I know defending the rich is not a popular thing to do right now, but…heck, I’ve never been popular anyway.
Right now, due to relocation for work and the current housing market (caused as much by well-meaning politicians trying to help poor people who, oddly enough, can’t afford houses), I’m carrying two mortgages. That’s okay. I’m renting one house, and though I’m struggling with an unreliable tenant and a questionable property manager, we’re holding the line there.
My point is that I did not have the money to buy either of these houses outright. I needed a loan. And money for loans comes from…? That’s right! Rich people! Contrary to popular belief, rich people do not lock their money up in a vault a la Scrooge McDuck or pile money bags all over their houses. They invest their money.
And why do they invest their money? That’s right, because they want more of it, colloquially known as “greed.” of course that’s supposedly the same reason why non-rich people put their money into banks, invest in retirement accounts, and buy lottery tickets, but that’s an inconvenient truth currently.
Some people invest their money in banks through deposits, which is generally a low risk investment, but also brings a low return (there’s a pattern here that most people should already know). Some invest it in direct loans to companies or municipalities, known as bonds. These have a higher rate of return, but also a higher rate of risk.
Then there is the stock market, in which investors trade their money for shares in an established company in anticipation of greater value or dividends down the road. These are even riskier investments, but can also bring even higher returns, especially if you leave your money invested for a long time. The least risky way to invest in stocks is through funds that take the investment money and spread it out over a lot of different companies so that failure by any one company does not result in as great a loss. But those who can stomach the risk can also buy individual companies’ stock directly.
And then, of course, you can always invest in new companies just getting started, or in struggling companies that could still prove valuable with some help. This is referred to venture capital investing, and it is the riskiest of the lot. New companies can consume a lot of money getting started. Look at Amazon.com, which consumed billions before it actually started making money. Also look at many of the other “dot.com” companies that began around the same time and died. Someone had to come up with the money for each of those, and for every Amazon, there were at least a dozen failures where investors were lucky to get anything back on their investment. It’s risky starting companies, and we usually only hear about the successes.
So I personally don’t have a problem with rich people investing their money in order to get richer. They could just sit on it and live happily ever after. Instead they make it available to other people to use and ask only an appropriate return based on the risk they are taking. Because of people like this I am able to own two houses.
Because of people like this I have had good jobs over the past twelve years. One was the owner’s own money at risk, and the others, including the one I have now, relied on investors. Do they make more money than I do? Probably. They invested a whole lot more than I did, too. It cost me nothing to get money out of these companies. I just traded my time for it. These people put up a lot of money to fund that company, hoping to get a profit from it later on.
Because of people like this some friends and I were able to open our own business. Our investor put in his own money for nearly a year and a half, and is just finally getting some of it back. Meanwhile his money helped keep three families fed during that time. The last thing you will ever hear me say is that he doesn’t deserve to make bucket-loads of money from his investment. If everything continues to go well his investment will soon be helping additional people make a living as well. He had no way of knowing back in 2010 whether he was making a good investment or kissing away a big chunk of money. Neither did we. Heck, it could still turn out to be a mistake!
So go on. Come tell me to my face that our investor doesn’t deserve to make gobs of money from his investment. Just be prepared to duck. Them’s fightin’ words.