Editors Note:  This article was originally posted in 2011, but still highly relevant.

“90% of putts that are short don’t go in.” – Yogi Berra

Why are some people able to become wealthy relatively easily, when most people struggle with their finances? In Canada, about 1 person in 50 is a millionaire and in the US about 1 person in 13 is millionaire* – which is probably a lot more than you thought.  A recent BMO Harris study found that only 6% of millionaires inherited their wealth and 94% made it on their own.

In short, lots of people are wealthy and nearly all of the millionaires and billionaires made it all on their own.

From experience in talking with literally thousands of people and then seeing their complete finances, we can usually tell who is wealthy and who is not just by talking with them. We have found that the main difference between the wealthy and people that struggle financially is not their education, career, salary, type of family or anything like that. The main difference is the way they think about money.

Here is the secret: Wealthy people are focused on building wealth.

Most people struggle financially because what they believe about money makes them focus on other things.

Here are the beliefs about money that cause most people to struggle financially:

“The Sacred Cow” beliefs:

Here are 3 common beliefs that are a big part of the Canadian psyche. In our opinion, they are the main reason most people struggle financially. We put these 3 beliefs together and call them the “Sacred Cow”:


1. You should try to look like you are wealthy.

Most people are not wealthy because they don’t really want to be. They want to spend a million – not have a million. Most wealthy people are actually relatively frugal and are good savers (at least until they are wealthy). “Conspicuous consumption”, such as expensive cars, clothes, jewelry, electronics and even homes are signs of being a spender – they are not signs of wealth.

If you sense someone is trying to impress you by looking wealthy, he is almost definitely not wealthy. He is probably just a spender. Wealthy people usually downplay their wealth. It is the non-wealthy that try to impress others with money.

Years ago, when we used to go to the homes of new potential clients, we had what we called the “4-bedroom house and 2 minivans rule”. If we pulled up to a large, 2-story house with nice landscaping and 2 expensive vehicles in the driveway, we would just look at each other and shake our heads. They almost definitely have little money.

Then we would see their finances and in almost every case, they were up to their ears in debt. The house was fully mortgaged, they had credit lines that are maxed and credit card balances, and the vehicles were leased. It was shocking how often the value of the 2 vehicles in the driveway was more than their net worth!

Most millionaires live in ordinary neighbourhoods and few people know they are millionaires, as explained in the classic book, “The Millionaire Next Door”. Truly wealthy people usually downplay their wealth. They get a feeling of confidence from having money – not from spending money.

2. It is most important to pay off debt.

When we meet people with no debt, they are almost always among the poor or middle class. Wealthy people tend to have a lot more debt than non-wealthy people. Most Canadians tend to spend the bulk of their working life focused on paying off their mortgage and other debt, which we call “getting up to zero”.

Being in control of debt is obviously important, but wealthy people are focused on building their net worth – not on paying off debt. In fact, borrowing to invest in their business or in the stock market is almost always the reason they are wealthy.

Paying off debt is just “getting up to zero”, which will not make you wealthy.

3. The stock market is risky.

We find that most Canadians have a quite exaggerated view of how risky the stock market is, which stops them from ever having wealth. They are scared to invest a lot in the stock market. They believe the stock market is a gamble and crashes all the time, instead of focusing on the long term growth of the stock market.

You need to picture being wealthy. Imagine having a $5 million investment portfolio. You did not get there by investing in bonds. Properly invested mainly in the stock market, on average your net worth grows by $500,000/year. However, most years are not average. Quite often, your net worth grows by more than $1 million in a year.

But it also goes down several times a decade. In fact, once or twice a decade your portfolio drops by more than $1 million. In 2008, your $5 million could have dropped to between $3-3.5 million – a drop of $1.5-2 million. That’s a lot! However, you are focused on building wealth and know investing this way is what will grow your wealth in the long run.

Here’s the point: If you are scared to have a large stock market portfolio, then how will you ever build wealth?

Story of Reg and Rich

Just picture a typical Canadian named Reg. His parents taught him that “all debt is bad”, so his main focus financially during his life is paying down debt. He does not want to look poor, so he still buys a decent home, car and furniture, and travels regularly, but he always focuses on paying off his credit cards. He uses his extra cash to increase his mortgage payments.

He has some RRSPs, but he does not want to lose much money. Therefore, he invests conservatively partly in GICs and partly in balanced and income mutual funds. He focuses his investments so he can “sleep at night”.

Obviously, Reg will never become wealthy, will he? The way he thinks about money will prevent him from investing enough to ever become wealthy. He invests too conservatively to build any serious wealth.

His brother, Rich, has always wanted to be wealthy. He is constantly thinking about ways to invest more. He has a small business on the side and rents out his basement. He invests nearly all this extra money and his bonuses, mostly in addition to RRSPs. He does not spend a lot of time on his investments. He has a sensible approach and just keeps investing $30-50,000 every year. His entire portfolio is long term investments focused on growth.

He has an average home in an older neighbourhood and has lived there for more than 20 years. His family teases him about his 15-year-old Honda Civic, but he likes it.

Both Reg and Rich are in their mid-50s and appear to be doing fine financially. Reg has a newer home and much nicer car, but Rich has a calm confidence about him. The main difference is that Reg’s investments are $250,000, while Rich’s portfolio is over $5 million.

Think Like the Wealthy

The good news about this is that you can change the way you think about money. If being wealthy resulted from being lucky in how you were born, you would have no control. But since it is primarily a result of what you believe about money, it is within your control.

Here is how the wealthy think about money

Our experience is that the poor have most of their money in consumer items, such as a car. Middle class people have most of their money in their home or other real estate. Wealthy people have the bulk of their wealth in their business or in the stock market (many businesses). That is why they are wealthy.

Wealthy people are also usually prudent with their investments, but the big difference is that they save a lot and are focused on investments they expect to grow long term, instead of investments that fluctuate less short term. They tend to be confident in investments because they are optimistic about the future – not fearful and pessimistic about short term risk.

The reason they are multi-millionaires is that they have millions invested in their business or in the stock market. Wealthy people are wealthy because they are focused on building wealth. Specifically:

  1. They are usually frugal and good savers (not big spenders).
  2. They are focused on building their net worth (not paying off debt).
  3. They are generally optimistic about the future (not fearful and pessimistic).
  4. They are focused on long term wealth-building investments (not short term risk).

Learn to think like the wealthy and you can become one of them.

* Spectrum Group

“Disclaimer: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Opinions expressed are the personal opinion of Ed Rempel.”

About the Author: Ed Rempel is a Certified Financial Planner (CFP) and Certified Management Accountant (CMA) who built his practice by providing his clients solid, comprehensive financial plans and personal coaching.  If you would like to contact Ed, you can leave a comment in this post, or visit his website EdRempel.com.  You can read his other articles here.

If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).


  1. FrugalTrader on May 25, 2011 at 9:47 am

    @Ed, great article, thank you. I’m not sure I agree with your 2nd sacred cow belief. I believe that most would benefit most from paying down debt as it offers a guaranteed return – a return that they would not likely get from the market. Most people simple do not know how to invest, or have the temperment to hold through the tough times – these people would likely outperform by paying down debt.

  2. The Investment Blogger on May 25, 2011 at 9:52 am

    Great post topic! In regards to Sacred Cow #2 (It is most important to pay off debt), I think one a bit more elaboration may be needed. One of the keys to becoming wealthy is focusing on paying off BAD debts. These are debts that do not generate money (credit card, mortgage, car, etc.). The wealthy use reasonable (low) amounts of debt (and sometimes no debt) to help with business & investment. Extra cash saved from paying off bad debts can be used to pay off other non-cash generating debt such as the home, but also a portion would be used for investing & business.

    I also notice the main difference between those that are and will become wealthy is what they feel are most important to them and their goals. They tend to see money not as a means to purchase more “things”, but a way to allow them to have a certain lifestyle and focus on what is important to them. For many, its doing whatever they choose each day, spending time with loved ones, etc. And in order to achieve this, while they are building wealth, they sacrifice material goods/luxuries until they can truly afford them.

  3. Steve on May 25, 2011 at 10:09 am

    I am going to ring in here again with the 2nd Sacred Cow. Perhaps we misunderstand Ed but being focused on paying off debt is critical. I assumed he meant a focus on building wealth instead of paying off homes and CCs (paying off CC’s is a no brainer, you should have zero your whole life for that one!)

    I have colleagues that I would call fairly money smart, and the bottom line is the ones who poured money into paying off their mortgage before redirecting those funds to investing have far more net worth then the ones that amortized their mortgages over long periods so they had more funds available for investing. Why? paying off the mortage was a guarenteed, high after-tax return. Most people can’t make a diverse portfolio outperform the net gains of paying off a mortgage.

    I’d say that holding good debt (investment loans) while holding bad debt (everything else including principle residences and cars) is foolish, get rid of bad debt before you think about leveraged investing. Doing this will still get you rich with less risk early in your net worth building days.

    Get to the ‘zero point’ as fast as you can, then spend the rest of your live building weath.

  4. My University Money on May 25, 2011 at 10:19 am

    Excellent post Ed! I definitely agree with you. I had to laugh about your rule of thumb when pulling up to a house. I work as a school teacher, and if you could find a group that more perfectly subscribes to your “average” Canadian theory I’d like to see it. My co-workers spend what they have content in the knowledge that they have pension coming (we hope). They think that the defined benefit plan is the best thing in the world when in reality all it is, is the government forcing some fiscal discipline on you. Personally, the defined benefit plan frustrates me a little as I would rather have my own money in my investing hands.

    In response to Steve’s comment above: Steve, despite what your anecdotal evidence might tell you, this just doesn’t make sense. Sure the mortgage paydown was guaranteed, but what was the overall return? Probably around 4-5%? The average stock market return over the last 200 years is over 10%, and even pessimistic predictors will use 8% as a benchmark. It’s just pure logic that your return would be higher looking at building wealth from day one. Of course the best method is the Smith Manoeuvre which I know Ed will get into!

  5. Dilbert789 on May 25, 2011 at 10:27 am

    To comment on the comments, #2 I think really depends. If you have a mortgage at 5+%, that’s like a stock market return of 8% after tax. So it might make sense to pay off the mortgage. However if you can borrow at 3%, you should be able to beat that with stock market returns. Therefore it would be better to invest. Every leveraged item should be looked at the same way.

  6. bubak on May 25, 2011 at 10:29 am

    This article makes it clear why the big six banks are losing so much money. They put all of their capital into mortgages and loans at rates that will never make them rich. If instead they invested in random startups and rented out the basements of their branches, they would be raking in millions in profits.

  7. Millhouse on May 25, 2011 at 11:23 am

    How is “millionaire” defined here? Someone with a net worth of a million bucks or someone with investable/liquid assets of a million? Is it family or individual?

    With the 1 in 50 number, I can only assume that refers to liquid assets (since so many people are now real estate millionaires) of the individual. Almost 1 in 10 Canadian households are now RE millionaires.

    Any comments or clarifcation?

  8. Jim Yih on May 25, 2011 at 11:27 am

    Ed, I think your sacred cow number 1 was perfect. I see that myself.

    Naturally sacred cow 2 is controversial. In my travels, I see the opposite. Wealthy people have less debt as opposed to more debt. I like Investment Blogger’s notion of good debt vs bad debt.

    In terms of sacred cow number 3, I also think wealthy people respect and understand the importance of having GICs and safe investments in the portfolio. Although they have stocks and equities, they never expose themselves to too much risk.

    Anyhow, I thought this was a great article!


