I often write on Quora.com, where I am the most viewed writer on financial matters, with over 545.6 million views in recent years.
In the answers below I focused on the following topics and issues:
- Is the total amount of money in the world finite? If so, how are people becoming richer?
- The more money you have, the easier it is to make. True or false?
- Why are rich people more frugal than poor ones? Is that statement even true?
- Why is Switzerland so wealthy?
- Can the rich emigrate to different countries that have lower taxes?
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Is the total amount of money in the world finite? If so, how are people becoming richer?
Real, inflation-adjusted GDP, didn’t increased much for hundreds of years.
Then the industrial revolution happened and the rest is history:
So, no, the money in the world isn’t finite.
GDP has been going up for hundreds of years. All that happens is that there is “musical chairs”. Sometimes there is crisis in one region or country, and another region is booming .
The 1990s is a great example. The US and the UK were booming, as were the likes of China, yet in the same decade there was the East Asian Financial Crisis and the Latin American debt crisis.
As per the recent GDP growth, most years the world grows by at least 2%
The average middle-income person these days can live a better life than the richest people could hundreds of years ago and I don’t see it stopping anytime soon now certain countries in Africa, ASEAN and India are growing quickly.
The biggest threat to it is global depopulation.
For the first time in human history we will likely see a declining population this century from something which isn’t starvation-related.
That will probably be the biggest economic challenge after 2050.
The more money you have, the easier it is to make. True or false?
There are two ways to look at this.
With smaller amounts of money, getting a higher ROI is easier.
Let’s say you have $10,000. To double your money in a year, you only need to make $10,000.
There are some deals like that in private markets, albeit with risks. In comparison, if a firm or individual has $100m, getting 15% return is a 15m increase.
You see this with publicly traded stocks as well. Berkshire Hathaway used to easily beat the S&P500.
The advantage has now came to an end for a decent period of time, as per the graph from Seeking Alpha:
So, getting a high ROI does become more difficult. That is one reason why many wealthier investors eventually diversify away from their core business and go for “Dragons Den/Shark Tank style” private investments and the stock markets.
Beating the stock markets in business is far easier when you have a small business compared to a large one.
The media say “the rich are getting rich and wealthier”, but the S&P500 has beaten the increase in billionaire wealth since the 1980s.
Or put simply, your wealth would have increased (in percentage terms) more than the average billionaires if you would have invested in the stock markets in the 1980s.
Having said that, the more money and wealth and experience you have:
- The more opportunities come your way. Interviews, consulting offers etc
- Even with a lower ROI, your returns will compound if you have millions or billions. For example, the person who gets 10% in a given year from investing in the S&P500, with a starting balance of $100,000, has seen their wealth increase by $10,000. The person who has 10billion and gets 5%, has seen their wealth increase by 500m. This is why the media can be misleading when they say “99% of the wealth created in the last few years has gone to the top 1%”. It is basic maths. Starting with a higher starting balance is more beneficial, even if the ROI is lower
- The longer you are in business, the more repeat business and referrals you get
- It is easier to leverage and use other people’s money to make more money. The banks and individuals will trust you more
Saying that, it is normal that wealthy people lose money due to complacency and other issues.
If keeping wealth was so easy, there wouldn’t be the need for advisors, lawyers, trusts etc.
Why are rich people more frugal than poor ones?
Let me give you an analogy:
The juicer:
The waterfall:
Let’s deal with the first one.
Premier League football clubs have got ‘richer’ in terms of revenue, but not profits.
The reason is simple. More money comes in, but more goes out in terms of player wages and transfer fees (including money paid to agents).
Many of the players are the same. It is estimated that 70% of former professional athletes go broke within 5–10 years of retirement.
So, they got ‘rich’, but it wasn’t sustainable. They didn’t stay wealthy.
This is because as more money comes in, an equally high amount often goes out.
Fresh money has to be earned to ensure the system works. If income ever stops, they become broke.
