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The World Isn't Prepared for Retirement (bloomberg.com)
An anonymous reader writes: Most online quizzes are relatively mindless, promising to reveal which vegetable, sandwich or rock band best represents your personality. That was not the case for a short online test given to 16,000 people in 15 countries this year. It revealed just how unprepared a good chunk of the world is for retirement. The three-question test, given as part of the Aegon Retirement Readiness Survey 2018, measured how well people understand basic financial concepts. Many of the participants failed the quiz, with big potential consequences for their future security.
Beyond the sobering lack of financial literacy, there were some rather curious data in Aegon's annual survey, published on Tuesday. For example, some 20 percent of workers surveyed in China envisioned spending retirement with a robot companion. But before we get to that, take a look at this question -- which only 45 percent of people around the world got right: Q. Do you think the following statement is true or false? "Buying a single company stock usually provides a safer return than a stock mutual fund."
The possible answers? True, false, do not know and refuse to answer. Sixteen percent of people got it wrong. "Do not know" was chosen by 38 percent. In the U.S., 46 percent of workers got it right. Good for you, America -- though Germany beat you handily. (The answer, in case you were wondering, is false.) It was an inflation question that had the highest percentage of wrong answers, however. More than 20 percent of workers didn't grasp how higher inflation hurts their buying power. Given that declining health was the most-cited retirement worry, at 49 percent, and health care is an area (in the U.S., especially) with high cost inflation, well, that makes the subject something older folks should have down cold.
Beyond the sobering lack of financial literacy, there were some rather curious data in Aegon's annual survey, published on Tuesday. For example, some 20 percent of workers surveyed in China envisioned spending retirement with a robot companion. But before we get to that, take a look at this question -- which only 45 percent of people around the world got right: Q. Do you think the following statement is true or false? "Buying a single company stock usually provides a safer return than a stock mutual fund."
The possible answers? True, false, do not know and refuse to answer. Sixteen percent of people got it wrong. "Do not know" was chosen by 38 percent. In the U.S., 46 percent of workers got it right. Good for you, America -- though Germany beat you handily. (The answer, in case you were wondering, is false.) It was an inflation question that had the highest percentage of wrong answers, however. More than 20 percent of workers didn't grasp how higher inflation hurts their buying power. Given that declining health was the most-cited retirement worry, at 49 percent, and health care is an area (in the U.S., especially) with high cost inflation, well, that makes the subject something older folks should have down cold.
Thanks for posting the question.
The difference in risk is so much that it's a fundamentally different activity, for the most common types of "single stock" people buy, and the most common type of mutual fund.
Typically when people buy a single stock they choose a new company with a lot of hype. The "value" of the stock is based on the hype. The most common mutual funds are index funds and the like, where you're invested in not only 100 different companies, but 100 different *mature*, profitable companies. It's very, very likely that in a big group of companies which have been making money for 100 years, most of them will keep doing what they've been doing - making money.
Investing in an index fund is just that - investing, putting money aside now so you'll have it later, and have more. Trying to guess which new company will do best, indeed trying out OUTguess everyone else, is fundamentally *gambling*, not investing.
Even if you guess right that Fitbit or Tesla will do well in the future, that expectation os already built into the current stock price. For that investment to be good long term, the company has to do BETTER than everyone expected them to. That's straight up gambling when you buy a single stock and it's a young company.
The continual slide of wages vs inflation, the endless fun-ride of being 'obsoleted', being excluded through ageism, the effective death of the pension, and a bevy of other factors all align to basically ensure that nobody aside from people on the far upper end of middle class and the wealthy are able to retire.
Everybody else is just ignored by the system, and when the time comes, those that "have theirs" will fail to comprehend why they (everyone else) failed to save for retirement, will blame the victims who really would have loved to save for retirement, will refuse to take up the slack in society, because "they have theirs", and through it all, the people that have been systematically shafted because they were not born rich enough to get a suitable head start on this fun-ride will become an epicenter for systemic illnesses, and societal drains that the others will refuse to pay for.
