It’s no secret that most wealth in the United States is so-called stealth wealth. We now live in a country where roughly 1 in 5 families earns six-figures a year or more, which most people wouldn’t believe, and for those who put aside money, something like 80%+ of millionaires hide their net worth from friends and family, who are clueless as to the capital they have amassed, often living in normal houses, driving normal cars, and doing normal jobs. Interestingly, it is not just the six-figure families who end up being millionaires. There are a whole lot of cafeteria ladies and retired janitors on the list, too, none of whom ever made a big annual salary but instead lived below their means, investing the surplus.
Why am I bringing this up right now? Another secret fortune has been uncovered, this one belonging to Lewis David Zagor, who left behind an apartment filled with expensive goods and $18,000,000 in cash, stocks, mutual funds, and other securities. (I want to thank Jay Tank for tipping me off to this story.)
Lewis David Zagor amassed $18,000,000 from his apartment on Park Avenue, where he lived in a rent controlled apartment costing him a mere $1,640.85 per month.
Available under Creative Commons 2.0 Generic Attribution License Uploaded by Gridge. Created: April 29, 2006. 2006 in New York City, 29 April, April 2006 in the United States
I know several people like this in my own life, who appear economically ordinary on the outside to the point you’d never guess they’d built compounding machines for themselves. Obviously, I can’t talk about them for privacy reasons (it’s not my secret to tell) so when a textbook example shows up in the national press, it makes me happy because I can highlight it as a real world illustration of how powerful compounding really is if you get the base conditions right.
Just like Jack MacDonald, who secretly amassed $188 million, Grace Groner, who secretly amassed $7 million, science fiction writer Hayford Peirce who collects six-figures in dividends each year from a portfolio of 14 stocks, the late retired IRS agent Anne Scheiber, who amassed $22 million by the 1990’s from her New York City apartment, Agnes Plumb, who left behind $98 million despite living in a tiny Studio City, California apartment, twins Robert and Kathleen Magowan who built a $10 million fortune from their home, Curt Degerman, who built a seven-figure estate by recycling trash he found then investing the change he was paid, and countless others we have talked about over the years, Lewis David Zagor lived in a small apartment, worked as a programmer for awhile, but eventually began managing his money full-time. His widow estimates his fortune at $18 million, accumulated by his investing activities. She provided the reporter writing the story with examples of his bank statements as proof, one of which had $2 million in cash, as well as the five-figure checks that are still showing up to her late husband’s apartment. She can’t access any of it until the court sorts everything, which is itself complicated by the fact the real estate company running the building locked her out of the apartment.
[mainbodyad](That in itself is a story and relevant to our recent discussion about the economics of real estate. For decades now, it has been settled that rent control destroys the quality and quantity of housing stock in a city so that, eventually, only the rich can afford to live there. It is akin to declaring war on the poor because of the incentive system it unleashes, ultimately having the exact opposite effect it was intended to have, benefiting a select few who were first-comers. This was a man who, when alive, appears to have no debt and an $18,000,000 fortune gushing dividends upon him so he can go spend it at Saks (he spent so much money at the luxury retailers in New York, they would personally deliver the packages of his spending sprees to his homes, neatly wrapped in boxes like in the 1950’s). Yet, he was paying only $1,640.85 a month in rent for an apartment on one of the most famous streets in the world, distorting the relationship between supply and demand. And he is far from unusual. That is not much more than what Aaron and I paid for our college apartment in New Jersey ten years ago!)
The backstory seems to be that when Zagor died, the management company reportedly wanted to charge his widow market rent and she refused since they were married. She says they changed the locks so she couldn’t enter the apartment, but she isn’t concerned. She has another apartment on Fifth Avenue where she lives and provided the reporter with her own bank statements showing she has $1 million in cash sitting in her own checking account. Still, she can’t do anything until the mess is sorted out as Zagor was a hoarder of “expensive clothes, exquisite silverware and pricey paperweights”, meaning the apartment is a wreck, and even if she could get in there to organize everything, she’s unable to even cash his dividend checks as they are in his name. Zagor never bothered to draft an estate plan and has no other beneficiaries so it seems like a fairly straight-forward case but it’s still a paperwork nightmare to try and get a handle on something like that.