In comparison, many self-made businesspeople get wealthy by following a simple formula:
- Be very frugal to begin with. Every penny saved can be put into the business
- Then once the dividends you take from the business are consistently good, or you sell out, you have enough money to ensure a steady stream of income from those assets. At this point you don’t need to be frugal because there are always fresh ‘streams’ of income coming in.
So, the majority of self-made wealthier people are at least very frugal for a period of time.
It isn’t unusual to find a 27-year-old founder living like a student.
In comparison, if you have a job, the incentives to be frugal might be lower.
What is true is that studies show that wealthier people are more likely to spend on education, travel, health and experiences.
In comparison, some consumer luxury goods are more likely to be owned by people who aren’t earning much.
You even see it with cars. In the UK and some other countries, it is common to see people using credit to buy fancy cars on average incomes.
Even Rolex watches are more likely to be owned by middle earners than high earners in many countries.
Why is Switzerland so wealthy?
This is Kim Jong Un in Switzerland.
Why was Switzerland chosen to educate the future leader? It is politically neutral.
Therefore, people could invest into Swiss gestione patrimoniale firms and banks from all around the world.
So Swiss firms had clients from the Soviet Union during the Cold War. They also had American and European clients.
By “playing both sides”, without annoying anybody, they could take money from each block.
We are seeing similar things now. Where is the growth these days?
ASEAN in South East Asia:
India:
Dubai and other parts of the UAE, alongside the wealthier parts of the Middle East such as Qatar:
That isn’t to mention some African economies as well.
What do they all have in common? They might not be completely neutral, but they are open to money from around the world.
Wealthy Russians are moving to Dubai. They aren’t so welcome in London or Berlin even if they have no political connections, and especially if they are seeking a new visa.
Many Chinese firms are still investing in Vietnam even though it is obvious that they are closer to the Americans than to China.
So, going back to Switzerland, the neutrality element is one of the keys. It helped increase some of the positives other writers mentioned below, such as political stability.
Can the rich emigrate to different countries that have lower taxes?
It is an interesting question considering the present political moves which have seen governments as far and wide as Mexico, Brazil, Columbia, Peru and Western countries suggest more taxes on “the rich”.
To answer your question, it isn’t just possible, it has been happening for decades.
What is more, it isn’t just high-income and wealthy people who do it.
Have you ever been to Saudi Arabia, Monaco, the UAE and many other low-tax countries?
What do you notice?
The teachers at the international schools are mostly non-natives.
The taxi and uber drivers are from overseas.
The middle managers and senior executives hanging out at the airport business class lounge or trendy bars are often from all around the world.
The nurses and doctors that are treating you is from a foreign country. It isn’t just nurses from poorer countries either. There are many British nurses who go for a few years, to take advantage of higher salaries and zero direct taxes.
And yes, many of the higher-end business owners also come from all around the world.
What changes is who moves.
In the early-mid 2000s, plenty of Venezuelans moved.
After France’s 75% higher rate tax was announced, plenty of French people moved to lower tax countries, before it was abolished.
In more recent times, the streets of a place like Dubai are full of middle-income and wealthy Russians, Iranians and other places where there is either political instability or radical tax proposals.
I wouldn’t therefore be surprised to see more people emigrating from numerous high-tax Western countries, and also Latin America due to policies like this.
This is barely a few years after Argentina did something similar.
Having said that, moving overseas isn’t always as simple as buying a ticket.
You need to work out:
– How to structure your business
– How to structure your personal finances
– Schools, hospitals etc
Moving overseas for tax alone isn’t as effective as what I would call a “Tax plus” approach.
If you can move to a low-tax, but super-efficient place with great services, you will likely be happier than moving to a random low-tax country.
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Adam è un autore riconosciuto a livello internazionale in materia finanziaria con oltre 830 milioni di visualizzazioni di risposte su Quora, un libro molto venduto su Amazon e un contributo su Forbes.