  9. Dan on May 25, 2011 at 11:49 am

    @6….while that made me laugh :), completely misplaced comment. The banks revenue models arent built around just mortgages and loans. One of the biggest cash grabs are from commercial loans, and consumer bank fees. Also, they are able to lend out 10 times the money they have in deposits. So if a bank has 100 dollars, they can lend out, 1000. So interestingly enough, the reason they are so sucessful is due to the fact they are able to leverage so heaviliy, amongst many other reasons.

    The only stat i question in this article is that 1 out of 50 ppl is a millionaire. This of course has to include their primary residence. I work in an FI, and in a rich province at that, and i dont think one out of 50 ppl i see is a millionaire.

  10. Miss T@ Prairie Eco-Thrifter on May 25, 2011 at 11:58 am

    Great post. I have seen all three of these in play numerous times. My hubby and I are surrounded by peers who are all about looking the part, #1. They want the big house, the fancy car, and the big trips. I must confess, I have sometimes felt the need to try to keep up with them.

    When it comes to #2, this is something new to get my head around. It has been drilled into me to pay off debt and worry about networth later.

    As for #3, yes, I too think the stock market is risky but I am working on getting better at taking some risks as I know this is the only way to get ahead.

  11. Mel on May 25, 2011 at 12:41 pm

    Great Post…!!!

    I have been following your blog for a long time. Love all your articles for Canadian :)

    BTW, You mentioned that 1 in 50 Canadians are Millionaire. May I know the avg. age of the Millionaires? I just want to know if I still have a chance to become one of them in the future :p

  12. matt on May 25, 2011 at 1:10 pm

    I really enjoyed this….it all makes sense to me and I think I fall somewhere between 2 and 3. I do invest, but I am also very focused on paying off my mortgage, with the intent of taking the money going to my mortgage and investing that.

  13. cannon_fodder on May 25, 2011 at 1:52 pm

    I see a lot of commonality between what I’ve seen and this article.

    I don’t believe in the idea that if you just think of something you really want it will come to you. But, I do believe that if you think, and plan, and implement that you can achieve success.

    One challenge I can imagine is when you have reached wealthy status, but in a quiet manner, those you’d like to help won’t believe you can afford it!

  14. ITS on May 25, 2011 at 2:38 pm

    I found most of this article as how should I say this nicely “blowing hot air”…

    Being wealthy is a completely relative concept, just like happiness. Whatever makes Ed happy wouldn’t necessary translate into a lesson in happiness.

    So, I say. Pay down your debt, invest only in what you are comfortable with, as opposed to the stock market only bs, and enjoy life to the fullest.

  15. Sarlock on May 25, 2011 at 2:51 pm

    #1 is the most important step, especially in the early parts of a journey to becoming a millionaire. If you are spending what you earn, you’ll never be able to grow your net worth and will be perpetually mired at roughly the same net worth the entire time.
    My father, who is a millionaire, is a perfect example of someone that you’d never suspect was that wealthy: he lives in a small-ish house, drives a $20,000 car, wears clothes bought at a discount store, watches TV on an old 25 inch tube television (why buy a new one when the current one still works?) and scours the internet for good deals before buying anything. I plan to follow that example and so far it is working out well for me. My peace of mind is far more important than showing off to my friends and neighbours.

  16. Ryan on May 25, 2011 at 3:29 pm

    Sacred cow might be better written that Millionaires are not afraid of debt. They understand how to make debt work for them, as contrasted with others who are afraid of debt, and therefore pay it down as quickly as possible and will not be comfortable using debt as tool to grow net worth.

    Just a thought…

  17. Be'en on May 25, 2011 at 6:45 pm

    Already 55 yrs old with 5 million dollars in net worth, and Rich still drivess a 15-year old car and lives in an “average” house? What’s 5 million dollars for then?

    I am sure a lot of people who have paid off their houses and other debt are “calmly confident” about their future.

    Trying to be wealthy for the sake of being wealthy? Doesn’t make much sense to me.

  18. ITS on May 25, 2011 at 8:33 pm

    “Trying to be wealthy for the sake of being wealthy? Doesn’t make much sense to me.”

    Very well put. I couldn’t have said it better myself!

  19. Financial Success For Young Adults on May 25, 2011 at 9:25 pm

    It’s so true that the wealthy have a different mindset. I first read about this in the millionaire next door and I was honestly surprised. I started spotting more millionaires that were not flashy. I assume that if I see a mercedes benz or flashy jewelry, 9 times out of 10 it’s someone who is in over their head in debt.

  20. Paul Meane on May 25, 2011 at 9:29 pm

    As a Financial Planner, I understand that you prefer that people pay you to invest their money instead of paying down their debts… but in a society where so many people have so much debt, it is very bad advice to give.

  21. krantcents on May 25, 2011 at 10:36 pm

    Your description of wealthy people is not limited to a geographic area! Although I do not identify myself as wealthy, I have accomplished a sizable net worth. I have always been a saver, most of my net worth was in my business and now is in the stock market.

  22. Ed Rempel on May 25, 2011 at 11:09 pm

    Hi FT & many others,

    So #2 about paying off debt is a surprise? The key point here is that paying down debt is not usually the main FOCUS of the wealthy. The main focus is building wealth.

    The debt is not the issue. The wealthy tend to be utilitarian about debt. If debt helps them build wealth, then borrowing is good. If it is a drag, pay it off.

    For example, many wealthy people own a business and will borrow a lot to build their business. We often hear them say something like: “I can borrow at 4% and I’m making 15% on my money in my business.”

    Debt is also usually not the main issue. For example, in the US, 90% of the millionaires still have a mortgage. They could pay it off today, but they don’t. Why not? It is not important enough to them. Their mortgage is at 3% and is tax deductible, so paying it off is not priority. They have better uses for their money that can build wealth faster.

    Of course, they will pay down debt. They keep their debt payments under control and keep enough “powder dry” so that they have access to cash for emergencies or great opportunities.

    Debt is managed, but paying it to zero is not their main FOCUS.


  23. Ed Rempel on May 25, 2011 at 11:22 pm

    Hi Steve,

    I don’t know about your colleagues, but our experience is the opposite of yours. The people that focus on paying off their mortgage tend to adjust their lifestyle and have a few great years after the mortgage is paid off and before they retire. However, they have little wealth and often are making massive cutbacks when they retire.

    They may look like they have a lot of money once the mortgage is paid off, but they have not invested much over the years.

    In fact, when people ask us if it is better to pay off the mortgage or invest, the main question we ask is: “Once the mortgage is paid off, what percent of the mortgage payment will you invest?” If the answer is less than 90%, then focusing on paying off the mortgage just leads to spending – not more saving.

    When we do projections, the “percent of the mortgage payment that will be invested” is the most important factor.

    Very often, paying off debt is a sign of fear of investing. People are afraid of investing and the stock market, so they focus on paying off debt. Once it is paid off, they are still scared to invest, so they spend. Then they retire – and obviously they have small portfolios invested conservatively.

    In contrast, the people that focus on investing earlier give their investments a long time to work. Plus, they always have payments through their life, so they are never tempted to increase their lifestyle for a few years before they retire.

    We find the people that focus on investing early tend to have portfolios many times higher than those that focused on paying off the mortgage.

    The big issue here is that most Canadians spend the bulk of their working like focused on paying off their mortgage and other debt. That is their main focus. It gives them a secure position while they are working, but of course, that it not the road to building wealth.


  24. Ed Rempel on May 25, 2011 at 11:59 pm

    Hi Millhouse,

    The 1 in 13 millionaires in the US refers to net worth. About 2/3 of them have investable assets (excluding real estate) of more than $1 million, as well.

    The stats for the US are:

    Net worth over $1 million

  25. Ed Rempel on May 26, 2011 at 12:22 am

    Hi Millhouse,

    The 1 in 13 millionaires in the US refers to net worth. About 2/3 of them have investable assets (excluding real estate) of more than $1 million, as well.

    The stats for the US are:

    Net worth over $1 million 1 in 13
    Investable assets over $1 million 1 in 20

    You are right that my figures for Canada may be outdated, Millhouse. I’ve been using figures from Wikipedia showing 251,300 millionaire households in Canada (1 in 50) in 2009. But the Deloitte Centre for Financial Services shows 1,745,000 millionaire households (1 in 8) in 2011. Canada used to have a lot fewer millionaires than the US proportionately, but we had a huge surge in the last decade. We have more than 4 times as many millionaires vs 10 years ago.

    There is a big difference between wealthy and millionaires, though. People with a paid off $1 million home and no investments are obviously not wealthy.

    In determining the wealthy, for this article, we are referring to people with high investable assets. In fact, we find that normally $2 million is where the lifestyle can start to change significantly.

    We think of $2-5 million investable assets as “beer and pretzels millionaires” and over $5 million as “wine and cheese millionaires”. This is based on the lifestyle you can afford for the rest of your life.


  26. Ed Rempel on May 26, 2011 at 12:38 am

    HI Be’en and ITS,

    I guess you are in the “spend a million” group, not the “have a million” group?

    It may seem pointless to you to have wealth, but there is a feeling of confidence and security that comes from knowing you will always have enough money and knowing you can afford whatever you want.

    Most people without wealth end up worrying about money a lot, especially when they get closer to and into retirement.

    In fact, when we do custom retirement plans for our clients, we find that most of them will need between $1-2 million in investments when they retire. This is future dollars, which would be worth about 1/2 of what it is today.

    My point is that having $1-2 million in investments is not wealthy. It is about having a reasonably comfortable retirement, and it is about security and confidence.


  27. donald on May 26, 2011 at 2:24 am

    Great article,thank-you for sharing!

  28. Andrew on May 26, 2011 at 9:25 am

    Hey based on this article I’ve decided to stop paying off my mortgage.
    Instead I’m going to put all of our savings into the stock market. Does anyone know a good financial planner?

  29. Steve on May 26, 2011 at 10:19 am

    Hi Ed, thanks for your response!

    I guess I should clarify who I include/exclude by ‘money-smart’. I do also have colleagues who rush to pay off their mortgage so they can afford vacations, cars and toys. They are NOT money-smart. And as you suggest, I am not looking at the appearance of wealth, I’m talking about actual investment assets.

    I have a few colleagues that paid off their primary residence before 35, then re-invested nearly 100% of those payments into investing for the next 10 years. They are money-smart.

    I’m contrasting this with other colleagues who are on track to pay off their mortgage by 45 or 50, and instead of been investing the balance over the years. They are also money-smart.

    These individuals all have marginal rates at 44% and up. As noted above, my observations are anecdotal, but the people who relentlessly eliminated all bad debt (including home) as fast as possible actually seem to have higher networth at 45. Not because the numbers say so, because human behaviour seems to say so.

    I’ve also noticed that those that paid off the house and cars first, then invested usually refer to those things as ‘depreciating liabilities’ rather than assets. Those that still have mortgages and car loans seem to consider those a big part of their networth.

    Once again, attitude and behavior, not numbers seems to make a difference.

  30. Freedom 40 on May 26, 2011 at 3:30 pm

    @ Ed….

    Interesting read. Trying to figure out where I fit. Currently have approx $250k in investable assets and $200-250k in equity in my home. 34 years old. Continuously having to convince myself not to pay down my mortgage (at prime – 0.75), but really hate debt. I could probably pay off my mortgage with about $125k in non-reg (dividend yielding) assets……should I? I am the type that will be disciplined with my savings after mortgage is paid (i.e. 100% of mortgage payments would convert to savings). Am I a typical Canadian?

