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.
Reader Comments (20)
Comments are presented chronologically, with replies indented beneath the comments to which they respond.
Gilvus
January 15, 2012
This was the other thing I wanted to mention when I asked you about materialism earlier last month: envy and contempt. I know someone who had his brand-new Mazda vandalized the day after he got it - and it's not even a high-end car!
Joshua Kennon
February 1, 2012
Replying to Gilvus
I just don't understand that behavior. I have several essays on envy on the back-end in que and it's so stupid to me. No matter how hard I try, I cannot put myself in a position to understand how a person can destroy someone else's property out of envy. If my friend got something I wanted, my reaction is to be happy for them. Happiness is not a zero-sum game. My joy does not come at the cost of someone else's pain.
Maybe it has to do with sources of joy. I don't look to stuff to make me happy. Life is about relationships, doing what you love, and having control over your time. That means, to me, a Mazda is just a Mazda. But if you've bought into the consumerism lie that more stuff equals more happiness, your coworker getting a Mazda when you can't afford one would be a huge ego blow.
I don't know. It's one of the few topics that disgusts me. There is so much ego involved in envy. What kind of person sees a happy coworker with a new car and immediately makes the situation somehow about themselves? The level of self-absorption necessary to make that mental leap is too much for me to contemplate.
Gilvus
February 1, 2012
Replying to Joshua Kennon
Because 1) it reminds you of your own failures, inciting negative feelings, 2) it's easier to bring others down than it is to raise yourself up, or 3) you believe that the rich don't deserve the wealth they "stole" from the masses.
FYI the Mazda incidence took place in China, but I'm sure this happens in the States too.
Joshua Kennon
September 21, 2012
Replying to Gilvus
I am just now seeing this comment, 8 months later. Those are incredibly insightful reasons someone would behave violently against someone else's property. I'm sticking that in the reference file on the mental model of envy. Thanks!
joeaverage21
October 2, 2017
Replying to Gilvus
Yep, years ago I had this happen to my new "normal" car. Still had the dealer temp tags on it. In my case i think it was teenagers who got a thrill being "bad". I was a little crazy for a few hours that day. The fix was covered by insurance and wasn't expensive.
I was so excited at owning something nice and "grown up" and then some nitwit did that. Ruined my happy mood.
Franshort
January 15, 2012
I like your input on this topic. I am sure you know Warren Buffet has a similar concept that he calls his internal scorecard (net worth), as most people are concerned about their external scorecard of materialistic showings. I am impressed that he has always seemed to have this viewpoint throughout his life.
Kagem
January 23, 2012
This is something I struggle with to an extent because I do definitely agree that stealth wealth is how many financially successful people live because image is not everything and what you see is not necessarily what you get. I am trying to build my financial income up to a certain level and I am pretty transparent about it on my blog because it is a challenge for me that I am trying to achieve, but I definitely understand why the stealth wealth attitude works because being discreet means you can continue to reach your financial goals without people trying to count your money.
The bit where I would disagree with you is the bit about the Rolls-Royce. Could be because I am a petrol-obsessive but if you have a hobby, I say live it and love it!
Joshua Kennon
February 1, 2012
Replying to Kagem
I hear you on the petrol. I can't wait for the day everything is run on renewable, clean energy. Cars in general need to be revolutionize. Not only are they and oil singlehandedly responsible for the United States trade deficit (everyone thinks it is cheap stuff from China but it's really cars and oil), think about all of the infrastructure maintenance and costs we waste maintaining endless seas of parking lots and highways. In a country the size of the United States, I have no idea how we solve that one, though.
FratMan
July 19, 2012
"
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."
Joshua, I'm curious as to what you have in mind here. I certainly think that statement is applicable to businesses you personally run, but what risk would I be posing for myself if people knew I had 1,000 shares of Johnson & Johnson in a safety deposit box somewhere? I'm curious as to what you had in mind by that statement.
Joshua Kennon
July 19, 2012
Replying to FratMan
It wouldn't be in that case.
You'd need to worry about things like letting everyone know a local $2 million apartment building constituted 70% of your net worth. If you were trying to buy a hotel, and the apartment building burned down the night before the contract signing, the seller might get spooked or the other buyers might know you were weak and had a temporary cash bind until the insurance settlement came through. They could take advantage of that.
Or, imagine you have a $25 million family holding company. You have no debt but you have $12.5 million invested in blue chip stocks. The Great Recession hits and the names people know you own are down 60% temporarily. It isn't hard to do the math. That gives them too much information about you, strategically.
The main reason you may not want to publicize your stock ownership under your personal name would be if your family or friends found out about it. Imagine one of them loses their job and they read your blog. They know you just have $67,000 sitting around in Johnson & Johnson. They can't feed their kids that night. For most people, it is human nature that they are going to approach you and ask for a loan or a gift. It isn't right, but it is probably going to happen.
In my case, the answer to everyone is always "No. If your loan is a good risk, the local credit union will be more than happy to underwrite it. If it's not a good risk, you're taking advantage of our relationship." so people don't ask. It's served me very well and avoided most of the uncomfortableness. It also helps virtually all of my friends are self-sufficient, responsible, and make good money themselves.