The saddest lesson from the story is that the widow thinks he died because he was cheap. He was getting free medical care for heart and kidney failure (he was 300 lbs.) and wouldn’t pay for better medical treatment despite her entreaties. It’s such a waste. In order to get a little more utility from his funds, he wiped himself out so now he gets zero utility from them.
I would love to get my hands on his account statements to analyze his holdings. You can tell a lot about a person by how they manage their money. I can’t recall who said it but either Galbraith or Keynes once mentioned if you look at the transaction register for a man’s investment holdings, a portrait of who he is begins to emerge over a long enough period of time. His temperament and values show themselves. How often does he trade? What types of companies does he prefer? Where does he want to sit in the capitalization structure? How diversified does he like to be? How does he handle tax strategy? It starts to shine through the pages of the ledger.
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Reader Comments (25)
Comments are presented chronologically, with replies indented beneath the comments to which they respond.
Mr.owenr
September 13, 2014
What I got out of this post is that wealth at the end of one's lifetime is not useless wealth. This is because it could have been used to make an "economic engine" during that lifetime. I also react very strongly against calling this Zagor fellow a stealth wealth candidate. He can afford $1600+ a month rent, he wears suits, he can go on shopping binges at expensive places, he keeps his apartment full of nice things, and he travels the world. That sounds like elite wealthy to me.
Jason
September 13, 2014
Replying to Mr.owenr
wearing suits, buying nice things, and traveling the world.....Sounds like middle class retirement to me......Which most people will reach by age 40 if they follow the financial advice found here.
Joshua Kennon
September 14, 2014
Replying to Mr.owenr
Hey, Mr.owenr. I've seen you on the site and haven't had a chance to really welcome you, yet (I'm horrible about answering comments in order - I still see comments left 3 or 4 years ago that I missed and feel guilty about neglecting them).
Given your other posting history, and how you are just now starting out on your journey to financial independence, I wanted to, 1.) say it's nice to meet you, and 2.) offer you a cheat code to get started. If this were the 1980's, consider it my way of passing along the Konami Code. Up. Up. Down. Down. Left. Right. Left. Right. B. A. Or, if you prefer, my way of saying, good luck, I believe in you, and, "It's Dangerous to Go Alone! Take this."
So here goes.
It looks like you are in Indiana. Since you qualify as low income under the current guidelines, you can take advantage of something to help you build capital that is not available to most Americans. If you listen to what I am about to tell you, and follow through with it, it could shave years off your journey and help get your footing underneath you much faster, with far less work.
Buried in the regulations for the US Department of Health and Human Services is a special program that was written into law back in the late 1990's calling for the creation of something called IDAs. It stands for Individual Development Account(s). Basically, you can establish an IDA, set a savings goal, and the Federal and State Government will match your savings at a rate of a minimum of 3-to-1 for every dollar you put in up to a certain limit. It's literally free money for you, with practically no risk, simply for taking advantage of the program and signing up through a state program administrator. The goal was to create a benefits program that rewarded those who were hard workers and wanted to get ahead instead of living off the government. All you have to do is prove that's you by saving money in the IDA and setting a goal such as buying a new home, putting yourself through school, or starting a business.
The program is briefly touched upon for Indiana here, but you can download the directory of Indiana IDA Program administrators in PDF format here. Every state is different and most administrators offers different terms.
For example, if you opt for the home ownership IDA account, it looks like there is an administrator near you called TRI-CAP. Their program (again, all of them are different so you need to shop around for the one that fits your goals and offers the best terms) requires you to attend 8-12 hours of extensive, free financial education classes covering everything from how credit cards work to consumer rights. In exchange, they will match your IDA savings account to buy a house 3-1 so long as you put in a minimum of $300 a year. That means if you put in $300, they will deposit $900 in matching Federal and state money.