  31. Beer and Cheese Man on May 26, 2011 at 5:43 pm

    I’m working on mortgage payments for the following two reasons:

    1) The average stock market return is dependent on many things – the timeline that you look at, the types of stocks that you hold, fees, dividends, etc.
    2) Mortgage interest in Canada is non-deductible. (I’m too lazy to implement a Canadian-style Smith Manoeuvre.)

    Once the mortgage is paid off, we will be putting 100% of that into investments.

    That said, I’m just as happy with “beer and pretzels” as I am with “wine and cheese”. :-)

  32. Bob on May 26, 2011 at 6:23 pm

    Kind of a misleading article.

    The Wealthy can afford to be utilitarian about debt, because if that investment goes sour, they still have a place to live. The Middle & Lower classes don’t have that luxury.

    The real test would look at how currently Wealthy individuals dealt with their money before they were wealthy.

    And this is where Ed’s article is partially right — the best way to become a millionaire is to start a business. But (and this is where Ed’s article is misleading), I’m very skeptical that when people are borrowing money to start a business they are thinking about the debt in terms of “building their net worth”. They are thinking about that debt in terms of building up a business. It is only when you have lots of money to play with (i.e., you are already Wealthy) that the mindset changes from using debt to buy things (including “good things” like the materials to build a business) to using debt to simply make money.

    Implying that lower/middle class Canadians should adopt a “use debt to make money” mindset and that to become a millionaire they should borrow to invest in equities is ridiculous.

  33. Bob on May 26, 2011 at 10:39 pm

    Let’s also not forget that there is a bit of sample bias here, too. By discussing the traits of “The Wealthy”, we forget that there are lots of other people who had the same traits and tried the same strategies, but failed – sometimes catastrophically.

    After all, fewer than half of new businesses last longer than 3 years, and how many lower/middle-class folks are actually capable of using leveraged investing as a reliable income stream/capital growth strategy?

  34. Jungle on May 26, 2011 at 10:56 pm

    Ed great article.

    Bob if you are looking to see what the wealthy did before they were rich, read The Millionaire Next Door-great book if you have not read it already.

    I think some posters implied that Ed was saying to leave debt alone. I think he’s referring to what is known as “good debt.” (ie mortgage and investment debt) With the interest rates today and people that have the minus prime rates, I agree that paying down the mortgage seems kind of silly.

    I agree with what other posters said, saying that the money psychology will get most people during investing and paying off the mortgage will defeat this. But the house will not pay income for retirement. (Unless you have renters..)

    I agree with Ed in that people are scared of the stock market. I am scared of the stock market today. For example, I was having great difficulty aligning my allocation (or lack thereof) and I am deciding on what to do some extra cash from first and last rental income..put it in TFSA or pay down mortgage? Paying down the mortgage is easy, but I know that putting it in TFSA can grow as well. Just in the short term you can not expect to see magical results with they I prefer to invest (index), but they come after 20-30 years.

  35. Bob on May 27, 2011 at 1:25 am


    I’ve read the book. Ed’s article is essentially just an abstract of the book’s back cover.

    But, my second point applies to The Millionaire Next Door.

    Nassim Nicholas Taleb [author of The Black Swan]criticised the premise of the book on the basis of two instances of survivorship bias: that there is no mention of the accumulators who have accumulated underperforming assets, and that the United States had just gone through the greatest bull market in its history at the time of the book’s publication. He suggested that the authors should lower the net worth of the observed millionaires to compensate for the effect of the unobserved losers, and to consider the fate of accumulators following prolonged periods of recession such as in 1982 or 1935.[7]”

  36. Glenn Cooke on May 27, 2011 at 10:56 am

    Ed, you can tell us. But we will.not.listen. :)

  37. Sarlock on May 27, 2011 at 12:58 pm

    Re Debt:
    I run a business and continually keep it fairly in debt because of the leverage advantage it offers me. This is the same with most savvy business owners.
    If, in an average year, I can earn $100k after-tax profits on $2mm in sales, that gives me a 5% profit margin.
    Now compare these two scenarios:
    The company requires $1mm in equity+debt to function.
    Scenario A: All $1mm is my own money and the company has no debt. Peace of mind, right? $100k/year on $1mm equity yields a 10% return.
    Scenario B: $500k in my own money and a $500k loan from the bank at 4%. This reduces profits to $80k/year due to the $20k/year interest expense. Now I earn $80k/year on $500k equity. Aha! That’s a 16% return.
    Additionally, I have $500k in funds personally that I didn’t have to invest in the business and can invest that in my own portfolio.
    Further, if something happens to the company and it goes under (things happen), in Scenario A I lose $1mm in invested equity. In Scenario B, however, the bank takes half the hit and I only lose $500k (assuming I didn’t sign a personal guarantee for the company).
    This, in a nutshell, is why debt isn’t a bad thing with companies. You won’t find many larger companies that don’t have debt on their balance sheets for this reason. You want to keep a reasonable amount of leverage there to boost your returns.
    Why do banks happily invest at 4%? Because they can borrow the money at nearly 0% and enjoy a 10:1 leverage ratio. They don’t need to chase yield because they already have a sweet arrangement.

  38. Bob on May 27, 2011 at 4:37 pm


    Right, it often makes sense for businesses, but this is not quite the same as for personal income (bankruptcy rules differ with corporations, etc.). But, again, this type of thinking is really only possible for non-business applications once you have the 1 million dollars to play with. Ed makes it sound like this sort of leveraging is something lower/middle class individuals should be doing. Having 1 million in cash to play with hardly qualifies as that sort of scenario.

    If, instead of 1 million, the person only had 100,000 to their name, would you still advise leveraging half of their net worth and investing it in the stock market?

  39. Hopper on May 27, 2011 at 5:25 pm

    Hi Ed,

    Overall you have great advice. Generally similar to ‘Rich Dad Poor Dad”.

    One thing to add is that the average person is likely an employee, not a business owner. While the average millionaire likely is a business owner.
    As an employee, one is more limited and taxed higher. That leads to investing in stocks, which un-experienced and un trained people usually don’t make their 10% a year. Also now all the eggs are in the “stock market” basket.

  40. Andrew2 on May 28, 2011 at 12:58 pm

    Dan and Sarlock, can you explain how Canadian Banks can leverage 10:1 on deposits. From my understanding, this is only true for US banks because of their Reserve Requirement. Canadian banks have no legislated Reserve Requirement. They have Capital Requirements but this doesn’t tie their lending to their deposits directly.

    As for owning businesses, the wealthy people I know do not have much invested in the public stock market. Most of their investments are in private stocks that they either sell to other individuals, other private and/or public companies, or the public stock market upon IPO, or hold onto because the companies they own are profitable and pay out good dividends.

    Most of these individuals prefer spending effort maximizing tax sheltering over borrowing money to invest, although they will borrow the money to invest if they see that a reasonable return on that money is highly likely. Also, many companies have short term cash flow requirements that require borrowing to cover. Many of these individuals actually loan money to their own companies at interest instead of going to banks or other investors.

    Most of these individuals own holding companies to hold their investments because there are tax advantages (dividend transfers between companies aren’t taxed), and many own holding companies in foreign countries to take advantage of the tax breaks given there so they can reinvest more of their profits to make more profits. The tax hit comes at the end when they need to withdraw money from the company to spend. It is similar to the concept of an RRSP.

    Tax sheltering makes sense because even when you are taxed at 50% of your capital gain, that is a minimum savings of 7.5% on income at the minimum tax bracket of 15% that can be reinvested.

  41. Mark on May 28, 2011 at 2:42 pm

    Great article – I totally agree that nobody gets rich spending money and too many people don’t realize this.

    However, I have a philosophical difference of opinion with respect to investing and debt.

    1) Investments (in stocks or a business): The rich got rich investing and/or building a business. However, how many people out there invest and end up losing money? Look at average investor returns compared to the index and you’ll see that most dramatically underperform (because of too-frequent trading, etc.). And how many businesses fail each year? There’s a potential survivorship bias in saying that the way to get rich is by investing because that’s what the rich do. I think the question should be changed from “do the rich invest” to “can you get rich by investing”.

    2) Debt: Some forms of debt is good. And those that successfully lever their way to success will end up very rich. However, for every successful leverage story, how many failures are there? Yes, many rich levered their way to prosperity, but going into debt to invest or build a business won’t make you rich, given the average underperformance and failure rates.

    Here’s my other problem with debt – it leaves you very vulnerable. Vulnerable to asset price fluctuations (which can quickly leave a leveraged position underwater), vulnerable to the whims of creditors which have their own agendas, and vulnerable to changes in the cost of borrowing.

  42. Ann G. on May 31, 2011 at 12:33 pm

    Thanks for the great post. There are always thing to be learned by taking a look at those that are successful

  43. cannon_fodder on May 31, 2011 at 10:05 pm

    I know I’m not typical when it comes to my philosophy about investing, debt and leverage.

    For me, paying down my mortgage aggressively replaced the need to invest in bonds and other fixed income investments. It was far better (return vs risk) than any bond fund or fixed income fund I could buy.

    We had two years where we not only could maximize contributions to RRSPs and RESPs, but also maximize mortgage prepayments. Not long after that our unyielding focus on not spending raises/bonuses proved to be very fortunate.

    Since my wife and I are not conspicuous consumers, we would always take care of debt repayment (the mortgage was are only debt) and investing for retirement.

    But when we found out about the Smith Manoeuvre it was the perfect opportunity for us to have our cake and eat it, too. The amount of equity we had built up (due to those years of massive prepayments and increases in our periodic payments) allowed us to jump start a non-registered portfolio just before the big meltdown (but close enough to be able to pick up stocks that had been battered a bit).

    We embraced the use of “good debt” to create an investment portfolio that would hasten our journey to financial independence. Less than three years later the SM portfolio is 3x the SM HELOC, the SM portfolio dividend payments are 2x the SM HELOC costs, the mortgage is retired and financial independence came 10+ years sooner.

    Personally, I think it is harder to save your way to wealth than it is to invest your way to health. And just because a lot of people make poor investment choices doesn’t mean that it jis a flawed concept.

    We now have more debt than at any time in our lives yet we are more financially well off than at any time in our lives. It doesn’t have to be a contradiction.

  44. WittyArtist on June 2, 2011 at 7:16 am

    Excellent post! :) I loved it, especially the story with Reg and Rich. Now I realize that the wealthy people I know don’t like to show off; they don’t display expensive jewelery, clothes etc. And if I think of those glittering and bragging one can see the spender there. I’m really amazed by your remarks:) Another thing I liked very much was the emphasis laid on our thinking. If we think small of money or even fear it, it’s no wonder it won’t come to us. On the contrary, if we are open, optimistic and relaxed, sky’s the limit. Congrats for your way of writing! :)

  45. Jungle on June 2, 2011 at 7:41 am

    I think we need to increase our income and lever quite a bit to gain some wealth fast (like 15 years). Problem is, housing is so expensive in Toronto and we need an upsize and face some lifestyle inflation.

    Next year we should be able to lower our mortgage rates and I will not be using extra cash flow to pay down 3-4% mortgage. The TSX comp pays more than half of that in dividends right now.

  46. Ginger on June 13, 2011 at 1:22 am

    I like this article, but part of the reason for that is I am doing what I am suppose to according to this article. I am investing, paying minimums on my “good” debt and increasing my net worth. I have debt but it does not affect my life much and by having the debt I was able to buy a duplex which doubles as both a rental and my primary home.

  47. Sal on July 18, 2011 at 9:25 pm

    “Middle class people have most of their money in their home or other real estate.”

