be more clear I should have phrased it "While none of these deficits are good long term"... I was using "great" sarcastically to mean "bad". I was not referring to the size of the deficits which is certainly a "great big" deficit.

For some context it is really not clear what if any level of debt for a country is optimal. It is different than "household debt" especially if you have a reserve currency like the US. Somehow Japan is managing to muddle through (probably suboptimally) with much higher debt levels even though they don't have a reserve currency. It's not that I think irresponsible deficit spending is desirable or sustainable, I just don't think it has any short or medium term predictive value for the direction of the capital markets.


View attachment 459608

The Bank of Japan base interest rate is 0.5%. The US Federal Reserve Bank interest rate is 4.5%, so the relative impact of new or refinanced debt cost is 9x.

 

[levimax]

The Bank of Japan base interest rate is 0.5%. The US Federal Reserve Bank interest rate is 4.5%, so the relative impact of new or refinanced debt cost is 9x.

OK so what does that mean? Should we change our portfolio allocations away from US debt and equities? If so to where? Should we buy more bitcoin or Gold?

The capital market are well aware of all the deficit levels and trends and prices things accordingly. I believe predicting the future is impossible (last Saturday new all time highs in the stock market was not what most people were predicting) so it is not worth wasting your time trying. About the best you can do is allocate your portfolio to several different and hopefully non correlated asset classes and adjust your percentages back toward your allocation percentage if there is a large move up or down is one of the classes. This type of strategy has done very well over the long run.

 

[blueone]

OK so what does that mean? Should we change our portfolio allocations away from US debt and equities? If so to where? Should we buy more bitcoin or Gold?

Not in my opinion. I like US equities better than those from any other country, though there are rare non-US stocks I like. (TSMC, to name one.) I'm not a fan of bitcoin or gold, though I do feel like I missed out on gold's run-up since 2023, which was an oversight fueled by my bias. I'm not a bond investor, but US interest rates combined with the low probability the USG would default do seem to make for a good treasury bill value proposition.

The capital market are well aware of all the deficit levels and trends and prices things accordingly. I believe predicting the future is impossible (last Saturday new all time highs in the stock market was not what most people were predicting) so it is not worth wasting your time trying. About the best you can do is allocate your portfolio to several different and hopefully non correlated asset classes and adjust your percentages back toward your allocation percentage if there is a large move up or down is one of the classes. This type of strategy has done very well over the long run.

I agree with all of this. I was just pointing out that a chart which simply depicts national debt as a percentage of GNP can be misleading, without taking into account the cost of carrying that debt. Now that interest on the national debt is greater than the defense budget, I am concerned that our ability to defend ourselves in a world with dangerous adversaries could be compromised by too little discretionary budget available.

 

[Timcognito]

The only solutions to the debt as its service (close to 15%) are revenue and inflation. Slashing entitlements would only put small dent in it and create a depression. We are already one of least taxed nations and the income gap between the wealthiest who pay the most taxes to those requiring the entitlements is very high. Flat tax with high compliance rates would help. Slashing the IRS employees was huge bungle. Our defense budget is 5X other modern nations.

 

[blueone]

The only solutions to the debt as its service (close to 15%) are revenue and inflation. Slashing entitlements would only put small dent in it and create a depression. We are already one of least taxed nations and the income gap between the wealthiest who pay the most taxes to those requiring the entitlements is very high. Flat tax with high compliance rates would help. Slashing the IRS employees was huge bungle. Our defense budget is 5X other modern nations.
View attachment 459620

It looks to me from the chart you posted that entitlements are at 53% of the federal budget. (Health Insurance + Social Security + Fed and Vet benefits) We are a major welfare state, no doubt. And federal funding doesn't include the state and municipal spending.

I'm a big supporter of a flat income tax, with tiers for some *additional* progressive taxation. (Note that a flat tax *is* progressive without tiers. Someone who pays a 10% flat tax on $1,000,000 of income is paying 10 times the income tax as someone with $100,000 of income.) I am so tired of politicians buying votes with outrageous credits and deductions which distort the entire economy, and a flat tax with no credits or deductions would end the madness. Unfortunately, I think there's a zero percent chance of a flat tax getting passed by Congress. You can't buy targeted votes or supporters with a simple flat tax.

Of course, even a flat income tax would not plug perhaps the biggest taxation hole of all - the cash economy. People who work for cash or run businesses on cash and don't report any of the income to various government agencies. The estimates I've read put it at $2T-$3T/year. Considered alone as a GDP, the US cash economy would be on the biggest economies in the world list somewhere in the range of Brazil to France.

Gross National Product (GNP) by Country 2025

Discover population, economy, health, and more with the most comprehensive global statistics at your fingertips.

worldpopulationreview.com

As for the US defense budget, it's 5x other nations because US allies are spending so little. Also, since we have a volunteer force, ~25% of the defense budget is just for personnel costs. The US spends only 3.4% of GDP on defense, which is actually less than the new NATO spending objective for each country by 2035, which is 5% of GDP.

 

[Timcognito]

Well I didn't look it up but I'll bet that 80%+ of Social Security checks goes right back into the economy as well as that 25% defense personnel paydays. There is a ton of money in what the government is overcharged by the medical system and defense. Was hoping DOGE was going to go for that low hanging fruit but that wasn't the goal. I guess they had trouble getting personal data from the antiquated US Gov computers from afar and still haven't copped to where it is or what they are doing with it. Cash is slowly dying by electronic paying which could be easily monitored. Agree Flat tax is a pipe dream. Everybody is fixated on taxes when efficiency, price gouging and accounting are real issues there and paying for excessive spending since the dawn of the new millennia with borrowed money is the 800 lb gorilla.