Many Americans dream of becoming millionaires and billionaires, but what are your odds of really making it? According to an analysis based on 2010 data from the Current Population Survey, you have a better chance of being struck by lightning (about one in 750,000) or winning the lottery than joining the ranks of the one percent.
What's more, when the IRS studied high-income households over a 17-year period starting in 1992, they found that an overwhelming majority earned their wealth through corporate partnerships and capital gains – wealth-creation paths that usually require access to existing capital, a high tolerance for risk, or both.By contrast, only 8.6% of Americans joined the ranks of the country's most wealthy households by earning wages and salaries.
But there's good news for old-fashioned salary-earners: The number of American men and women who earn six-figure incomes hovers right around 4% of the U.S. population, or about 1 in 23 people—odds much better than being struck by lightning.
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Can you achieve your financial goals by working hard, using your talents and pursuing a career that allows you to accumulate savings? The IRS study says yes, but we are bombarded with messages that tell us otherwise.
Perhaps the most glamorized path to wealth-creation today is entrepreneurship. Entrepreneurship is without a doubt one of the most tried and true roads to wealth, but how many of us are the types of creative and technical geniuses who can build companies such as Google, Facebook and Apple? Granted, the next generation of disrupters is always waiting in the wings, but they are the exceptions to the rule. Succeeding as an entrepreneur typically involves a groundbreaking idea or product, and effectively monetizing it before other competitors enter the market. In addition, it requires a level of intestinal fortitude known to drive people to their very limits.
Another glamorized path to wealth involves investing. With the advent of online trading and access to an ever-growing array of financial tools, investments and "expert" advice, millions of our fellow citizens now consider themselves future kings of Wall Street. But again, very few actually have the once-in-a-generation investment prowess or long-game mentality of a Warren Buffett or Charlie Munger.
Not that there is anything wrong with entrepreneurship and investing. These are the cornerstones of our free market economy. That doesn't change the fact that relatively few Americans will actually ever achieve wealth through these methods. For those that do succeed, the rewards can be immense. For others who wish to pursue ambitious but perhaps more realistic financial goals, other methods offer a greater chance of success. Finding a career that allows for savings, and allowing savings to grow over time until a desired level of wealth is achieved, is not some worn out idea from the previous century. In fact, those who compete in their chosen fields—rather than moonlighting as investment experts or entrepreneurs—are only burdened with outsmarting others in their industry to achieve success, rather than competing in the financial markets for their piece of the American dream.
In short, work hard at what you do, and leave the rest to a registered investment adviser who must put your best interests first by law. And if your expectations are more about preserving what you've earned and achieving reasonable growth – rather than joining a rarefied billionaires club—then a focus on wealth management is probably where your head should be.
Naturally, everyone wants their savings and retirement nest eggs to grow, but to what end? Set some reasonable expectations and talk to your financial adviser about an achievable set of goals. While others strive for the statistically impossible, you'll be protecting your assets over the course of a lifetime—not just waiting for lightning to strike.
Nathan J. Gendelman is President and Director of Investments for The Family Firm, Inc., which focuses on families and individuals with complex wealth management issues.
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