    Tons of people have become rich by investing in real estate. I agree that the middle class have most of their money in THEIR home, but many wealthy people have the majority of their investments in real estate, which also provides them monthly rental income which they can further invest.

  48. Ed Rempel on August 15, 2011 at 12:46 am

    Hi Sal,

    The people that become rich investing in real estate are generally rich only “by middle class standards”. A recent survey showed that, for people with a net worth over $5 million, on average they have only 22% of their net worth in residential real estate of any kind.

    Wealthy people all made it there by investing in companies – either their own or the stock market. Some of them invested in real estate companies (13% of the Forbes 400), but these are mostly commercial or development, more often than residential.

    Real estate usually grows very slowly (1/6 of the stock market growth in the last 30 years) and requires a lot of manual work (we call it a PITA factor). We have done retirement plans for thousands of people and usually find that retiring with rental properties requires a far higher net worth than with other investments. For example, you would probably need $5-10 million in real estate to give you a retirement lifestyle similar to $1.5 – 2 million invested in the stock market.

    That is why we think of real estate as the middle class asset. Even having $5-10 million in residential real estate probably means you are still middle class, since your income will still not be extremely high. Most people with multiple rental properties are essentially DIYers, spending a lot of time doing repairs and collecting rent. Do you know people with rental properties that are living a luxurious life?

    You will find the odd exception, but we find people that are impressed by real estate are middle class. Wealthy people are usually more impressed with large stock market portfolios – and particularly with philanthropy.


  49. Amy on October 14, 2011 at 5:24 am

    I do not know what the point of the Story of Reg and Rich is. The fact is that having credit card debt is BAD debt to have. Reg should be focused on paying off his credit card. To me it looks like he spent money he did not have, so now he has credit card debt. That is NOT how you become wealthy. Borrowing money to invest is better as long as the asset grows. Borrowing money on assets that lose value over time like cars and sometimes real estate like the us housing market is not a good investment. On the other hand buy a house and renting the basement out is a good idea, let someone else pay the mortgage.Rig parents should have told him not to get into credit card debt, not smart.

  50. SST on October 14, 2011 at 11:27 am

    @Ed: “In Canada, about 1 person in 50 is a millionaire and in the US about 1 person in 13 is millionaire* – which is probably a lot more than you thought.”

    Actually, it’s a LOT less than that.

    When you factor out ‘primary residence’ from net worth, the millionaire rate drops to just 0.8% in Canada (1 in 125), and 1% in the US (1 in 100).

  51. Ed Rempel on July 21, 2012 at 2:01 am

    Hi Amy,

    Perhaps I did not explain it clearly enough. The point of the story of Reg and Rich is that Reg only focused on paying off debt and never built any wealth.

    We actually see people in that situation a lot. They spend most of their working life paying off their debt and their mortgage. This often gets them well into their 50s with a paid off house, but still little in investments. This means their retirement plan is a major compromise.

    We have also seen people that ran into debt problems, but then turned their life around and managed to pay off their debt. However, after that, they were unable to change their mindset to start investing. Ten years after paying off their debt, they still had hardly any wealth.

    The big mistake many Canadians make is that they try to become financially secure by paying off debt and investing very conservatively. However, they end up just having very little money to fall back on and a compromised retirement.

    Real financial security comes from having a huge nest egg. That is what Rich did.

    How would you feel if you had a portfolio of $2 million in the stock market?

    – Nervous because you have $2 million in the stock market. OR
    – Secure because you have $2 million in the stock market?

    It may feel risky to have a lot of money invested, but that is what real financial security is. You can rely on this portfolio for cash needs and to provide income for your future.

    That is why Rich was more secure than Reg.

    Does that explain the story better, Amy?


  52. Under The Money Tree on January 20, 2014 at 9:23 am

    While I agree with your third point I think you need to be very careful about declaring the stock market a non risky place for your money. It all boils down to your risk/reward appetite and how you go about managing the risks you expose you portfolio to.

    I’ve seen a lot of amateur investors lose a lot of hard earned $ on the stock market. I’ve also witnessed a lot of canny investors make a lot. I think it’s too simplistic to say you can’t get rich without building a large equity portfolio.

  53. Richard on January 20, 2014 at 12:41 pm

    Wait a minute Ed, you’re telling me that people who have a lot of money value the freedom they get from having it so they aren’t in a hurry to give it to someone else and they do things that get them more? It all sounds too simple!

    Regarding debts there are no good and bad debts, just interest rates. No one with the slightest financial intelligence would borrow on a credit card to invest in the stock market. If all their debts are at interest rates between 3 and 5%, especially if they can make it tax deductible, then putting all their attention on increasing the investment assets has a good chance of getting them a better net worth.

    You just need to be able to cover the downside. When I had a much smaller net worth I prioritized paying down debts more but I also invested a lot. Now that it’s larger and more liquid I don’t think much about the debts I have because all it takes is a quick transfer and they can be gone in a week.

    I also control the interest I pay very carefully. I recently used a short-term line of credit for some business needs. It was at a reasonable interest rate but I first negotiated 1% off the rate once I had a balance and now I’m working on getting a rate that’s half the original one. If you manage things well you can find opportunities to borrow cheaply.

  54. Cold Truth on January 20, 2014 at 1:20 pm

    Spenders will never be wealthy, I think that’s obvious.

    Savers who are conservative in their investments (not as gung-ho on stocks as Ed) are likely to be wealthy (financial independence in retirement) but aren’t going to be *really* wealthy.

    To be *really* wealth, you probably got involved in a business that grew considerably, started your own business, or performed heavily leveraged investing that paid off with few setbacks.

    The problem with looking at *really* wealthy people is the survivor bias. You didn’t talk to the people who got involved in a business that didn’t grow, launched a failed business, or leveraged some bad investments. There are a LOT of these people out there.

    The aren’t really any conservative saver/investors out there that are not *wealthy* in retirement because, you guessed it, no big risk (hence no big rewards). Getting rich slowly is boring, but it does work if you don’t want to be mega-rich.

  55. Miiockm on January 21, 2014 at 3:39 am

    This was a good read. I’ve also met many people completely unwilling to invest in the stock market because of exaggerated fears. There’s nothing wrong with being risk-averse but they should at least base their decisions on sound reasoning.

  56. SST on January 21, 2014 at 11:18 am

    Not sure why this particular article is being re-hashed. Perhaps it’s because RRSP season is fast approaching and paid advertiser Ed Rempel is looking to drum up business?

    To say people are not rich because they are scared to put money into the stock market is one of the most asinine things I’ve ever heard.

    Recent analysis of investors both in Canada and America show similar rates of stock market participation, ~55% of the applicable population. This is probably the same percentage of people who are on the right side of the median income level, in other words, the people who have money to invest.

    Blaming the customer and not the product (or the vendor) for failure is completely ignoring half the equation.

    Over the last 100 years, assuming an average stock market participation rate of 50%, you would think more than 1% of the population would be rich.

    “If you are scared to have a large stock market portfolio, then how will you ever build wealth?” – Ed

    Really? The ONLY way to build wealth is through the stock market? This is a great marketing myth.

    As another poster wrote, business ownership and/or a high-income are the most common paths to being “rich”.

    Have fun!

  57. Emilio on January 21, 2014 at 1:49 pm

    How come I am not rich?

    There is only one answer to that. It’s because I took crapy advise from the internet/tv/financial planners…

    If you want to be rich in any sense of the world just come up with your own ideas or start a business. Do something original, creative. Pursue something worth pursuing. You figure out what is worth it.

    The stock market is one cesspool of filth. Giving your money to that cesspool whether it makes you money or not is not the way to a rich life.

  58. The Reverend on January 21, 2014 at 2:07 pm

    #1 – agree completely. well put
    #2 – disagree completely, at least in positioning.
    #3 – half agree, half disagree. the stock market IS risky. don’t ever tell someone that it isn’t. i think the issue is that people think risk is bad, which isn’t necessarily true. need to take risk to achieve above risk-free returns.

  59. On Demand on January 21, 2014 at 5:17 pm

    Great Article !! Keep up the good work Ed. I believe small rich from controlling your spending and big rich coming from God.

  60. SST on January 21, 2014 at 10:11 pm

    Statements such as the following display a gross negligence of logic:

    “Wealthy people have the bulk of their wealth in their business or in the stock market (many businesses). That is why they are wealthy.”

    Wealthy people have money in the stock market because they are wealthy (ie. have money to invest), not the other way around.

    And the stock market is definitely not “many businesses”, it is stocks; never confuse the two.

  61. Dwilly on January 22, 2014 at 10:18 am

    @SST: I know what you are trying to say (and, incidentally, agree with some of your assertions), but I think you are being too negative.

    On your theme of “consider the products”, agree completely. Simply “being in” the stock market can mean a lot of things and have a lot of outcomes. Being in the wrong products, or at the wrong risk level, can almost certainly be worse than stuffing your money under your bed. So I am on your side here – it might be more correct to say that you need to be in the stock market, but doing it properly (namely proper risk level, diversification, and low cost). However I do think you are being too negative. Yes, there are issues to be aware of. But for 90% of individuals (all those who work for someone else and have no plans to start their own business), the stock market, properly navigated, is far and away the most accessible, best bet.

    “Wealthy people have money in the stock market because they are wealthy (ie. have money to invest), not the other way around.” – Again I know what you are trying to say here and my sympathetic with your message, which I think is partially correct, but I think you are missing the posters point. Most middle class Canadians, still the bulk of us, pour our money into houses, cars, cottages and boats. Stock market “participation” may be 55%, but I think we all know that “participation” does not mean the same thing for everyone. $5000 rotting in some mutual fund account isn’t going to go far when you have a $500,000 suburban boat anchor around your neck. What the poster is trying to say is that if the average Canadian thought carefully, and invested more into proper, diversified portfolios than into massively leveraged houses and shiny new cars, things might be different. I cannot disagree there.

  62. SST on January 22, 2014 at 11:52 am

    @Dwilly: “too negative” or too realistic?

    1) “But for 90% of individuals (all those who work for someone else and have no plans to start their own business), the stock market, properly navigated, is far and away the *most accessible*, best bet”

    Glad you brought that up.
    Thing with stocks is, they are a far easier investment than excelling at an education, perfecting a skill set, or growing a successful business. You get what you pay for and general stock returns (in comparison) demonstrate this perfectly. Where is your yacht?

    If the total stock market is 5,000 issues and the long-term benchmark is a mere 30 stocks, this means that 99.4% of the stock market is utterly useless for the average retail investor — the ones who don’t want to do any investment homework. And most likely half, or less, of those benchmark stocks do the majority of the heavy lifting (i.e. providing the bulk of the returns), kicking the useless factor of the stock market up to 99.7% for the lazy retail investor.

    2) The median individual income in Canada is ~$30,000 (median age 40 years). The rule is to buy a house not more than 3x income, correct? That’s $90,000. The average house price is $390,000. (For the median family the max house price would be $230,000) Fiscally proper ownership is out of the question; now we rent for the rest of our lives and forego the “suburban boat anchor”. In Ontario the average 1-bedroom apartment rent is ~$900/month or 36% of your gross income. You now have about $16,000 to live on and invest. Don’t forget to ‘pay yourself first’, there’s 10% into the bank! Now you’re down to $13K, $1,100 per month to live on. Good luck.

    Now, what to do with that whopping $3,000!
    Citing Siegel’s 200-year annual 7% return…well, you can see why 99% of the population are not millionaires on the back of the stock market.

  63. Dwilly on January 22, 2014 at 12:52 pm

    @SST: Too negative or realistic? Honestly probably some of both.

