Sum Total Life Profits

Let’s say you’re an eccentric millionaire in 1984. The most exceedingly average person you’ve ever met approaches you with the following offer:

“I’m auctioning off my working life. To wit, for the next 33 years I’m going to save half my income in a bank account; taxes and living expenses will consume the other half. At the end of 33 years I will transfer all the money in that bank account to you; half of all the wages I’ll earn over the next 33 years. In exchange, I want a certain amount of money now. I’m soliciting bids from various millionaires and the winning bid will get the bank account with half my wages over the next 33 years.”

How much would you bid?

More data. Based on median household income from 1984 to 2017, this exceedingly average person will earn a total of ~$1.38 million and the bank account will have $693,560 in it.

How much would you bid now?

Was it more than $27,687? Because if you stuck $27,687 in the NASDAQ in 1984 that’s what it would be worth: $693,560. In other words, you could essentially own a middle class American in 1984 and work him for subsistence wages for 30+ years or you could just invest <$30,000 in the stock market. Exact same return, exact same profit. But this isn’t a totally fair comparison, we’re just sticking all those wages in a savings account. What if we took those wages every year and invested them in the NASDAQ?

How much would you bid now?

About $71,000.

Stagnant wages and high returns to capital. And the trendline is going down. Save more, invest more.

PS. All data from FRED, look for NASDAQ returns and Median Household Income

PPS, Median Household Income is in current dollars

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