25 October 2020

Stealth Wealth – Why America’s Rich Hide Their Money

In our discussion of how much money it takes to rank among the top 1% of wealth in the United States, we uncovered the fact that roughly 80 out of every 100 members of the “new elite” in the United States – those with at least $5 million to $10 million in liquid net worth and / or generating $380,000+ in annual income ($31,700+ per month) from dividends, interest, and rents – practice what is known as stealth wealth.

Unlike our ancestors from the 19th century who insisted upon building elaborate country houses, roughly 80 out of every 100 ‘new elite’, those in the top 1% of income, practice what is known as stealth wealth.  That means friends, family, children, parents, coworkers, and neighbors have no idea the person ranks among the richest members of society.  There are far more super rich driving around in a Lexus and Mercedes than there are in a Maybach or Bentley.  Only the poor and middle class think otherwise.

What is stealth wealth?  It means that 80 out of every 100 members of the new elite, the top 1%, keep the money a secret.  The children don’t know.  The parents don’t know.  The friends don’t know.  The coworkers don’t know.  The extended family doesn’t know.  Most prefer to live in nice, ordinary houses and drive nice, ordinary cars.  For some, this looks like a small bungalow with a Ford in the driveway.  For others, it appears as a nice 5,000+ square foot house in the suburbs with a Mercedes or two in the driveway.  The common denominator is all are capable of living out “champagne wishes and caviar dreams” if desired.  The thing is, most don’t.  To do so would attract attention.

Even If People Know You Are Rich, You Should Still Practice a Form of Semi- Stealth Wealth

Growing up, one of my favorite quotes came from legendary oil tycoon John D. Rockefeller.  Sometimes, a foolish man or woman would assume they knew how his money was generated and where his fortune was invested.  In a matter-of-fact way, he was fond of saying:

“I have ways of making money that you know nothing of.”

I loved that.  The first time I heard it as a child, my thought was, “King Hezekiah could have learned a thing or two from Rockefeller.”  For those of you who aren’t familiar with Jewish or Christian religious texts, the Book of Isaiah (39:4) describes a historical account of King Hezekiah.  The prophet Isaiah asked the King what he had shown an emissary from the Babylonian empire, to which the Monarch responded, “I showed them everything I own – all my royal treasuries.”  As a result, everything Hezekiah had was taken.

Unless transparency is of the utmost importance to your occupation, such as sitting on the United States Supreme Court, it is advisable to keep a significant portion, if not a vast majority, of your holdings, income sources, and assets a secret, even from the people you love; your spouse and the IRS, the obvious exceptions.  It is very difficult for people to attempt to attack and control you if they don’t know the hidden founts of power and influence you have.

Though it gets repetitive, this is one of the reasons I only discuss a handful of things in which I am involved.  I talk about a few of the activities of our first company, the letterman jacket business, because it is a hard, difficult industry that would destroy most people if they tried to make a living in it.  It is also simple enough most people can understand it.

[mainbodyad]I mention my copyright income, which many people assume comes entirely from my decade-plus relationship with About.com, a division of The New York Times, knowing only that I’ve built an enormous website that generates a lot of page views and is very successful.  Interestingly, I’ve never said that was my only source of copyright income or even that it was a relatively large source of my copyright income.  For all they know, I could compose songs under pseudonym and license them to video game makers as soundtracks.  I could write erotic fiction under a pen name and be a bestseller on Amazon.  (I actually know someone who does that, by the way.  She’s a respectable school teacher by day and adult publisher by night, writing all sorts of supermarket romance books that appeal to middle aged single women who like to buy those books with long-haired men on the covers.  It can be a very lucrative market.)  I could have bought certain patents and trademarks, then licensed them to manufacturers.

The point is, no one knows.  That is how it should be.  I like having secret sources of income; sitting at a restaurant and knowing, when the server brings the iced tea, that you own shares in the sugar refinery that produced the sugar your friends are stirring in their beverages.  It is a nice feeling; like having an ultimate weapon in a video game that no one knows you possess.

When you begin building your net worth, some of you need to resist the urge to tell everyone about your business.  You should always endeavor to keep most of your wealth “stealth”, whether that means owning a 100+ unit apartment complex in a neighboring town through a series of Nevada or Delaware limited liability companies or secretly shoving tons of capital into tax-advantaged pension funds and buying up shares of blue chip stocks, which compounding silently for decades, throwing off tax-free dividends.  For some of you, it might mean an original art collection at a second house no one knows exists.  For others, it might mean 50,000 Troy ounces of silver bullion stored in vaults in London, New York, and Dallas.

For Most People, Stealth Wealth Is an Attractive Option with Little Downside

Stealth wealth also explains choices about cars, clothing, jewelry, and other items.  Even I have this desire to remain under the radar, to the point that I’ve discussed the ever-growing desire to disappear, shut down the sites, and stop blogging.  I like being relatively anonymous, which is a luxury I still enjoy other than the occasional run-in at a coffee shop from an astute blog reader in the Kansas City area.

[mainbodyad]For years, I’ve wanted to buy one of those old restored Mercedes or Rolls Royces from the 1920’s to 1940’s solely out of an appreciation for the beauty of the object.  Yet, I don’t want people to notice it.  I don’t want people to talk to me about it.  I don’t want to be stared at when I pull up to a traffic light.  I just think it is a beautiful work of art that should be appreciated, like a good suit or a nice painting.  The discomfort of the attention that would follow has caused me to never go through with the purchase and buy an antique car.  To put it in economic terms, the disutility of the social cost of having the item is, at the present time, greater than the utility provided by use and ownership of the item.  Perhaps that will change now that my dad is restoring old pickup trucks to start his collection, but I don’t see it happening anytime soon.

When it comes to stealth wealth, whether you realize it or not, right now, in your very community, you are surrounded by people who have amassed very large fortunes.  Just like Anne Scheiber or Grace Groener, they may look like little old ladies with no cars and tiny houses or apartments.  They might look like young online Internet guys wearing blue jeans and t-shirts.  Statistically, they most resemble 40-to-50 year old married men with children who own a non-glamorous local business that has been successful year after year, decade after decade, giving them the opportunity to build up other sources of wealth.

You, too, should behave the same way.  Don’t let everyone know all of your sources of income, your assets, or your investments.  A little (or a lot) of information asymmetry can be a good thing.

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