But dont let that bother your little heads too much. Because the downward pressure of this disadvantaged class will further pull the upper middle class down, due to mandated tax increases and a yawning social welfare crisis caused by the earning gap, which will further push the next generation of upper middle class into serfdom.
Want to prevent this horrible nightmare future? It's really easy in principle, but impossible to implement in reality: Put a stop to the ever increasing wage gap, drive up baseline wages, and drive down top earnings, so that the middle class grows again instead of shrinks.
No. You are not such an amazing talent that you "deserve" to earn 100 times or more than the average person.
No. You arent.
No. NO YOU AREN'T.
Throughout history, people worked until they were physically unable to work.
The idea of retirement came about through FDR's "New Deal." Even then, the "retirement age" of 65 was considered very old, considering that life expectancy at the time was 61! Since then, life expectancy has risen by at least 10 years, but the "retirement age" has not risen with it.
Financial literacy is needed, yes. But is "retirement" at 65 a realistic goal for most people?
Company that makes money investing peoples retirements says more people need to use their services in order to retire.
First, let me say of course retirement is important. But lets be clear, saving for retirement is big business for the financial world. According to them you can never save enough because every penny you aren't saving is money not on their table.
Every day I go to work I see people who seem to talk about nothing but their retirement savings. And they mock the new generation coming in to replace them because at least according to them they aren't doing anything and in stead are actually living life.
Somewhere is a happy medium. I'd rather take off to NZ in August for a weeks snowboarding now than take a cruise when I'm 70. Of course there are long term costs associated with that. But that's life, sometimes you have to actually life it.
Baloney. If you want a low fee fund with returns just invest in a index linked fund. They are managed by algorithms so they have very low fees (0.03%)
Trick question. The risk depends on the specific single stock and the specific Mutual Fund in question.
Some mutual funds are at a different level of risk than other funds, and some stocks at are a different level of risk than other stocks ---- the highest risk funds can very well have less safety than some of the lower risk stocks.
in the stock market. And that includes retirement programs. The gig economy, outsourcing & offshoring eliminating middle class jobs and the constant assault on Unions means they have no opportunity and with most living paycheck to paycheck they have no opportunity to save.
And nobody's going to convince me that half Americans are just irresponsible spend thrifts or lazy bums; especially since Europe is having none of these problems. Even if they are, what the hell is wrong with our civilization if that's the case? I thought America was the greatest country on earth. God's country and all that rot. Bullshit. Something's wrong. Something outside our control. And let's face it, we know damn well what it is
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It's hardly a surprise. In the US we're filled with "financial planners" and other similar people who pitch themselves as helping improve your financial life, when in fact they aren't even really obligated to make their clients fiduciary interests primary. They're nothing more than glorified stock salesmen, pushing high-load, low-yield branded mutual funds, crappy stocks and high-activity trading which they benefit from.
The sales pitch, even when its half-informative, is often a deceptive lure. Guy with shitty retirement planning breaks down and goes to a financial planner. Is told he's way behind the curve. Guy says "what about a no load mutual fund", and the planner is like "you could do that, but these days they only return 3% and based on my magic spreadsheet you need a more aggressive return, like my portfolio of targeted mutual funds and some individual company stocks where you can get that 10% yield you need to catch up".
So the guy buys into shitty funds and stocks that mostly likely just help the financial planner retire.
Financial planning education is non-existent in schools, fixing that would help. It would also help to crack down fucking hard on "financial planning" and require SIMPLE, BOLD PRINT, PLAIN ENGLISH, UP FRONT disclosures that planners are in the business of selling products, not in caring about your outcome. Or better yet, REQUIRE that financial planners (or whatever label you want to invent) MUST PLACE THEIR CLIENTS FIDUCIARY INTERESTS AHEAD OF THEIR OWN. If we had financial services that were about client interests and not just pushing shitty investments it would help everyone.
Brokers and salesman can continue their line of chicanery and fraud, but at least there would be a legitimate category of financial planners people could trust.