Peruse that list and research each organization to find which one offers the IDA that fits with what it is you want to accomplish. Given the household income you mentioned in one of your other posts, it looks like you should qualify for virtually any of the programs so you'll have some shopping around to do. For example, some programs will say, "We'll match you 4-1 if you save $1,875 within 24 months". That's literally a 400% return on your money, without any risk, for saving and proving you can run your budget with discipline.
Make sure you can meet whatever standards they set, savings goals they require, and time frame they want. Choose wisely and it would be like having 3 or 4 other people saving on your behalf. It sounds too good to be true but it's not. Few things in life are this amazing and practically nobody knows about it. To tie it to another one of the posts you mentioned, this is a case where a little bit of knowledge capital can be transferred into thousands of dollars of free financial capital with barely any effort.
I wish you all the best. Don't get discouraged. Don't despise the day of small beginnings. And, if I may make a suggestion: Don't tell anyone in your life that you are doing this. Keep your mouth shut and make it a secret program that only you know about, constantly watching your capital grow. Go about your business like nothing has changed, knowing that each day you are getting closer to the life you want. Attract no attention to yourself. This may seem odd, but I know of too many people who have tried to escape poverty only to be mocked by those around them, which is discouragement you don't need, or suddenly be treated like a piggy bank by friends and family when they find out there is a bit of capital put aside, whether it's being bailed out of jail or paying for groceries. I don't want to see that happen to you. That money is yours, and yours alone. You can help later, when you are financially independent. Protect that capital, treat it with respect, and it can grow like a tree that produces fruit for you for the rest of your life. You're in the (money) farming business now and it's time you start putting aside the seeds that will ultimately be the foundation of your orchards, fields, and vineyards.
Kai
September 14, 2014
Replying to Joshua Kennon
Joshua I don't know if you are up to it but I would like you to use me as a case study. I share some parts of my journey towards financial independence and literacy with many people I know, and you are a huge inspiration for that with posts like this one. I've learned so much from you since i started frequenting your blog in 08', and wish to pass on that gift to others in my life and work. I've probably been responsible for 50 or more people checking out your site and reading your posts. Many of whom make excuses about why they can't save or invest like your "40k head of household capital allocation post". I think that it's mostly because many use confirmation bias as their mental model "weapon of choice". It's sad but I too find myself wondering why many people never understand the concept of "buying dollars for 50 cents". I live in the north east and so I also get so many excuses about how expensive it is here in NJ, and I think that if I use myself as a case study that people will start to believe more. You remind me so much of myself that, like others on this site, I value your opinion on topics outside of finance and investing. I know your very busy but hopefully you can help me use myself as a tool to help others achieve financial goals.
Allen Jarboe
September 14, 2014
Replying to Joshua Kennon
Joshua, Your comments are many times just as interesting as the articles! I had no idea this program existed, and it sounds like a wonderful opportunity.
Jeb
September 14, 2014
Replying to Allen Jarboe
I immediately looked it up too. Unfortunately, the state of Wisconsin doesn't encourage savers. With the Progressive & Socialism backgrounds plus the birthplace of Republican party, that is a crime. The IDA is limited to just Milwaukee county and just those who qualify for the HUD requirements, which means they already can get assistance and now even more if they can save some money. I'm low income but not poverty level.
Joshua Kennon
September 14, 2014
Replying to Jeb
That's really surprising about Wisconsin, Jeb. Not just the dearth of sponsors they have but the terms, too (some IDA programs are geared to things like "200% of the poverty level", which means you can be a married couple with two kids and still qualify at something like $46,000 in income).
You could always set one up in your home state. You need a non-profit sponsor through which the program is offered then check out the official resource center, which explains how to design a program, how to get private donors to match government funds for even bigger payouts, etc. They even have webinars explaining model programs; e.g., setting up an IDA provider for small business capital formation.
If you wanted to make this a reality in your state, the contact person for Federal grants for the Wisconsin (some people do it through state legislature changes, so you could theoretically contact your local representative and get the local law changed without the Federal Government at all so if this doesn't work, don't be discouraged), is Monique Weatherspoon. Her phone number is 1-866-778-6037 and she is the OGm Grants management Specialist at the Office of Community Services, 370 L'Enfant Promenade, S.W., 5th Floor, Washington, DC 20447 as per the current directory.
