The other day I had some time to kill at the bookstore. I picked up the recent copy of Smartmoney and perused it. One article caught my eye. It was a strategy guide to becoming a Pentamillionaire. I don’t subscribe to Smartmoney as I only have the budget for one personal finance magazine and as a result didn’t get a chance to finish the article which is excerpted on the website. Kiplinger’s as an FYI is the one magazine I subscribe to based to my own informal review personal finance magazines.

The article raised two solid points. The first is implied by the title. A Million dollars is not what it used to be. 5 million is the new Million. The 2nd and main point was that becoming a Pentamillionaire is not as “easy” and straightforward as becoming the “Millionaire Next Door.” It’s one thing to save money for comfortable life and a carefree retirement, it’s another to make it big. The article in Smartmoney is about making it BIG! 5 million is really at the bottom of that scale.

I like many of other people who write about personal finances preach the slow and steady approach to propserity. J.D. does not write a blog called getrichquick, it’s getrichslowly. We are disciples of the Millionaire Next Door rather than Tom Vu’s late night television ads. As assuredly as living below your means, and putting it steadily into the equity market is proven way to prosperity, it’s decidely not the only way. The fact is if you want to be REALLY rich, you have to take risk.

Most Pentamillionaires as the Smartmoney article reports are entrepreneurs, or other folk who got in early with someone entrepreneurial. Starting your own business is risky even if the market is ripe and your skills perfect. There are some who would argue that being employed these days is as risky. Lifetime employment is a thing of the past. I agree to a degree, but the risks startup of any kind faces in terms acquiring and retaining clients is significant. Without clients no business can survive. Even if the risk for small business is overstated, psychologically for most individuals it’s a level risk that is hard to surmount. Setting off on your own is difficult course to embark on. According to one study, a startup that has employees has a 9% chance of surviving ten years. Those are slim odds.

I imagine those 9% who do survive often find success to be quite profitable. The question for most people who want to start a business is do they believe they will be in that lucky 9%. Obviously if you don’t believe that then it wouldn’t make sense to try to start business. Of course that 81% that fail obviously didn’t think they would fail but they did. So what does it take? One problem with the Smartmoney article is that it doesn’t really study people who failed. It says successful people have a “swell attitude”, “friendly”, and “eager for new experiences.” While I personally believe these are actual ingredients for business success, I wonder do people who fail in their business ventures also have these attitudes? It’s a question not asked by the article as it’s skewed to profiling success rather than failure.

So let me pose this question. If you knew for certain that you could work slow and steady to an accumulated wealth of $3 million in 20 years, or you could take some chances and either have a 10% probability of having 20 million, and 90% chance only having 1.1 million in 20 years, what course would you chart?  From a risk neutral perspecive,  the expected value is the same $3 million.

{democracy:6}