TFS is ridiculoisly American. ... "special".
You can have your own views, of course.
But don't be surprised, if the world considers your mindsets a bit
In most countries of this planet, people do not even consider stock trading legitimate concepts. (Due to profit essentially being immoral and anti-social, harming society, and being very close if not equal to stealing.)
Hell, you expect Chinese and other unamerican people to know the intricacies of capitalsim?
Come-on! I know "you Americans" are not "all like this". Get out or your country a bit, please. :)
(Oh wait! Leave the ordnance and agents and ideologies at home, please. ^^ You can bring some of your positivism and friendliness and can-do attitude, as long as it is realistic, and not delusional or a "firm belief" aka ideology.
Retirement is a concept that already implies fucked-up things like letting some tie-wearing cockroach leech on your profession, or worse, wasting your life on a mere job.
I have been self-employed for most of my life, and I don't want to live without being able to do what I love anyway. It is my profession, not my job. But for cases where I need to live while beig unable to do it, I have cooperative-provided insurance. (The cooperative is also a bank, which we own, and which is forced by law to always have enough reserves.)
You speak like a young person. Not much use after 55? Really?
Perhaps we should just practice euthanasia, to "clear" the old, infirm people out of the workforce.
I'm 51. I can still code circles around my younger peers, and my experience helps me avoid traps they regularly fall into. I don't think those abilities will suddenly disappear in four years.
You're both right.
I'm 51 and I do feel less capable in some ways than when I was 31. Lack of enthusiasm, more external interests and distractions, greater health infirmities. Which doesn't mean I'm incapable, on balance my experience and acquired wisdom balances out my constitutional inability to work 24 hours in a row -- I can't do it, but I don't need to.
Depending on your frame of reference, I'm either less capable because I don't do marathon all-nighters or I'm more capable because I don't need to.
I think the larger problem is that what happened traditionally is that the surviving elders became the pool of knowledge and wisdom. Their contribution wasn't hunting down the dangerous game, their contribution was knowing *where* and *how* to chase it down.
Modern capitalists, however, expect *both* and seem to value the sacrificial warrior more than the wide elder.
Typically when people buy a single stock they choose a new company with a lot of hype.
Not true. When people have their entire retirement savings in one stock, it is usually in the company they work for, acquired through an ESOP.
How about a random stock from the S&P 500?
***USUALLY***
Mutual funds are pretty much a scam these days with so many fees,
This is nonsense. Fees are lower than ever.
Most of my retirement savings are in Vanguard index funds. No upfront or backend fees, 0.04% annual maintenance fee.
Here's some free advice:
1. Invest in index funds, and never in actively managed funds.
2. Never take financial advice from someone trying to sell you something.
47 and I am able to pick up on the latest and greatest easier than ever. It's the same patterns and anti-patterns repeated ad nauseum. Understanding databases and servers better than most operations folks helps too.
One thing I have stopped doing is giving a crap about politics or trying to advance in the organization having flirted with being a manager for a while and deciding it wasn't something I enjoyed doing.
love is just extroverted narcissism
It's the US that isn't prepared, not "the world". Civilised countries with a mentality not stuck in the early 20th century have retirement programs, medical insurance and a social welfare at least trying to offer a dignified retirement to everybody.
Or at least we try, and in details in which we don't succeed, we recognise that as a problem that's to be fixed.
Keep in mind that the control group of people questioned fall into the following category:
-Surf the internet looking for quizzes to take.
-Have nothing more important to do than take online quizzes.
Extrapolating that the world isn't ready for retirement based on a three question survey delivered via online quiz is bad science.
Here's a better headline:
The more likely you are to know what kind of fruit represents your personality, the less likely you are to be prepared for retirement.
That says it all.
First, what the _hell_ are you doing on /.. I don't think Bernie Madoff could pull that off with a pyramid scheme. You must be some kind of financial genius.