Nearly every one of these programs was started by someone, somewhere saying, "We need to have that in our local community", then researching how to set it up. You could be that person.
Jeb
September 15, 2014
Replying to Joshua Kennon
I found two others in Milwaukee targeting women businesses and two in Racine for homes, which a nephew might qualify for. Your advice has got me thinking of some programs to research/propose even if they don't benefit me directly. The government helping those who want to improve/help themselves will build stronger communities too.
Joshua Kennon
September 14, 2014
Replying to Allen Jarboe
They definitely are. Sometimes, they even cross into the "am I seeing this correctly?" territory because the terms are so amazing. The Kansas City area has one provider, the United Way, that offered a "Decade of Difference" challenge to help pay for trade school, college, or university classes. If you qualify, and save $500 in an IDA, they will match it a staggering 8-for-1. It's $4,000 in free cash for those who meet the guidelines; free cash to pay your way through school simply by proving you are willing to work hard and live beneath your means. That's probably one of the best I've ever seen. As of 2012, they had given away $100,000 in matching funds to young savers under this program but it's next to impossible to find any information about it on their website. (I'm not sure if it is going on in the current fiscal year but there's always something, somewhere.)
There are so many life-changing opportunities buried in the small print it can sometimes be surprising, especially for those in the bottom 20% of society. I don't talk about these things often despite coming across new ones all the time because of how rich the audience is (I've said it before but the demographics of the regular readers of this blog would make a television network executive envious); so few people reading can take advantage it doesn't really seem to be worth the time to explain the complexity of the rules even though they make me irrationally excited.
What makes it worse is that some of these things aren't even that deeply hidden. Let's say I were a minimum wage worker at Home Depot with no assets and just starting out in life. Besides the IDAs we've already discussed, I could take advantage of an ESPP. I'd wager most people in the bottom 20% don't even know what an ESPP is or could tell you what the acronym stands for but by signing up for the Home Depot ESPP with HR, I can have between 1% and 20% of my paycheck withheld to buy shares of Home Depot, becoming a dividend-collecting owner, but I get a 15% discount on the current market price of the stock! That's a fantastic return and huge margin of safety built into the purchase from the very first moment my name gets printed on the stock certificates. That means my dividend yield is also much higher than other investors who bought Home Depot shares on the same day. If Home Depot shares are $100, I pay $85. It amplifies the power of reinvested dividends and dollar cost averaging in a tremendous way when you start getting out 10, 20+ years.
Ilona Babenko and Rik Sen concluded in their study that 70% of employees at large U.S. firms failed to take advantage of this risk-free profit, forfeiting an average of $4,627 each year! (You can read the 2012 updated study in PDF here.) Most of them just have no idea.
Then, if I sign up for the FutureBuilder 401(k) plan, the company will match my savings, tax-free, 150% on the first 1% of pay and 50% on the next 2% to 5% of pay. Even if I parked the money in cash equivalents, that's one heck of a return. Just as beneficial, unless I opt for the Roth version of the 401(k), the withheld amount is going to be taken off my AGI, making me look even more in poverty, qualifying me for even more tax benefits and transfer payments, such as SNAP.
Between things like this, highly advantageous mortgage terms on owner-occupied multi-unit housing under certain FHA programs (if one wanted to become a real estate investor despite having almost no down payment, like some other readers were discussing in a recent post thread), etc., it would be fairly easy for most people to turn a $15,000 to $20,000 gross income into a synthetic $40,000 income lifestyle while building real equity that could someday propel you to the upper middle class, at the very least. (I'd go so far as to wager that I could easily replicate a $60,000 income on $15,000 in annual wages.)
Those who need it, though, aren't taught it, and those of us who know it by virtue of being in love with finance inevitably end up rich, so you have this disconnect where the information sits out there, neglected, with few families taking advantage of most of it. It's kind of tragic, really.
