Consider this: An investment of just $100 in the Standard & Poor’s 500 index made back in 1970 would now be worth more than $8,000. A basic investment of $100 made with a commodity index such as the S&P GSCI Index would now be worth more than $5,000.
It’s widely known as the 80/20 rule, and the The Pareto Principle has also been called “the law of the vital few”.
It essentially states that, for a variety of events, roughly 80% of the effects come from just 20% of the causes.
Named for the Italian economist Vilfredo Pareto, his Cours d’économie Politique stated that approximately 80% of the land in Italy was owned by only 20% of the population and is often used to demonstrate conceptual frameworks related to the distribution of income and wealth among a given population.
In practice, it is used to support business maxims such as “80% of sales come from 20% of clients”.