Second, you do know what inflation is, right? At the current rate you're $1 million saved will have about $140k in buying power in 50 years based on the Cureau of Labor Statistics' calculator. Only inflation is _much_ worse than it was 50 years ago, so better plan on that being $100k.
Also, better plan on a few major market crashes wiping out your savings. We just repealed Dodd-Frank and a whole bunch of other Wall Street regulations that were passed after the 2008 market crash.
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That is another important and common case, having stock solely in the company one works for. That's uniquely high risk because if something goes bad with the company you can lose your job and your savings, at the same time.
I will probably soon have an opportunity to get into my employer's stock pre-IPO, and it will probably jump right after the IPO, so it would be a good idea for me to get in. BUT I don't want both my job and my savings to subject to whatever happens with this company, so I'll be looking to get out pretty quick. I'll have to look at the plan details to see how I can do that, and when. I may well keep the stock and switch jobs.
it's missing 'I don't give a shit' since I get a pension in Europe where I don't have to care about stocks, the employer and employee both paying the same amount (usually around 8% each) into the employee's state guaranteed pension fund from day 1.
"The real missing question?"
The real missing question is right there, in the headline: "The World Isn't Prepared for Retirement". What the fucking!!!???
"The world" is very well prepared for retirement, thank you very much. This, like mass assassinations, is very much a USA-only problem and the solution is, again just like in the mass assassinations case, very much fucking obvious for everybody but USA: you fucking collect taxes, and you pay fucking retirement pensions out of these taxes. Problem solved; no need to understand stock versus mutual funds, compound interests or stock versus public debt evolution.
"The real missing question?"
The real missing question is right there, in the headline: "The World Isn't Prepared for Retirement". What the fucking!!!???
"The world" is very well prepared for retirement, thank you very much. This, like mass assassinations, is very much a USA-only problem and the solution is, again just like in the mass assassinations case, very much fucking obvious for everybody but USA: you fucking collect taxes, and you pay fucking retirement pensions out of these taxes. Problem solved; no need to understand stock versus mutual funds, compound interests or stock versus public debt evolution.
One small problem in this is that many countries who claim to have this "solved" weren't counting on an aging population. That will make it incredibly difficult to simply collect "fucking" taxes to pay "fucking" retirement pensions.
As far as I know, only the following countries have universal pensions: Bolivia, Botswana, Brunei, Guyana, Kosovo, Namibia, Netherlands, New Zealand, Samoa, Suriname, Seychelles.
The others that do have some sort of public pension have some sort of means-test for their pensions and pensioners often rely on private pensions in these countries. This is the case of many of the countries in Europe.
Unfortunately, because of population dynamics and budgetary indiscretions, some countries which have massive shortfalls in their public pensions have taken drastic steps such as seizing private pension funds to make up for public pension shortfalls (like Argentina, Poland, Portugal, Russia, and Hungary). Expect to see more of this as the aging population dynamics put more pressure on public pension funds. This will of course delay the day of reckoning for government pension plans and they will eventually need to choose between lower benefits (angering the current pensioners) or higher taxes on an increasingly smaller working population (compromising the future).
Of course voters can (and will) remain blissfully ignorant of stock vs mutual funds, compound interest or stock versus public debt evolution and vote accordingly (as they generally do)...
The long-term average return with a low-fee index fund is around 9%-10% per year. About the same as the AVERAGE return from individual stocks - which makes sense because index funds are composed of many individual stocks.
The risk and volatility is much lower - you can almost guarantee you won't make much more than 10% or much less than 9%, over the long term.
A lot of the volatility of index funds is actually volatility of inflation - they tend to have higher nominal returns when inflation is higher, so the real returns are more stable than the nominal returns.
Even if retirement is 5 or 10 years away?
If you retire at 65, you can expect to live another 20 years. So if you are 5 or 10 years out, you have a 25 to 30 year time horizon, which is enough to smooth out volatility. If you have significant savings, you should stay mostly in stocks.
Seems to me you ought to shift into less volatile options.