FratMan
July 19, 2012
Replying to Joshua Kennon
I just re-read your comment below where you mentioned that you don't understand why people feel envious. I have the same attitude towards people who think, "I need money. I am close to someone who has money. Therefore, I deserve a portion of it." What I absolutely hate about that character trait is that it can ruin an otherwise good relationship (e.g. you have a family member ask you for $10,000 and you say no, and then they see you donate $25,000 to the local church--from their corrupted point of view, your good deed is seen as an evil--he gives to an organization over his own blood!)
Joshua, I'm just starting law school. I don't even have a full-time job. And I regularly get asked by people to lend them $1,000 or whatever. So I can't even wrap my mind around what it must be like in your life. Has your answer strained any relationships, or is your answer received satisfactorily?
Joshua Kennon
July 19, 2012
Replying to FratMan
I never really get asked by family members or friends because I've set up a situation akin to a Hobson's choice (random people from the blog write and ask me for money, which quickly results in a ban from the site). If they don't ask me for money, they get no money. If they do ask me for money, they get no money and I don't want to talk to them again. Therefore, there isn't really a choice. It may sound harsh, but it is the only way to handle the situation so the inter-personal relationships don't become economic exchanges. I'll be generous with my time and knowledge, but I am not a source of capital. Initially, it leads to resentment but it quickly becomes, "That is just how they are."
For example, once a family member asked my younger brother for a gift. He refused and asked, out of curiosity, why this person didn't approach me. Their response: "Josh would say no. Then he'd never talk to me again. There is no way it would happen. I'm not stupid. The same thing for your dad. I'll never get a penny out of them." It's a self-selecting thing.
It probably helps a great deal that we give fantastic Christmas gifts, which makes up for a lot. I hate the financial limits put on Christmas gifts so I just ignore them and give what I think the person will enjoy the most. Every year, I'm told the siblings and grandparents were hoping we drew their name in the inter-family lotto. My personal philosophy is that gifts should be relatively excessive and be the sort of things people want but would never buy for themselves. Over the years, we've given away big screen televisions, too many bottles of Creed to count, a KitchenAid pro mixer, video game packages, countless video game console systems, crystal from Tiffany & Company, shares of stock, cash, gift cards, jewelry, etc. I've always loved Christmas. It is not an exaggeration to say that I like the giving more than the getting. Psychologically, I think that matters.
Joshua Kennon
July 19, 2012
Replying to FratMan
Congrats on starting law school!
Bolu
July 18, 2013
Replying to Joshua Kennon
Wow, you are really miserly if you can't even lend money to your own family! Nothing personal but sometimes people just need a break!
Joshua Kennon
July 18, 2013
Replying to Bolu
The academic data disagrees with you. Very strongly. Check out Dr. Thomas J. Stanley's research on the phenomenon at the University of Georgia. It's called "economic outpatient care" and ends up destroying the person to whom the money is given.
I always go with the data, but in this case, I've also seen confirmation in my own life. I've had the benefit of being in a position to see it play out time and time again with family, friends, colleagues, etc. The moment you involve money in a relationship, it becomes transactional. There is no upside. In some cases, it destroys marriages.
If the loan is a good one, then the person should have no problem getting it from a bank. If the loan is a bad one, they are seeking to inherently take advantage of your emotional affections by using them to extract capital from you. In any event, it's immoral.
If you want to help someone, an outright cash gift would be more appropriate. Even then, if it is done more than once or twice in a lifetime, you dip into the Economic Outpatient Care problem that Dr. Stanley found in his research that destroys the independence and emotional health of family. You don't do that to someone you love.
My approach was to make a point to help everyone I know who is interested learn how money works and give them as much time and assistance as I can so they are able to build their own portfolios. For example, that's why my youngest sister, who graduated from high school a couple of months ago, has $11,000 as of today sitting in the Coca-Cola DRIP.
(In any event "miserly" would not be the correct term. A miser is "a person who is reluctant to spend, sometimes to the point of forgoing even basic comforts and some necessities". A person living in a giant estate, giving huge percentages of their salary to charity, who won't lend money to her children is not a miser. That's not what the definition of the word.)
(For what it's worth, I'd never loan money to family under any condition. I am not a bank. If I were going to do something for someone, I'd give an outright gift with no strings attached. I can't stand people who use money to control others, which is what a loan implicitly does whether you want it to or not. It creates a power imbalance.)
Connelly Barnes
August 8, 2013
Replying to Joshua Kennon
I wouldn't actually agree with the loan to family situation. I agree with your sentiment if you believe there is risk.
However my parents wrote me loans primarily back in school, with written contracts, when they realized the chance of default was extremely low. Naturally I always paid them back.
Credit companies can't assess the risk properly if you're a person of high moral caliber, since many of their clients are not and are willing to "game the system" (e.g. declaring bankruptcy). In cases of very low risk loaning intra-family makes sense because it allows the participants to gain back any fees a commercial loan would require and also saves time.
DVY
December 20, 2014
Thank you for your frank discussion on wealth, loans and limits to generousity.
How do you approach a situation in which you have a super-star idea (but something banks would be 100% unwilling to finance) and wish to find financing from wealthier family members.
IE. A distressed property comes on the market and needs quick cash and some additional capital to renovate.
Equity and debt offering are the obvious answer. But how would you equitably structure such a deal?
How do you balance this to make it a fair proposal for both sides and minimize power imbalance?
Charlie Hogsett
February 7, 2015
Replying to DVY
In this situation it's best to provide your own capital.
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September 20, 2016
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