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Comment by sp332 | Hacker News Reader

"Most earnings for the top 1 percent come from investment proceeds; the stock market has risen steadily since mid-2011." There's no particular reason that middle-class people couldn't make the exact same investments in the stock market. The only difference is a lower amount of capital to invest. "Created" is not the word I'd use to describe investing your wealth and sitting around waiting for a return.

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If you think anyone can make the same investments then you don't know finance very well. The highest earning investments require huge amounts of cash to participate in and they are not a matter of simply holding some stocks.

I don't think this is true any more. If you buy and hold index ETFs you'll outperform the majority of professional investors due to the very low expense ratios. Some people with lots of influence like Warren Buffett or David Swensen @ Yale have access to slightly better risk-reward adjusted opportunities but that's a very small group of folks. Even Warren Buffett has instructed his estate to keep its assets in SPY the S&P 500 index fund after his death. Every time you hear about wealthy people earning a huge return on an investment just remind yourself that risk-reward is baked into almost everything in the markets and what you're not seeing is the many other investors who chased similar investments but lost.

You're not considering arbitrage trades which is where the earnings are disproportionate to the risk because such trades require a huge amount of capital and a lot of expertise to take advantage of.

We don't know exactly how few people are making all the money at the top. The article only gives us 1% granularity, but maybe it is "a very small group of folks" who are bringing up the average.

Do those investments consistently outperform S&P 500 and Russell 2,000?

I think you can always cherry-pick some real estate deals or angel investments in Google, Inc. that were available to accredited investors and returned superb results, but through survivorship bias skip deals like Las Vegas Monorail, Greek bonds and angel investments in Fab.com and Color.

If you can find a way to consistently outperform the index funds, you can find a way to securitize it and make it available to smaller-tier investors. The fund have "absolute return" or "unconstrained" somewhere in its name and join a long list of funds that were unable to outperform index funds for statistically significant periods of time.

Either way, the difference is how much capital you start with.

My point is that this is not the case. If you have more capital you can earn a higher percentage on that capital.

It makes it clear that there is a step function: either you are rich enough to make money, or you aren't.

I can agree with that.

When I buy a stock or invest in some company, I'm taking a risk. That risk is a type of production - it requires me to think and make decisions. Obviously, I can lose in an investment. So, yes, it is a productive activity.

That exact statement applies to the work of stealing a painting. If you want to defend investment as productive activity, you're going to have to be a little more thorough than that.

And yet, it's much less risky that what everyone else has been doing, since mean and median incomes have declined.

They have not declined. They just have not kept up.

From the article: "Average adjusted gross income for filers in the second-highest fifth dropped by about 1 percent.... Adjusted gross income in the second-lowest fifth declined the most, 9 percent".

On an adjusted basis, sure. I was speaking in absolute terms. What's happening is that people are leaving the second quintile. About 1/3 move down, 2/3 move up.

The sort of thing people in the second quintile used to do has evaporated.

The same could be said about gambling. Are roulette players "creating wealth"?

Isn't investing the definitive way to use money to create wealth? The companies they're investing in have obviously been able to use that money to grow, right? And growing usually means providing more jobs and creating wealth.

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