Monday, 5 December 2016

How the rich get richer

The difference between "rich people" and everyone else is that while ordinary people have income and own assets the rich have "capital". Capital is a productive asset which returns a yield. Now even low yielding capital such as FTSE100 shares have an average yield of 4% (on top of which the owner may get capital growth) while the economy is growing in the 2-3% range.

This means that provided the yield is re-invested into capital the capital owner will own an ever increasing share of the economy with every passing year.

He could even skim off 1% and still increase his share of the pie.

That is why the rich get richer.

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