    First of all we need to discuss the definition of “wealthy”. You seem to define wealthy as millions of dollars and a yacht. If that’s the case, we can stop now, because – agreed – the average Canadian is not going to build 8 figure wealth through median employment and regular saving. But I don’t think that’s my definition, nor the author’s.

    I disagree with your rant that 99% of the stock market is off limits and useless. You or anyone else can buy a low-MER ETF that holds hundreds of Canadian or thousands of US stocks (probably 99% of the market cap) for fees of less than 0.3%/yr plus a trade or too. You don’t have to (in fact you shouldn’t) research and “pick” stocks. A properly balanced portfolio costs next to nothing and can give easy returns (over time) of 7%. No, it’s not going to turn $3000 into $30 million, if that’s your definition of wealthy. But take that $3000, every year, and invest it in a decent portfolio at 7%, and in 30yrs you’ll have almost $300k. After 40yrs, you’ll have $600k.

    Start early, save, invest wisely, and you can be “wealthy”, if you ask me. (and for the record, I do not own a yacht, nor do I have $30 million, likely never will – but I practice what I preach above and I sleep soundly, and do consider myself “wealthy”)

  64. Goldberg on January 22, 2014 at 12:54 pm

    I agree with SST. Rich people invest because they are rich, not because they became rich from it.

    Ed’s point on not paying your mortgage debt is valid. For a simple example, I prefer to buy REITs in my TFSA/RRSP at 6% div and holding forever instead of paying my mortgage at 2.2%. When mortgage rates will increase significantly, I will stop maxing my TFSA/RRSP to eliminate the mortgage faster.

  65. Toucan Sam on January 22, 2014 at 2:34 pm

    The comments on here are far too cynical. People need to give their head a shake. While I don’t agree with everything Ed says, the message is broadly in line with this blog. And if you don’t believe in the mantra of personal finance blogs (i.e. prudent spending, diligent saving, building wealth), why are you even here? If you’re looking for a short cut, buy a lottery ticket.

    I think the problem lies with expectations. It’s almost as if some of you think that if you follow the advice of Warren Buffet / Donald Trump / Insert_Wealthy_Person_Here, that you too can be a multi-billionaire. Well, I’m sorry, but your $50,000/yr salary is never going to make you a billionaire. That doesn’t mean that you can’t be wealthy. Wealth to me means being financially secure enough to continue enjoying a standard of living without having to work unless I choose to. I measure my standard of living by the way I live day to day while I’m building my wealth. If you keep re-basing your standard of living (lifestyle inflation), you’re just playing a game of “keeping up with the joneses” and will never feel wealthy. You’ve got to live within your means. I’m never going to make a million dollars a year so I doubt I’ll ever have 8 figures of wealth. But if I make $40k/yr and save 10% of it after tax I know that after 35 years at 8% I’ll have $587k in real today’s real dollars assuming wage growth matches inflation. That provides me 35 years of inflation (2%) indexed payments of $40k per year. Not too bad for someone that hasn’t even attempted to increase my income beyond inflation.

    So if you’re still looking for that magic diet pill that’s going to make you wealthy, you probably won’t ever find it. A lot of ultra wealthy people are just plain lucky. That shouldn’t stop the average working man from trying to attain financial freedom. But truthfully, if you’re the type of person looking for the easy way to get wealthy, you probably didn’t have the discipline to study hard in school, work hard at your job, manage your expenses, and plan for your future. Whose fault is that?

    There’s no shame in not being the next Bill Gates. I’m content to live in anonymity as the millionaire next door no one’s ever heard of or cares about. And I sleep just fine knowing that.

  66. Dwilly on January 22, 2014 at 3:23 pm

    @Toucan Sam.


    The irony here is the bellyaching about the very things the author identifies as problematic behaviors. “Stocks are only for rich people”. “You can’t possibly be wealthy just by saving some money, so why bother.”. Exactly what the author is trying to say.

  67. SST on January 22, 2014 at 10:05 pm

    Definition of Wealthy:

    I use Ed’s prescribed definition: the average household having a huge nest egg of $1.25 million fully invested in stocks.
    Or perhaps we should use his definition of “rich” found in the first paragraph of this article — a millionaire (and multiples of).

    Anything below $1,000,000 is not wealthy, not rich, and not a millionaire. Period.

    Less than 1% of the Canadian population is wealthy and/or rich.
    With the totality of Boomers in retirement, that level will hit ~2%.
    When the last Boomer is six feet under, the level will drop back to <1%.

    "You don’t have to (in fact you shouldn’t) research and “pick” stocks."

    No, this is exactly what you should do, and those who buy ETF's etc., it is exactly what you are doing. If you buy an S&P 500 index fund, you are picking 10% of the total stock market; buy a Dow fund and it's down to 0.6% — that's incredibly specific. You can get even more specific without significantly reducing your returns by picking the top 10 holdings of any Dow or S&P index fund. You now have a 10-stock fund — 0.2% of the stock market — which will provide a decent and comparable return.

    All other stocks — and financial advisors/mutual funds managers — are useless to the average, lazy, retail investor.

    I'm not arguing against saving and investing; save all you can and invest in the stock market all you want, but it's most likely you and your efforts will never make you rich as the author fantasizes.

    Posters such as Dwilly and Toucan state theoretical retirement forecasts such as "$587k" and "$600k", that's great, but it's not quite the "rich" $1,000,000 "huge nest egg" via stocks Ed advertises, is it?
    Even today's average retiree has amassed just over $300,000. I guess that is like $3 million in 1948 dollars…

    If you want to simply give your money to a "professional", without doing any research at all, believing you'll be a millionaire someday down the road…some of that blood is on your hands. You get what you pay for.

    Open question: How did people gain wealth/become "rich" in the days before readily available equity markets?

    Answer: the same as today — enterprise ownership and/or high level of income. This is a truth of economics. You can hide from it but you can't change it.

    Good luck getting rich fully invested in stocks.

  68. Dwilly on January 22, 2014 at 11:23 pm

    @SST: Alright, champ. You’ve obviously got your mind made up (so not sure why you bother reading a blog like this), so I’ll let you have the last word. This will be my final post on the matter, so you can have the final say after if you like.

    “Anything below $1,000,000 is not wealthy, not rich, and not a millionaire. Period.” That’s the spirit. You’re not rich unless you’ve got a Maserati and gold teeth. If I can’t be a multi-millionaire, it’s not worth trying. Typical Gen X/Y. (and before you accuse me of prejudice, I’m 31)

    “No, this is exactly what you should do, and those who buy ETF’s etc., it is exactly what you are doing.” That’s not what I meant and you know it (or maybe you don’t?). Trying to pick any *individual* stock, Junior Mining Co X, or sector, or index, is the path to ruin, and largely why so many are scared of the market as the author suggests. Both consumers/investors and advisors are highly complicit in this. You can buy a broad market US index fund that holds no less than 6000 US stocks today, probably 95% of the market cap in the country. Own it all, and walk away.

    “I’m not arguing against saving and investing; save all you can and invest in the stock market all you want, but it’s most likely you and your efforts will never make you rich as the author fantasizes.” Again, throw up your hands and say “I can’t do it”. Highly typical cop-out. You’ve been given two examples of how it’s relatively easy to amass 500-600k easily given proper behavior and an achievable savings rate. The important behavior is starting early, investing wisely, and investing some modest percentage of your income. Now if your argument was that people are not taught to do this early enough, then I’d completely agree. We need to teach these skills sooner and better. That’s sort of the point of this blogs and posts like this – you know – the one you’re trying to discredit?

    “Answer: the same as today — enterprise ownership and/or high level of income.” Again, let me be clear here. You are not going to end up like Bill Gates by saving 10% of your salary. Clearly not. You are not going to amass even 10 million (unless you are fortunate enough to have a 95th percentile salary). But it is entirely possible for many Canadians to amass mid- to high-six or even seven figures through saving. I have no idea why you’re bent so badly on being discouraging in that regard, but I’d venture to say you’re not really helping anyone here. If you don’t believe it, can’t do it, whatever .. that’s fine. Others can and are. I am one of them, and I look forward to a happy retirement at some point. Probably not on a giant yacht, probably not filthy, stinking, gold teeth kinda rich, but personally, I’ll be content without it. See you there!

  69. Evan on January 23, 2014 at 12:20 pm

    “Anything below $1,000,000 is not wealthy, not rich, and not a millionaire. Period.

    Less than 1% of the Canadian population is wealthy and/or rich.
    With the totality of Boomers in retirement, that level will hit ~2%.
    When the last Boomer is six feet under, the level will drop back to <1%"

    I bet the number is way larger than that. Include the commuted value of all those with DB pensions. Even though they don't feel like millionaires, because they don't see the full value, they are.
    I bet the percentage is above 10%.

  70. SST on January 23, 2014 at 11:03 pm

    Congratulations on being 31, champ.

    The point the author, a financial industry professional, is trying to hammer home with this article is that 99% of Canadians are not rich — that is, not millionaires by HIS definition — mainly because they are scared to be fully invested (meaning 100% of their money) in the stock market.

    The point I am trying to hammer home is that the stock market produces very few of the already few millionaires; it is one of the least attainable routes to becoming “rich” (as defined by the author).

    Neither this article or I are talking about saving and investing so you might have “a happy retirement at some point” with $600k.
    This article is about being *RICH* (or not).

    Perhaps people are scared to put all their money into the stock market because they lack education and knowledge. Kind of like cavemen being scared of fire.

    Is it me that’s not helping them by pointing out glaring errors and facts or is it the author, a financial industry professional, who is not helping by blowing smoke and sunshine in hopes of selling more product?

    Ed states: “Learn to think like the wealthy and you can become one of them.”

    Ed’s path to riches is for you to be fully invested (all your money) in the stock market at all times. I would put a heavy wager on the vast majority of millionaires having much less than 50% of their wealth invested in stocks.

    The multi-millionaires ($75 million median net worth) in ‘Tiger 21’ have actually REDUCED their public equity holdings since 2008 to a mere 23% of their portfolio.
    (“The big story for our members is PRIVATE EQUITY” — Jan 23, 2014; Michael Sonnenfeldt, Tiger 21 founder)

    Thinking like a wealthy person, why would I heed Ed’s advice to be 100% in stocks? Is Ed wealthy? Perhaps he is, but 1 out of 1% is an infinitesimal example to follow. Perhaps I’ll go “all in” when the bulk of millionaires are 100% in stocks and mutual funds.
    The trend is your friend, after all. ;)

    As an aside to the comment: “You can buy a broad market US index fund that holds no less than 6000 US stocks today, probably 95% of the market cap in the country. Own it all, and walk away.”

    Oh my. Exactly what I’m talking about.
    You most definitely do NOT want to “own it all”.

    The Wilshire 5000 has a 10.75% average annual return (1970 inception-current).
    That’s 5,000 stocks.
    The Dow has a 7% average annual return (1970-current).
    That’s 30 stocks.
    McDonald’s (MCD) has a 15.3% average annual return (1970-current; price only).
    That’s 1 stock.

    It takes 4,970 stocks to give you an extra 3.75% yield, or it takes 29 (or 4,999) stocks to reduce your returns 4.55%.
    Buying very broad indexes is very crappy.

    Yet another reason the lazy, financially uneducated, average/median investor is not wealthy. You always get what you pay for and 50% of people can’t afford much, anyway!

    @Evan: I, along with all proper wealth analysts, measure wealth in terms of “investable assets”.
    This removes principle residence and pensions from the equation.