There are index funds designed to be less volatile. They track utilities and health care, which tend to have fairly steady profits even in recessions.
Close to retirement, yes you should still have your stock investments in low-expense index funds. You should ALSO have bonds and maybe some other types of investments. As you get nearer to retirement, you should typically buy more and more bonds, but your stock choices shouldn't change much.
I say typically - there are times when the rates on safe bonds are so low that it's hard to justify buying them, even close to retirement. I suppose it also depends on what "close to retirement" means - when you'd LIKE to retire, or when you MUST retire? For many people, they plan to retire in eight years, but they could work two extra years if the market goes to shit. That's different from a 60-year old airline pilot, who MUST retire at 65, like it or not.
Having a larger pool of companies in the fund changes the probability distribution function. The bell curve gets narrower and taller in the middle the more stocks you put in the fund, meaning you're more likely to get an outcome closer to average, less likely to get an extreme outcome.
It's a consequence of statistics, nothing to do with stocks. If you roll a 1d6, every number between 1 and 6 has an equal chance of appearing. If you roll a 2d6, the bell "curve" becomes a triangle, with 2 and 12 being the least likely outcome (1 in 36 chance), and 7 being the most likely. A 3d6 turns flat sides of the triangle into a true bell curve. Increasing the number of dice results in the curve narrowing even further. By the time you get to 10d6, it's virtually impossible to get either of the extreme outcomes (1 in 60 million chance of getting a 10 or a 60).
So when you put thousands of stocks in a mutual fund like an index fund, it's virtually guaranteed to perform at the market average. Whereas if you buy stock from a single company it could perform average, or you could make a lot more money, or you could lose everything. Insurance companies and casinos rely on the same thing - by grouping lots of insured or gamblers together, the overall outcome becomes much more predictable. The increased accuracy of prediction (outcome closer to the average) allows them to make money despite decreasing their margin (offering a lower price for insurance than the competition).
It's a verifiable fact that Millennials are worse off than their parents and grandparents.
Not so fast... Millenials are worse off as a group by their own individual choices, because they buy more goods and services that are not really needed and make worse deals than their parents or grandparents --- for example, many of them are swindled into taking on student loan debts by allowing themself to incur expenses that are unjustifiably large VS benefit.
and sitting quietly waiting to go to work (or better yet, working 16 hours a day) then the nasty little heathens deserve what they get.
What kind of crap are you spewing? Nobody "deserves" to get anything from anybody other than the agreed upon goods, services, or compensation in exchange for $$$, work, or services provided.
All i'm saying is the people who claim to be living paycheck-to-paycheck and unable to afford to save at all for retirement or future needs are Full of Shit: if they are spending any money on non-essentials, then they are Not "unable", but they CHOOSE not to --- The fact they DO have the choice to spend the $$$ on Non-Essentials PROVES that the Money would be available to save for their future, BUT they choose to prioritize the Immediate non-essential Luxury as MORE IMPORTANT or PRIORITIZED over saving for Retirement and prioritized over saving to help build an emergency fund or improve their overall Financial well-being.
The $50 to $80 / Month Cable TV or Netflix bill PLUS exorbitant Smartphones with unnecessary features are GREAT examples, because the purchase is 100% on Audivisual entertainment. The equipment alone (such as Televisions) are luxury items, and so is cable service.
Millenials' grandparents' likely never owned TVs or Smartphones, let-alone pay an equivalent of $60/Month for such items.
There are plenty of free ways to be entertained, such as taking walks down the street, or riding a bike to the nearest library, those are also activities that promote thought, higher productivity, and potential aid to professional development.
That's just two high-ticket examples.... Another example is: What kind of Vehicle people choose to buy. Don't claim to have no choice and be living paycheck-to-paycheck and having purchased a brand New $30K+ vehicle; that has a high loan-servicing cost, a high rate of interest that will be paid over the life of the vehicle, AND a higher insurance rate, when a used $12K vehicle of an appropriate type well-researched purchase (Including the expected lifecycle costs to insure and maintain) would have (A) Met the needs, and (B) Resulted in lower monthly costs: Again, this is a case where "Live paycheck-to-paycheck" was NOT dictated by the marketplace, or by the wage, But it was the result of management decisions made by the individual.
