The Art of Staying Rich

 

The Art of Staying Rich

 

People say earning money is difficult, but I argue that keeping that earned money is even more challenging. In the 21st century, the number of billionaires is increasing year by year, with new billionaires entering the 1% club even as current billionaires maintain their status. The main question is: how do the rich stay rich? They don’t sell companies every day. The rich must pay higher taxes, and their cost of living is exorbitant, yet they continue to hold onto their wealth and remain in the 1% club. While I can’t answer how they earn their fortunes, I will explore how they manage to stay wealthy.

The Two Major Challenges for the Rich: Non-Liquid Assets and Taxes

According to me, the rich face two major problems: non-liquid assets and taxes. People generally prefer their assets to be liquid, meaning easily convertible into cash. However, liquid assets come with the problem of taxes. It’s a never-ending story—no one gets anything without sacrifice.

To solve this problem, the wealthy tend to acquire assets that are almost liquid, such as art, exotic items, and stocks.

The Art of Buying Art

In the past, people bought art primarily for its artistic value. Today, they buy it for its appreciable value and its relative liquidity. An untouched art piece often appreciates over time, so art collectors go crazy when these paintings go up for auction. But the real action is in the art sold and bought in the shadow market—transactions that are invisible to the government and therefore not subject to taxes. The barter system is a good example of this, although art prices in these markets can skyrocket over time.

In 2013, the New York Times published an article about the seizure of an $8 million painting by Jean-Michel Basquiat. This painting, known as “Hannibal,” after a word scribbled on its surface, was brought into the United States in 2007 as part of a Brazilian embezzler’s elaborate effort to launder money. The painting’s seizure was a significant victory in the economy-rattling, billion-dollar fraud and money laundering case involving Edemar Cid Ferreira, a former Brazilian banker who converted some of his ill-gotten gains into a 12,000-piece art collection. This is one of the few cases that came to light, illustrating how art can be used in the shadow economy.

Exotic items like watches, cars, shoes, and bikes operate in a similar way. Footwear, in particular, is now well-known for its appreciating value. Companies like Nike and Adidas release their premium shoes in limited quantities, and those who manage to get their hands on these shoes at MRP often sell them at much higher prices in auctions or to resellers.

The Art of Buying Stocks

One of the most famous financial books, Rich Dad Poor Dad, quotes, “Money should work even in our absence.” Stocks epitomize this idea. The value of stocks is directly proportional to a company’s performance and value. Therefore, individuals who own stocks don’t have to do much to increase their value. Stocks can appreciate over time without any direct involvement from the owner, making them a key asset for the rich to maintain and grow their wealth. It’s worth noting that while taxes apply when stocks are sold, there are no taxes on simply holding them, which further incentivizes long-term ownership.

However, there’s another side to the story. While retail investors buy stocks that are available in the open market, company owners and founders—who often own more than 50% of their company’s stock—earn money by selling their shares through Initial Public Offerings (IPOs) or directly in the open market.

You might wonder, if a person sells their shares, do they lose their ownership and control over the company? The answer is, it depends on the scale and circumstances. Let’s take a hypothetical example: if a company owner holds 80% of the company’s stock, which equals 8,000 shares out of a total company valuation of 10,000 units, the owner’s shares are worth 8,000 units.

Now, if the owner decides to sell some of their shares to raise, say, 5,000 units, they would have to sell 5,000 shares if each share is valued at 1 unit. Doing so would reduce their ownership stake and potentially their control over the company. The challenge lies in balancing the need for liquidity with maintaining control. Many company owners manage this by se

Conclusion

Staying rich is an art that involves careful management of assets and smart investment strategies. Whether through the strategic acquisition of art, exotic items, or stocks, the wealthy have mastered the balance between liquidity and tax efficiency, ensuring that their wealth continues to grow. The rich may face challenges, but through these methods, they’ve found ways to navigate the complexities of maintaining their fortune.