    Not even FrugalTrader accounts the full value of his household’s pensions.

    But what the heck, we’re all richer than we think, right!

  71. Ed Rempel on January 24, 2014 at 12:19 am

    SST, I agree with Dwilly & Toucan – too negative and too cynical. This blog is supposed to be an open, positive atmosphere for people interested in finance to exchange ideas and talk about their personal situation freely.

    I can remember a couple years ago there were often 50 or 100 posts on threads here with people saying “here’s my situation” or “I have a question”. There were open debates with positive comments stating what they believed. This site was a great read and for the most part a positive, supportive environment.

    Now, weeks will go by with hardly a post. Whenever there is an interesting topic, it seems that an SST negative & cynical rant kills the discussion. This is purely my opinion, but I have to admit that once I see an SST post, I don’t read it and just assume that thread is dead. Nothing constructive will come out of this thread.

    Having a rant that is that is negative about everything, the entire financial industry is corrupt, all investments are bad (except private equities good, public equities bad; and gold good), and a long sarcastic vitriol (“that statement is a gross negligence of logic”) just kill the open environment of people interested in finance exchanging ideas and helping each other.

    In my opinion, an SST rant is the period at the end of the thread. Just glance at it and move on. This thread is dead.

    Note the positive atmosphere on this thread in posts 1-51 from 2011-12. The new 2014 posts started positive, but from 56 on, compare the negative turn and how everyone has abandoned this thread.

    We are all here to learn, talk about our personal situations and exchange ideas in a positive, supportive environment.

    Right on, @Toucan Sam #65: “The comments on here are far too cynical. People need to give their head a shake… if you don’t believe in the mantra of personal finance blogs (i.e. prudent spending, diligent saving, building wealth), why are you even here?”


  72. Steve on January 24, 2014 at 2:27 am

    I agree. The SST trolling/thread hijacking has to stop.

  73. Goldberg on January 24, 2014 at 9:55 am

    An SST rant is followed by an Ed rant. Keep your post shorter guys. Learn to be more concise in your thoughts.

    And Ed, for the record, SST believes in prudent spending, diligent saving, building wealth. He simply disagrees with you that you can become a millionaire from investing a few $1,000 in mutual funds as you make it sound. And he brings a lot of evidence to prove his point. Nothing wrong with that. On the other hand, your approach is trust me mutual funds with fees of 3% will make you rich. Ed, who are these MF managers so we can do our own due diligence? Oh, that you cannot say. Until you come clean, SST is not wrong. And why is FT (or any other finance blogger) not using your awesome MF managers either?

    I don’t doubt you can help someone without a clue of finance. As a CPA, like you, I’m often asked about finance and budgeting. But I don’t tell them my advice will make them rich – just better off. And since 95% of the people on this site get finance, Ed, what else can you bring to the conversation?

  74. SST on January 24, 2014 at 12:08 pm

    To “negative and cynical”, Ed?

    YOUR article’s topic is focused on why Canadians are not RICH, that is, why we all don’t have $1,000,000 or more in investable assets.

    Your reason is that non-millionaires are “too scared” to have ALL their money in the stock market ALL the time. You claim that if everyone thinks like the wealthy that they too will become wealthy.

    Here’s my situation, Ed: I’ve been enjoying stock market-beating returns ever since I divested 2/3 of my investable assets from the stock market. My non-stock market investments will make me much more wealth at a much quicker pace than if I had left it wholly in stocks, as professionally advised.

    I have a question, Ed: Can you please demonstrate how a person on the left of the median income curve, those 50% of Canadians earning less than $50,000, can become a rich millionaire, not only at age of retirement, but much earlier in life? Thanks.

    Apologies if you find facts and truths uncomfortably disagreeable.
    (I find mutual-funds-into-millions adverts offensive.)

    My take on what will make you rich:
    1) education — scholastic and financial;
    2) business ownership/acumen.

    Perhaps I should come up with a pollyanna financial industry marketing slogan like “Freedom 55” or “You’re Richer Than You Think” to make sure dreaming about having a million dollars will make us all feel good.

    As for me, I’m positive I’ll continue to take my “how to get rich or die tryin’ ” advice from actual wealthy individuals, and optimistic my investment choices will deliver me to the Holy Land of one-percenters. :)


  75. SST on January 25, 2014 at 2:26 pm

    Curiously absent from the “think like a millionaire” list is TAX.
    (Made even more curious by the fact the list’s creator is an accountant.)

    Let’s take a very simplified look at how taxation plays out.

    Ed Rempel is a BUSINESS OWNER (Rule #1 for becoming rich).
    He is employed by his company and pays himself in dividends.
    Dividends are taxed in a different way than simple income tax.


    Ed’s Dividend Income = $48,000
    Ed’s Tax Bill = $0
    Ed’s Net Income = $48,000

    Joe’s Job Income = $48,000
    Joe’s Tax Bill = $11,000
    Joe’s Net Income = $37,000

    Joe would have to earn $65,000 (or 35% more) in order to match business-owner Ed’s net income.

    As you can see, because Ed is a business owner, access to a different taxation structure essentially earns him 30% more than the regular poor Joe.

    That’s $385,000 over a period of 35 years = 1/3 of the way to being a median-income millionaire without ever touching a stock.

  76. Ed Rempel on January 25, 2014 at 11:48 pm

    SST, You clearly don’t understand the integration of corporate and personal tax.


  77. SST on January 26, 2014 at 2:36 am

    Clearly not, but thanks for the clarification.

    As my music teachers used to shout, “Don’t stop when you make a mistake!”.

    I’m always reminded of the story of the wealthy Ross Perot and how he managed to finagle his personal tax rate down to 8.5% (with whispers of 1%!). Even the awesome Warren Buffett states the rich pay less tax than the average working stiff; to be more precise, workers pay more tax than owners.

    It would be great if a financial industry professional/accountant could demonstrate to the median Canadian how to climb down to same tax bracket as the rich. Think like the wealthy and you’ll be wealthy, right!

    I’m sure you’ll be tickled green to know that these will be some of my last regular postings for quite some time.
    I’ve got a boat load of work to do this year: finish my book, write two licensing exams, go to Africa, change careers, start a business — whew!

    But if I see something juicy on here… ;)

    Good luck to all in your hunt for millionairedom!

  78. Ed Rempel on January 26, 2014 at 10:12 am

    SST, see? Very cynical.

    Warren Buffett pays less tax than his secretary because capital gains tax is lower than tax on salary.


  79. Ed Rempel on January 26, 2014 at 11:20 am

    SST, thank you. Respectfully, I think your sacrifice will help bring back the open & personal exchange of ideas, and the feeling of community with people helping people. So, thank you.

    You’re writing a book?


  80. SST on January 26, 2014 at 2:36 pm

    Tax is lower on cap gains, dividends, and as Buffett states, “investment managers…are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate.”
    Employees have no income tax options.

    All this doesn’t help the regular retail investor who pours money into an RRSP every year, his cap gains and dividends are non-accessible w/o being taxed. As well, the amount of dividends on a non-million dollar portfolio would be too small to be of any consequence (and aren’t we supposed to re-invest dividends to build our wealth, not live off them?).

    Capital gains implies buying and selling, which implies stock picking, something which is supposedly doom for the regular retail investor, no?

    I’m quite sure there are plenty of tax rules in place which lift even the everyday business owner above the employee. Simple things such as deductions — mortgage interest, utilities, travel, etc.

    You can’t deny the tax benefits available to those who “make money with money” — the wealthy and business owners — far out-weigh the benefits of those who “earn money with a job” — the rest of us — and that these tax benefits only help to grow wealth.

    As a taxation expert, Ed, how can the median Canadian take advantage of the “making money with money” tax rules?
    (This being a very honest and serious inquiry, having never once questioned the validity or value of Ed’s accountancy.)

    The book is a financial sort along the lines of ‘The Real Retirement’ by Fred Vettese and Bill Morneau (think the Amazing Randi of finance!).
    Don’t worry, the financial industry doesn’t take all the heat; I do put some of the onus on the investor — if you get an F in school because you didn’t study, don’t blame the textbooks, don’t blame the teachers.

    Do I have the proper certified qualifications to support the publication? Most likely not, but take a look around, all you need these days is a loud enough creed — “The Idiot Millionaire” for example.

    Enjoy a prosperous Year of the Horse!

  81. S on January 28, 2014 at 10:47 pm

    Hi Ed,
    I have some general comments regarding your article’s three sections:

    Section 1:
    Those people with ” 4 bedroom houses & two mini vans” are the ones that most need your advise. The wealthy are being well looked after by their bank (branch manager and/or wealth advisory services).

    Section 2:
    For the poor and middle-class, paying down debt as quickly as possible makes sense to me due to the current environment of job insecurity, wages trending lower and living costs trending higher. “Getting up to zero” is better than living at minus three, while hoping your contract gets renewed or your salary doesn’t get cut.

    The wealthy have more debt because they have more assets to leverage, a substantial financial safety net in place and much easier access to cheap money. Banks give preferential treatment to their affluent clients when it comes to loans and HELOCS; this includes their best undisclosed rates, higher leverage ratios and bending the lending criteria to push through deals (I speak from experience) rather than lose those millions to another bank. I’ve saved tens of thousands in lending costs through preferential treatment.

    How are the poor suppose to leverage or get investment loans when they are just trying to pay rent? And what is the investment debt ratio that you think is reasonable for a middle class family?

    Section 3:
    I am troubled by some of your statements here which seem like the “hook” in a sales pitch to unaccredited investors.
    This remark reminds me of ‘The Secret’, “imagine yourself having a $5 million investment portfolio” (imagining is not going to get you there) and “you didn’t get there by investing in bonds” (safety is bad). You throw out the most optimistc rates of return and quote numbers like 500 grand and 1 mil net worth increases. This scenario may tempt people to take on too much risk for their situation in an attempt to achieve these “dream numbers”, sooner.

    I don’t like your statements that the stock market is the only way to wealth or that only middle class people own “other real estate”.

    I created my wealth on “other real estate”. That’s were my millions come from and more importantly, my net six figure passive income stream. My portfolio is at a stage where it pays for itself and continues to grow and expand on it’s own income.

    It only took me 20 years and an accelerating six figure personal income in the last 10. I also have a stock portfolio but small in comparison to my RE.

    So, yes there are other ways to create wealth and income. This is just my experience and I am not advocating that my choice is the right choice for everyone else. Just like I don’t think your example is a “one size fits all” model, either.

  82. Jordan on January 29, 2014 at 2:15 am

    Hi Ed,

    First off, great article. I found your perspective to be highly insightful and I appreciate you sharing your experiences with the MDJ community.

    My question to you Ed is in regards to children. I am curious as to your observations on what correlation, if any, you have found to be between size of family and wealth. For example, would the wealthy be just as likely statistically to have children or would you find a disproportionate percentage of the wealthy to be childless?

    Furthermore, for the wealthy individuals that do have children, would your experience be that they started their family later in life, thereby accumulating capital early on and benefiting from compounding growth, or would you surmise that the average age of child-bearing was relatively consistent with the historical norms?

    To be transparent, these questions are not intended to be either loaded or rhetorical in nature. I am in my early thirties with two young children and according to the statistics available for my demographic, within the upper 20th percentile from a net worth perspective.

    My sense over the years is that children are often times viewed as an impediment to financial success and a crutch for financial instability. However, I have found the opposite to be true. Being a father has instilled responsibility and provided added motivation to save and invest for the future. Thus, I am curious as to what your experiences would be in working with the wealthy and if you have made any observations with respect to children that would be worth noting.

