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Money: So, you are rich enough to make the Forbes 400; what do you have to do to stay there?

21 Feb 2019

The Forbes 400 is a list of the wealthiest Americans which is published every year and I am sure it brings a mix of prestige and annoyance to those who find themselves on it.

The latest list has a cut-off wealth of US$2.1 billion.

I should point out that they wouldn’t necessarily be the kind of people I would look up to. There are plenty of rouges on that list, I would guess.

My favorite writer, Jason Zweig, worked out what individuals had to do to stay on the list[1] and it wasn’t earth-shattering.

According to Jason,

“Over the 20 years from 1982 to 2002 only 16% of the individuals and families on the Forbes 400 list remained on the list. To stay on the list, they only had to earn 4.5% per annum average return. Bank term deposits earned more than that and the S&P 500, the market index of the top 500 listed companies in America, earned 13% per annum over that period.”

Hard to get on to the list; hard to stay on the list. How could that be?

Your guess is as good as mine, but I suspect it had something to do with risk and the risk-taking mindset that got those individuals onto the list in the first place.

In my experience, the behaviour that you need to create wealth is not the same as the behaviour you need to keep wealth.

At some stage in the building of wealth one should reflect and think, “Is this enough? Maybe it is time to protect my wealth rather than keep doubling up.”

You get rich by taking risk. You keep wealth by reducing risk.

And I’d take the S&P 500 to store my wealth any day over bank term deposits as there is a prowling thief out there, lurking in the shadows, looking for ways to eat into my bank term deposits.

What’s that, do you think?

Inflation. You’ll never beat the S&P 500 for storing and maintaining wealth in the face of inflation.

Keep asking great questions …

                 

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[1] Jason made these comments in a revised edition of Ben Graham’s book, The Intelligent Investor.