Adam
September 15, 2014
Replying to Joshua Kennon
Joshua, I'd venture I probably speak for others in this group/demographic: Even though I'm in the "inevitably-going-to-be-rich" category I have friends / siblings who would benefit from your knowledge of the details of these programs. Even if they don't read your blog (don't ask me how many links to your posts I've sent them) if we can disseminate your knowledge to others you'll have magnified your contributions to society n-fold. Thanks!
Allen Jarboe
September 15, 2014
Replying to Adam
Exactly. And I enjoy learning new things just for the sake of learning. You never know when it might come up as being useful.
David
September 15, 2014
Replying to Joshua Kennon
Joshua,
I really love this. I'll add my *bump* to the previous requests that you DO publish these gems available to the lower socioeconomic tiers. Since I am in college, I can totally go follow up on the info. Thanks for the time you put into the site, you help so many of us.
David
September 15, 2014
Replying to Joshua Kennon
Joshua, do you have any insight on Kasasa checking accounts? I've done some browsing and the drawbacks appear to stem from lack of organization, e.g. not making the 12 debit transaction/month threshold. But it shouldn't be too hard to navigate around them.
innerscorecard
September 15, 2014
Replying to Joshua Kennon
You should find some way of getting this message out to the masses (well, other than this blog and About.com). Unfortunately, it's mostly discouraging poison out there that vilifies corporations and sells doom. One of the best steps I took to get out of my funk was stop reading the New York Times every day.
Joshua Kennon
September 15, 2014
Replying to innerscorecard
I've often wondered about the best way to do that.
A suggested replacement for your news needs when the dark side of humanity becomes a bit much: Uplifting News.
Personally, I loved the story about the kid who face-planted himself on the White House couch, bored, as his parents talked to the President.
innerscorecard
September 16, 2014
Replying to Joshua Kennon
Ha, I see now that my edit is pending approval. I think I added a "to" or made some other minor modification because my grammatically incorrect post was making me throw up inside (very good idea to prevent stealth-edits of posts you replied to by the way - unsavory people could make you look very bad that way).
So I'm really not being sarcastic or exaggerating when I really think that doing something really big along these lines is at least one of your callings in life (this blog and About.com are already big, of course - but I mean even bigger). You truly do have a gift for instilling excitement and willpower through words. It helped change my life, at least. And as you pointed out in your posts on IDAs, there's so many people out there that need the information on how to help themselves.
Well, that's if you're interested in such things, and I think you still are.
Anyways, just a thought that I felt compelled to say! I'm sure you've already planned out years and probably even decades of some grand strategic plan for affecting the most good in the world (while enjoying it and playing lots of video games) that probably dwarfs the above. :p
Connelly Barnes
September 22, 2014
Replying to Joshua Kennon
These IDA programs are amazing. I just learned Virginia does 2:1 matching up to $4,000 per person, for qualified low income participants. Thanks for telling us about those!
Mr.owenr
September 16, 2014
Replying to Joshua Kennon
I don't think I can express in words how excited learning about this IDA program has made me. Thank you Joshua. I'm going to sign up for the IDA and the ASPP ASAP. I'm so excited its almost like the first time kissing a girl. I sure am glad that I have some money saved because now I can pursue this opportunity rather fearlessly.
Cody A. Ray
September 22, 2015
Replying to Joshua Kennon
I know how much this "cheat code" would mean to a lot of people. Although I stopped qualifying as low income several years ago, I was raised by a very low-income family so I know how valuable info like this is and how much it means. Thank you so much, Joshua.
Rob S.
September 15, 2014
Replying to Mr.owenr
$1600 a month rent for a 2 bedroom on Park Ave is not expensive in NYC. Not even close. That apartment should be going for $5,000+ easy.
30 Something Dude
September 14, 2014
I love these feel good stories of ordinary folk making a fortune. No matter how many get rich quick schemes I read about, I'm always drawn back to the simple method of diligently saving and investing in the stock market - for me via index funds.
Nirav Desai
September 16, 2014
Seems that his subsidized rent was partially responsible for wealth. He should've included the property owner in his will!