    Thank you in advance for your time.


  83. SST on January 29, 2014 at 11:53 am

    re: S — I think Ed is trying to compare the paths of how the rich became rich and the path everyone else is on trying to reach rich.

    Yes, the current rich have many, many more tools available to them to increase their wealth than that of the median income earner. But they had to create that wealth just like everyone else. You are correct, though, times and circumstances do change.

    Eg. the median house price in Canada is more than 3x the median median household income (and way more than 3x the median individual income!). Thus, currently, at least 50% of Canadians cannot, with any degree of fiscal responsibility or frugality, “buy” a house; they must rent, and perhaps for a good portion, if not all, of their adult life — all the while making someone else rich. This is a huge change from say 30 or 50 years ago.

    Perhaps a better phrasing for the ‘rich mindset’ would be “Investing is Not Risky” (vs ‘the stock market is risky’).
    The average person’s fear of losing money might be over-riding their desire to make money, thus they enter “safe investments” such as paying off debt; the “gains” are known and calculable. But most people don’t understand risk=reward. It’s a leap of faith, really.

    It’s much more complicated than Ed’s three points, as everything is an investment which can and will effect your bank account, from choice of spouse to education to location of residence (why do you think so many rich individuals have Virgin Island accounts, or why so many rich corporations are registered in Ireland?).

    Guess the bottom line to becoming rich is:
    1) Save
    2) Invest

  84. S on January 29, 2014 at 8:11 pm

    My concern with Ed’s article is, that it reads more like a sales pitch to novice investors to max out credit and max out risk, rather than an actual article with concrete advise.

    Perhaps if wrote in terms of your own personal investing experience and how you built your wealth, your article would sound more authentic.

    I assume you are not a fee only advisor due to your disclaimer:
    “Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.” That sounds like a lot of cost that will affect the growth of a investment portfolio.

    You talk about stock investing but are you talking about stocks held within a mutal fund?
    Is your 10-20% annual return based on the history of the product(s) you sell?
    What products do you sell and what is the compensation structure?

    Enquiring minds want to know.

  85. SST on January 30, 2014 at 12:00 am

    It’s interesting to note the different “millionaires” on this site and their paths to becoming rich.

    Those most recent one invested in an education (law) which lead to a high-income career, no mortgage and no stocks.

    Some like “The Idiot Millionaire” took a DIY approach to investing along with big leverage and big risk, which fortunately paid off.

    Others such as FrugalTrader and “Philip” are somewhere in between the first two.

    One only needs to observe to see there is more than one way to successfully skin a cat.

  86. Kathy on February 5, 2014 at 12:50 pm

    Perhaps if the OWS people spent some time reading this article instead of protesting, they might be a step closer to the 1% they hate/envy so much.

  87. SST on February 5, 2014 at 8:32 pm

    Dear Kathy,

    Excellent blanket assumption.
    The protests and “hate/envy”(?) are not towards the “1%”, but against the methods put forth within the article which claim will make one rich.

    For the record, I never OWS. :)

  88. SST on February 8, 2014 at 1:29 pm

    One thing which is absent from the rich mind-set list (although perhaps alluded to) is ‘willingness to fail’.

    Citing the same book as Rempel, “The Millionaire Next Door”, the average millionaire goes bankrupt 3.5 times (how one goes “half” bankrupt is beyond me).

    Perhaps due to their optimistic outlook, as well as belief in their own skills and talents, they don’t fear this failure or view it as a catastrophic event. Most safety-bound Canadians would take a different view-point.

    Coupled with the recent stat which claims 50% of millionaires are business-owners/self-employed. Something which also puts the fear of failure into many people. I would think being educated in the concept and effects of bankruptcy, both personal and corporate, would go a long way in erasing such trepidation.

    It may just be one of the stereotypical Canadian crutches, clinging to safety, which holds so many people under the $1 million barrier. Not just regarding personal management, but with government policy as well (taxation, regulation, etc.).

    Our cultural bonds to safety could be a wealth inhibitor.
    (There’s a reason the Canadian mutual fund industry has grown almost 12% annually for the last 20+ years!)

  89. SST on February 12, 2014 at 11:06 pm

    An *EXCELLENT* summation of why you are not rich, by Karl Denninger:

    In addition to the above bang-on article, I came across another info tidbit. The OSC defines an “accredited investor” as:
    “An individual who, alone or together with a spouse, owns financial assets [excluding principal residence] worth more than $1 million before taxes but net of related liabilities…” — a millionaire, in other words.

    The government says 1.2% of the Ontario population falls under this category. You would think the largest sample group in Canada, by a factor of three to almost 400 (excluding Quebec) — or almost 40% of the population — could produce more rich individuals.

    Doesn’t bode well of those financial industry professionals licensed in ON who are out to sell the million dollar dream.

    Now go back and re-read the KD article!

  90. Dwilly on February 13, 2014 at 10:00 am

    @SST: Doesn’t this article precisely counter your argument? For those too lazy to read, the summary of the article is: Some college degrees are of questionable value [agreed] and in many cases, you may be better off with an apprenticeship or other trade work [agreed]. BTW, if you do so, and save regularly and contain costs, the article shows how one could accumulate 1-2 million dollars over a 35-45 year working career. In other words, BE A MILLIONAIRE. lol

    Look, again, I hear what you are saying, and I agree. You will not likely become STINKING, $250M lottery kinda rich working for someone else and saving. No matter how well you save your salary, and no matter how good you are at the stock market, you’re never going to be Gates or Branson or whoever. Completely, 100% agree, and I don’t think anyone here has argued that working hard for someone else and saving/investing is the way to 50 billion net worth.

    I will further state that, again, I agree, I have no love for financial professionals as a whole. I choose not to assume deliberate deceit on behalf of most, but do generally believe that even the ones who believe they are acting in their clients’ best interest are frequently not doing so. One should be discerning when it comes to “financial advisors” because I do believe many of them are more appropriately called “product salesmen”. Absolutely no argument there.

    However that article clearly illustrates how a pretty “average dude”, with an “plain job”, living frugally, and saving and investing smartly can amass a very decent amount of savings. 1-2 million by age 65… plain as print. That is, in fact, the entire point of this website, and the posts like these are crawling with people who are doing it. More power to ’em.

  91. SST on February 15, 2014 at 8:58 pm

    Counter my argument? Au contraire.

    You fail to mention Denninger’s definition of wealth:
    “Wealth is actually about freedom….to “retire” at 40 and go do something else. To…voluntarily accept far less economically for a while, because you can and in doing so you’ll be ok.”

    Rempel’s definition of rich:
    “You need to picture being wealthy. Imagine having a $5 million investment portfolio.”

    Keep the above in mind.

    You also fail to include Denninger’s investment assumption of saving 20% of income @6% for 45 years straight:
    “Neither of these two guys [graduate and non-graduate] will get truly rich doing this. The college grad and non-grad will work for someone else and while both can find their way to retirement and be ok, neither is going to hit the jackpot and retire at 40 on this path.”

    This MDJ entry is not entitled “How Come I’m Not Going to Have Enough Retirement Money”, it’s “How Come I’m Not Rich?” aka retired at 40 and/or in possession of a $5,000,000 stock portfolio.

    Rempel states that non-rich people have an ingrained ideology to be debt-free, which is a wealth inhibitor. Denninger states just the opposite, debt is a wealth killer.

    Rempel also states “the main difference between the wealthy and people that struggle financially is not their education [or] career”. Again, Denninger states just the opposite, providing the example of the electrician vs college graduate.

    Denninger states, as I have, that STATISTICALLY, not only will you not become a millionaire, there is less chance you will become a multi-millionaire, and if you are an employee you will be even further from that goal.

    If you do employ some of the methods stated in the OP and in Denninger’s article, such as saving and frugality, you will have a greater chance at attaining a million dollars than those who do not, but still very heavily weighted on the wrong side of the rich tracks. As well, without all the other required traits — high income, ownership, “luck” (exposure to opportunity), etc. — mathematical reality says you will not be wealthy.

    As John Reed puts it, “If I’m so cheap, why aren’t I rich?”

    In closing, I beg to differ that a significant portion of the tens of thousands who have visited this site are rich (please see both Rempel and Denninger definitions).

  92. gibor on April 2, 2014 at 8:51 pm

    “2. It is most important to pay off debt.” – Absolutely don’t agree that this is myth!
    We have 0 debt, we paid out mortgage, our RRSP and TFSA are maxed, 3-4 times per year we’re going on vacation abroad, always paid for our new cars in full.
    So, why do we need debt?!

  93. A Frugal Family's Journey on May 22, 2014 at 2:08 pm

    Great post…The major takeaway for me is that rich people live within their means and are focused on building wealth. Living frivolously and having debt only hinders ones ability to build wealth.

    Second take way is to not view the stock market as risky. Without any exposure to the market, its very difficult to build wealth. My advice for the novice investor, just invest in things you know. Everyone consumes products, if you aren’t a savvy investor, just invest in companies that you feel have good products and are consumed my the masses.

  94. SST on May 24, 2014 at 4:24 pm

    re: “Without any exposure to the market, its very difficult to build wealth.”

    Except that most wealthy people derive their wealth from employment income and/or business ownership — NOT the stock market. FrugalTrader is an excellent example.

    Thus, a more correct and true statement is: Without any highly marketable, in-demand, and/or unique-ish talent/skill/ability/product/business acumen/knowledge etc., it’s very difficult to build wealth.

    re: “My advice for the novice investor, just invest in things you know.”

    How many investors, novice or savvy, know the stock market?
    A market, first and foremost, is in what you are investing.
    Beyond that, it’s far, far more important to know a product’s company than the product itself.

    re: “…just invest in companies that you *FEEL* have good products and are consumed my the masses.” (emphasis mine)

    Investing on feeling (thus ignoring any kind of valuation metric) is immensely terrible advice, leading, most likely, to a loss.

    MY advice for the novice investor — stay out of the markets until you become educated in investing.
    Your investment strategies should match your financial education/experience level.
    Most importantly — don’t take advice from the internet! :)

    Have a great weekend!

  95. Dirty Scrot on May 25, 2014 at 1:37 am

    dont believe these home-based investor group commission based mutual fund salesmen. It’s worse than the wolf of wall street.

    and yes, of course we’re all millionaires, cos the drug money from china has pumped the price your POS home in Vancouver

  96. James on May 25, 2014 at 2:13 pm


    Solid posting. I would also say that at least in the USA, many rich people got that way by investing in business (via stocks or by owning their own businesses).

    One thing that also makes sense to add is that wealth building is often an intergenerational concern. For example it took the DuPonts three generations to get their wealth. Buffet, for all his folksy charm, had a father who was in congress and the second and third generations of Waltons are still running Wal-Mart today.



  97. SST on May 25, 2014 at 4:37 pm

    What’s the venerable saying?

    “From clogs to clogs in three generations.” — c.1700

    “The first generation builds the business, the second makes it a success, and the third wrecks it”

    Would be interesting to find out how much weight ‘Legacy’/’Family Governance’ carries in the average financial plan (it’s apparently not a lot).

    To further deconstruct the ‘market-makes-millionaires’ myth, from a Forbes 2014 article:
    “The vast majority [of wealthy families’ assets] – approximately 70% – was created via business ownership. The remaining 25% of wealth was the result of high-income occupations.”


  98. Ed Rempel on June 13, 2014 at 9:00 pm

    Hi James,

    Thanks. I don’t think that inheritance is a major factor. It was historically, but today nearly all the millionaires and billionaires have made most of their wealth themselves.