The Netherlands do indeed have a universal pension, but it's not an awful lot of money, around 1200$ a month for a single person. Probably enough to live on if you have cheap housing, but not really what I aim my retirement to look like. Moreover, the retirement age is creeping up and there are worries about sustainability as it's a pay-as-you-go system.
Employees often have mandatory collective retirement funds, which are actually really well funded. They are mandated to have 'coverage' of over 100%, meaning that they have enough money to pay all their obligations assuming very modest interest rates. A lot of them are also in trouble because of the current hyperlow interest rates - it forces them to calculate their future means with a very low interest, so they need to increase payments or decrease current pensions (or at least not index them for inflation). In general they are running into the general problem of maintaining a fixed benefit scheme in an ageing population. As I work for university I am covered by the civil servant pension fund, which seems to be doing quite well and has implicit government backing. In other trades the companies are forced to chip in if the retirement fund is unable to maintain its coverage, but of course in a declining industry (e.g. shipbuilding) this will be very difficult. If I keep my current salary until retirement age, I should get 3000,- in total (per month; including state pension and after taxes), which is probably enough to live comfortably as my house should be paid by then.
Finally, all self-employed people and a lot of other people save themselves for retirement, either pre-tax or post-tax. This is the only reason you would need to know a lot about stocks/pensions, and even then probably most people just buy an off-the-shelf retirement saving product (either savings or stock based), which is also the only way to get tax benefits. Of course, this is highly unpredictable in any case.
They are constantly debating reforms to the current system. Plans include opening the pension funds to self-employed people or even forcing them to take part [labour would like that], altering the change in pension age, and moving from collective defined benefits to some more individual system. The labour unions have a big part in this negotiations so I'm sure whatever comes out will serve the current old people [who make up most of the membership] well...
Or we could stop spending so much fucking money on our massive, embarrassing military. We could shave 200 billion off of that and we'd still be spending more than twice that of the next largest military budget.
All this shit sounds like someone else's problem until you realize that the aging population you're talking about is going to become your responsibility sooner or later. Maybe not responsible for anyone now, maybe never will be directly responsible for anybody in the future, but you will *personally* carry a lot of baggage and suffer a measurably lower quality of life because we've decided that this is a problem that is "too expensive" to fix.
We trot around the world banging a drum screaming and shouting about how we're the "good guys" when we're more than happy to let millions of people live in abject poverty, homelessness, and undernourishment.
But taking care of people who can't afford to care for themselves is the bread and butter of "ethical" neo-liberal capitalism, so by all means, lets trust our future not to scientists or philosophers or people who are paid to think about long-term consequences, and instead put it in the hands of people who, whenever inadequately regulated and monitored, *reliably* destroys some part of the economy in a smash-and-grab get rich scheme.
The Bob's Retirement Survey 2018: Do you think the following are true?
If you answered yes to all of those, you've passed the retirement test.
You make $100, the government first takes 7.5% (really 15%) FICA tax, then an additional 25% income tax. You use some of that money to buy a gallon gas for $3, the government takes another 13%. That's 45.5% total tax.
Some time ago I took the trouble to add up all my taxes paid during one bad year and discovered that the dollar amount of taxes divided by my before taxes wages (good wages for IT, not great) came to about 34%. So your rough estimate is a good example, but you can't add percents of varying quantities the way you did. The different taxes have to pro-rated before adding.
You don't spend all your money on gasoline, so you have to pro-rate that tax. If you spent $5 on gasoline (5% of your earnings), then you would add 5% of the gas taxes 13%, so you would only add .65% to the IRS+FICA 32.5% = 33.15%
Similarly, the FICA tax is against your entire earned income, but only the first $128,400, so higher income people would have to prorate their actual FICA paid to their total earnings.. There's no cap on the Medicare part.