Bubb
May 2, 2015
I generally find such stories inspirational but loking into these a bit more is a little depressing (I've looked into the first three people mentioned so far). Here's what I found:
Jack MacDonald : inheritated what appear to be a significant amount of money from a successful family business. Also never had birth children. Was married quite late in life.
Grace Groner : she put all her money in Abbott stock. She worked there. Most people would consider this a really dumb / overly risky strategy. She was simply lucky because Abbott was a great investment.
Hayford Peirce : inherited a significant sum when he was four years old! It was managed by a trust company until he decided to manage it on his own later in life.
So far, what I've learned is that these people were either lucky or inherited money. So using these folks as a template for wealth building isn't all that realistic. I've also noticed that investing websites love to tout such stories...it makes people interested in investing and reading about stocks.
Joshua Kennon
May 2, 2015
Replying to Bubb
I wouldn't be discouraged. Look at the late Dr. Stanley at the University of Georgia / Tennessee's research on wealth accumulation. Practically all self-made millionaires - a super, super majority of them - were married with multiple children, made their money in their 50's, were college educated, and came from middle class or lower backgrounds with no meaningful inheritance. The myth of needing to stay single and childless to make money isn't based in fact. It hurts, rather than helps, you because you lose all sorts of economies of scale, social capital, networking capabilities, etc. that result in greater wealth accumulation. The common thread is they collect cash generating assets. Some prefer real estate, some buy stocks, some build private businesses. It's all about living below their means and getting their hands on stuff that pumps out more money each month.
Beyond that, take valuable lessons from each person where you can get them, even if not all conditions are relevant to your personal opportunity cost. While Grace Groner did well with Abbott, which can't be emulated, her ability to know what made her happy, spend her money on travel and charity, and live well below her means to fund additional purchases is certainly a useful technique for accumulating capital. Her willingness to also invest in something she understood, and she saw make money, was also worthy of emulation. She would have still ended up a self-made millionaire had she put all of that money in an S&P 500 index fund (which didn't even exist throughout most of her lifetime, for heaven's sake - it wasn't invented until the 1970's!) and diversification wasn't exactly possible for her given commission rates ran $400 or $500+ back in those days prior to deregulation. The relative risk of losing it all in the shares of a business she saw prospering was much smaller than the explicit frictional costs she would have incurred had she attempted to construct her own holdings until all but the final decades of her life. You're using modern day opportunity cost sets and projecting them on a time and place when they were simply not on the table.
Nevertheless, you could just as easily have looked at retired IRS agent Anne Scheiber, who ended up entirely self-made, using her financial statement analysis skill from her job to amass a net worth in the tens of millions of dollars by building a diversified basket of stocks. Or Walter Schloss. Or any countless others. They're everywhere. The inheritors are a minority.
In fact, as of recent years, inheritance is at the lowest level of relative importance it has ever been in the history of this country by every measurable standard possible. Even the Forbes 400 list did an analysis this year that among the super rich, the rankings of inherited wealth had reached an all time low as the dynamic economic has shoved old money off the list.
It won't be for another 20 or 30 years, I imagine, before the stories start coming out of secret Vanguard millionaires; people who pumped everything into low-cost index funds and did exactly what Grace or Anne did. John Bogle has talked about, in his books, how some of these clients exist, many of which also buy individual shares of stock, hold them for decades, and accumulate many, many, many times what the typical retiree does.
Dheeraj
April 30, 2017
"You truly do have a gift for instilling excitement and willpower through words."
Josh, listen carefully. People I meet; well to do people; always, always, compliment me, on my articulation. You, alone are responsible for this. this is insane considering that I received my formal education in language other than English and people are shocked and blank faced for a few seconds at revelation of this fact. These words fail me today to express this gratitude. Well done. You make me want to read, think and design my life. thank you for putting all of these posts in public view. If heaven exists, then the gates will open for you for sure. You have no idea(actually you do:) ) how good it feel to know that somebody out there has done, what you are trying to pull off, while keeping family a priority. Long live Kennon-Green !!