    For example, I don’t recall the exact stat, but I believe it is 10-15% of the Forbes 400 Richest Americans that inherited their wealth.

    You mentioned Warren Buffett, but he made his wealth himself. He had his father’s inheritance go entirely to his siblings. His story is fascinating. In high school, he was running 4 businesses – plus he had started investing in the stock market – and was making more than his high school teachers! He built his wealth by compounding the growth on his stock market investments.


  99. SST on December 7, 2014 at 1:30 am

    Great article on a familiar refrain, albeit this time from someone rich:

    The Stock Market isn’t Where you Get Rich — Cullen Roche

    “But that’s the idea that is continually pounded into our heads through various media sources – this myth that the stock market is somewhere where you get rich. The reality is exactly backwards. Most of the time what you’re buying when you buy stocks on a secondary exchange is a claim on assets that made SOMEONE ELSE rich.”

    “The financial markets aren’t where you get rich.”

    But what do I know? ;)

  100. Ed Rempel on December 10, 2014 at 1:14 am


    That’s misleading. About 5% of businesses that start up still exist 5 years later. Occasionally, someone builds a successful business to the point they can go public, which generally means they make a lot of money.

    Investing in the stock market usually means you are buying (directly or indirectly through a mutual fund) the same shares that the founder owns – you just buy them a bit later.

    Of course, if you can start and build a business and can then successfully take it public, you should do that. For the rest of us, we can make our millions tagging along with the found by investing in the stock market while relaxing and watching “Big Bang Theory”. :)


  101. SST on December 10, 2014 at 11:18 am

    “For the rest of us, we can make our millions tagging along with the found by investing in the stock market…”, speaking of misleading…

    (Search out any Dalbar report to see how those mutual fund millionaires are doing.)

    The previous statement is not misleading, because what you are doing is “investing” in the winners of the public business world…yet it’s not you who is the big winner.

    I’ll use Onex (OCX) as an example. From start-up to IPO the founders reaped a 50% per year ROI, the opening day stock buyer-and-holder has gained 9% per year. Big difference between 50% and 9% on the back of the same business model. Sure, that’s still 9% for doing nothing but assuming risk (if the stock holder managed to hold on for 30 full years).

    It’s because the founder was the one who made the investment for actual production, the stock holder is merely deferring consumption, i.e. their “investment” is just a place holder savings. The investor is at the Center of Profit because they created it; the stock buyer is basically selecting a “bank” to put their savings.

    How come you are not rich?

    Probably because you are only saving for consumption instead of investing for production.

  102. Dwilly on December 10, 2014 at 12:02 pm

    The funny part of this is that you are both mostly right within the context in which you are speaking, but also both deliberately ignoring meaningful portions of the others’ argument.

    This is all a risk-reward spectrum, and you are discussing two different points on the spectrum. Low risk = low reward, and high risk = higher potential reward.

    Take a GIC. Pretty low risk, darn close to zero. Pretty low reward, also arguably zero.

    How about stocks? Done properly, the risk is fairly low to moderate (talking diversified investments, not junior miner stock). The reward? Also moderate, a few points over inflation at best.

    Start your own business? Very significant risk – as Ed point’s out, probably a very high fraction go under resulting in complete loss of capital. The reward potential? As SST points out, IF successful, clearly more than the stock market.

    So neither of you are right or wrong. If you want to get “stupid rich”, the low-to-moderate risk of the stock market probably won’t do it. So start your own business. But be prepared for the fact that you have an 80% chance of toasting yourself.

  103. SST on December 11, 2014 at 9:09 pm

    “…deliberately ignoring meaningful portions of the others’ argument.”

    Not so.
    The original argument is that I’m not rich because I don’t think like the wealthy and “wealthy people are wealthy because they are focused on building wealth.” Little to do with risk:reward. Remember what Buffett said, “Risk comes from not knowing what you’re doing.”

    Repeating what the article in #99 states, as I also believe, putting money into the stock market is not “building wealth”, it is merely a form of savings/delayed consumption. The wealth has come and gone and the stock holder is almost always on the wrong end.

    Real wealth is achieved through, as Ed writes, “building wealth”; actual investment, that being money put forth to create production. Thus if your money isn’t on the production side, it’s automatically on the consumption side.

    I would wager the wealthy focus first on building wealth, and saving second. You will almost never become rich via savings alone, be it in a bank or a stock or variation thereof.

    Read on, McDuff:
    Saving is not the Key to Financial Success

  104. Dwilly on December 15, 2014 at 3:16 pm

    I think it’s getting more back into the semantics game now.

    It’s just about multiples. Personally, I call “building wealth” any time you add to your net worth, be it small or large. And simply working, saving, and investing in the market (prudently) over time, just about anyone should be able to build a nest egg equal to high-single to low-double digit multiples of their annual salary. Someone who earns $100k should be able to grow a nest egg of $1M (10X) over 30-35yrs just by saving & investing in the market. I certainly could (and am). And with the average Canadian HH Net Worth at $232,200 (and likely 70% of that tied up in said house), I think most reasonable Canadians would say holding a $1M financial portfolio classifies one as “wealthy”, if perhaps not “filthy, stinking rich”.

    Are you going to grow to a 100X or 1000X multiple of your annual salary being in the market? No chance at all. So for the record I am not at all disagreeing with you. If tens of millions, hundreds of millions, and 1000X multiples of a “normal” salary are what one considers to be the requirement for “wealth”, then yes, absolutely, the stock market isn’t going to cut it.

    I’m just not sure that’s what the majority of people here realistically expect or need. (of course we all would like it)

  105. SST on June 3, 2015 at 1:00 am


    How to Get Richer, Faster: Private Equity is Your Best Bet

    “No matter how far down the [wealthiest people on the planet] list you go, you won’t find anyone whose fortune was primarily the result of stock trading…

    …if you want to really grow your investments, you must either invest in private equity or take a private-equity approach to investing in the public markets.”

  106. Dwilly on June 3, 2015 at 10:51 am

    No revelations there. Again, fully agree that if you are trying to get Buffett-rich, or even $50M-rich, it won’t happen through investing in public equity and index funds.

    But here’s the catch. People need to ask themselves how much you really need? Would I *like* $100M? Sure I would. Do I *need* that much to live extremely well and be very happy? I personally don’t.

    Second, should you decide you do want that $100M and need to shoot for the moon, you need to be aware of potential failure. The article discusses 2 or 3 guys, Buffett, Gates and Ellison, who obviously made it big. But out of what number that tried and failed?

    In that regard, this is no difference than the LottoMax commercials. Sure, you’ll be plenty happy IF you’re successful, but what are your odds? And if you knew in advance you had the choice between a 1:1000000 shot at “ultra-rich”, or could have a virtually guaranteed $1M at retirement, would you actually choose the former?

    (For the record I believe the world needs risk-takers and play-it-safe-ers. Although I am not the former, I am very thankful for them as they help us all build wealth. But I would never suggest that the former is appropriate for all or even most people.)

    • SST on June 3, 2015 at 11:22 am

      Gently reminder that this article is wholly concerned about being/becoming RICH, not playing it safe.

      #1 — in a Capitalist society, there is no “enough” after needs are covered. If meeting needs — food, shelter, heat — is the only concern, then people need very little capital; they needn’t save or invest, CPP/OAS/welfare will provide for them.

      #2 — there seems to be an unreasonable association of risk to private equity. I guess that’s true if it’s compared to buying a lottery ticket. There are indeed safe and low-volatility PE investments (e.g. I’m greatly enjoying my returns on Sask. farmland, as is Liquid over at the Freedom35 blog; almost every single pizza joint, etc.). Starting and running a successful business has the same driver as investing, you have to know what you are doing. All the non-Buffett failures most likely had huge gaps in their operations knowledge and skill. Apply the same to an investor and they will also fail.

      As for that “guaranteed $1M at retirement”…I guess if you are shooting to be in that 1% club (that’s a 99% failure rate, btw) then you probably would have no emotional problems investing in PE.

      Again, re-read the OP: I’m not rich because I don’t think like the wealthy and wealthy people are wealthy because they are focused on building wealth, not merely conserving purchasing power. In other words, you are not rich because i) you aren’t smart enough, and/or ii) you don’t take enough risk.

      • Dwilly on June 3, 2015 at 11:51 am

        I guess I fundamentally disagree with both your points.

        #1 “Never enough” in practice, even in a capitalist society, is almost always wrong (ask Gates or Buffett). Eventually individuals realize the limited nature of their time and associate an accordingly high price. Though different, everyone has an “enough” number. Capitalism does not equal everyone wanting ultra-riches. It equals everyone wanting as much as possible given work they are willing to put in (in other words, VALUE – return on your time & risk – which is precisely my point).

        #2 I wholly disagree that starting/owning/operating any kind of business or even owning farmland in Saskatchewan is as easy, low-risk, low time involvement, and inexpensive to execute as passive investing. It’s true that not many people do either of those things right. But one of them is a heck of a lot easier to learn (more forgiving of mistakes), requires a whole lot less time commitment, is almost always more liquid, requires less capital and operating costs, is easier to get involved in, etc… the list goes on. Again, coming back to value – return measured against work and risk.

        • SST on June 3, 2015 at 4:04 pm

          Again, coming back the point of the OP: why we are not rich.

          The author, a financial sector professional, states we are not rich because we do not think like the wealthty.

          He also states that it’s his strong belief and professional guideline to have 100%+ of your money invested in stocks/mutual funds 100% of the time.

          Except that wealthy people will NEVER adhere to an investment plan anywhere near the author’s 100/100 mandate.

          So which is it…follow “professional” advice or adopt a wealthy mindset?

          Maybe the actual reason we are not rich is because we keep buying mutual funds and stocks.

  107. Le Barbu on June 4, 2015 at 11:41 am

    Or because people buy some stuff instead of investing their money?

  108. Ed Rempel on July 26, 2015 at 3:51 pm

    To bring the discussion back to the point of this article, I meet many people that just feel generally frustrated with their finances. They wonder why they have not accumulated much wealth.

    People often ask me how other people seem to build up some wealth, so I decided to write an article about it. By “wealthy”, they mean having enough so they don’t have to worry about money and can enjoy some luxuries in their life.

    What I tell them is, first, most of the people that appear to be wealthy are just spenders and not really wealthy at all. We very often see people with high lifestyles, but relatively low net worth.

    Second, almost anyone can build up a large portfolio if it is important enough to them and they do the right things. Just focus on building wealth, be frugal, and invest in equities for the long term. I’ve seen many people build up portfolios of $1 million or more. Most that I have seen have done it by investing entirely or mostly in equities.

    Most people don’t do these things. They spend a lot and don’t save much. They over-estimate the risk of the stock market. They focus on more conservative investments, or income-producing investments, or make common investing mistakes (like moving their investments to whatever is currently popular), or paying off debt, and consequently never build up much wealth.

    $1 million is not really that much today and not really enough to retire “rich”. For example, with a 4% withdrawal, $1 million only gives you $40,000/year income, which is hardly “rich”.

    Dwilly, I should point out that Warren Buffett made his millions by investing in equities, most of which were public equities on the stock market. He does, of course, have what might be considered a “private equity” outlook, meaning he thinks like an owner participating in the growth of the business (not like someone trading on the stock market).

    This article is not about the super-rich. It’s about what average people can do to build up enough so they feel wealthy and don’t have to worry about money.


  109. Ed Rempel on August 18, 2017 at 5:33 pm

    Hey FT,

    Thanks for re-posting!

    This is a classic about understanding how wealthy people think.


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