However, as you said, the FICA is really double because your employer is on the hook for the same amount you pay, and it's the full 15% for the self-employed such as yourself (ouch).
The FICA tax does not apply to investment income. Investment income becomes ever increasingly more significant later in life for those who have been paying attention, so the FICA part of your taxes can be a good bit less than 7/15% your total income.
Wall street types can have nice incomes and pay zero FICA. The same for retirees, although their income may not be so nice.
The Federal IRS tax is on adjusted gross income after deductions, and it has different rates on the brackets, so the brackets contribution have to be prorated and added in. Suppose I make $140,000 but it's $105,000 after deductions. I'm in the 28% bracket, but the tax on the first 100K is only 20% so that has to be prorated. So the actual percent for IRS is about 15%
Lower income people have relatively large deductions as you noted, so much of their income is untaxed - so again the IRS 20% or more has to be prorated down to the actual percent, which may even be negative for people who get earned income credit. For me, my
Also, there's sales tax on purchases (5-8% of purchases, not income), automobile registration, and property taxes against the value of the item. My state wants 6% for income taxes, but with different deductions than the IRS
As I say, your point is a good one, it's just that your math ain't done right.
That's an interesting observation and it has me thinking.
It didn't seem right at first, yet it did. I had to ponder it a bit. I thought about money flowing in and out of the country. I thought about the the companies in the index can outperform the economy as a whole. Still, those factors didn't seem to fully explain how for 100 years returns have SIGNIFICANTLY outpaced economic growth.
Then it occurred to me we must carefully distinguish between RETURNS and growth. There's no reason a five-pound chicken can't keep producing 300 eggs every year. A cow keeps producing 2,000 gallons of milk each year long after it's finished growing. General Mills has made money paid out dividends every year for the last 120 years. They don't have to grow any bigger to be a good investment.
The market can't *grow* bigger than the economy, but companies can certainly continue to make money, and returns can very well stay at 10% while the economy grows at 3.2%. How big a company is, or how fast it's growing, has little to do with how profitable it is, and therefore how much is returns to investors. Often enough, making a company *smaller* can be part of making it more profitable, by either cutting unnecessary expenses or focusing on what the company does best.
That's an interesting observation and it has me thinking.
Now you're thinking, I like it :)
If you can get a stock that gives you 10% dividends (and isn't doing some kind of weird trick) then of course, take it. The total amount of money in the world is going to equal the total amount of goods, though. If the amount of money increases without the amount of goods increasing, then you will see inflation, and each 'piece' of money will decrease in value.
Another important distinction to consider: some things are capital goods, others are consumption goods. Buying a chicken will give you a steady stream of income (dividends), but if you want to increase the value of your stock, you need to buy another chicken. Or a factory, or hire more people. (of course you can save some eggs for a while, but most consumable goods get used up surprisingly quickly. We need a constant stream of production to maintain value).
So you can broadly draw the outlines of the economy by looking at the total number of capital goods purchased (factories, chickens, etc) and total number of consumables purchased.
"First they came for the slanderers and i said nothing."
Sadly, appartently very few are disciplined enough to actually invest money like that and would instead have spent that on things like a better car, bigger house, or a vacation vs investing it. Those fools need SS to be taken or they would truly be penniless. The numbers I see for 401K and savings balances are terrifying...
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It can of course get very complicated - the total tax depends on what portion you spend on housing, how much you spend on gas, etc. There are thousands of pages of tax law (between 4,500 and 75,000, depending on how you count), so my quick explanation can't be accurate for any given person's actual liability in a given year. That being obvious, I did take a short cut with the math.
The point being your money is taxed:
Before it's written on your pay stub (the "secret" 7.5% + more the employer isn't allowed to mention on your pay stub).
When you get paid (FICA and income tax).
When you spend the money (sales tax, gas tax, phone taxes, etc).
Every year after you spend it, repeatedly (car taxes, property taxes, business personal property taxes).