The Ultimate Secret of the Ultra Rich

Hello, Friends,  I subscribe to a free newsletter written by Bill Bonner and his family. It is found at http://www.bonnerandpartners.com/ There is a lot of information shared in this sometimes rambling newsletter. I'm sure he basically sits and rambles sometimes but very often the rambling is very worthwhile and interesting. Below is one such "rambling" that I thought I'd share with you. It is dated January 24, 2014. Family Wealth Series The Ultimate Secret of the Ultra Rich All the information is very generic and non-specific except that it relates directly to application of principles that, when applied in the long years of living, this generic information becomes very specific and yields very, very valuable family wealth.  Dear Reader, What separates the rich from the rest of us? "They have more money," said Hemingway. But how did they get it? How do they hold onto it? That's a bit more complicated. I recently drove through a working class neighborhood in Baltimore called Dundalk. It is an area of simple one- and two-story wooden houses on small lots. Fifty years ago, it was where Baltimore's industrial labor force lived. They worked in industry – for Bethlehem Steel, General Motors, The B&O Railroad and in the busy harbor. Today, those high-wage industries are mostly silent and rusting. Some sites along the water have been converted to loft apartments for Baltimore's young professionals. And some of the children and grandchildren have moved away – to the suburbs or to other cities. But most of them are still there. Their parents and grandparents earned a good living. But few got rich. And now, few of their descendants are rich either. Across town in the rich "old" northern suburbs of Roland Park and Ruxton the people are different. The rich left the city many years ago. But in these green suburbs they remain. Some richer. Some poorer. But, by and large, the same people whose parents were there 50 years ago. What accounts for it? How come some families stay rich generation after generation, while others never have a nickel? "Culture," you will say. "Education," perhaps. You won't be wrong. But what, specifically, about culture and education is it that makes such a big difference in outcomes? Simply put, you might say the secret is that these "Old Money" families take the long view. But there is something deeper and more important. These families know how to turn time into an ally instead of an enemy.   They have worked out very specific strategies that use time to boost investment returns (much higher rates of return... with lower risk). And they have worked out ways to use time to prepare the family to not only protect money... but to make it grow. This is why they invest in education and training. And why they make sure family members add to their collective wealth, rather than subtracting from it. It is why they try to guide their children to suitable spouses. They know that a rotten apple will spoil the barrel. It is why they spend time and money on lawyers and accountants, too – making sure that the structures are in place to pass along wealth and protect it. It is why they prefer deep value assets over momentum investing. Over time, value rises to the top. Momentum slows. [They invest based upon actual returns instead of averages. They know averages very often do not equal actual returns]  It is why they will wait a long time – many, many years – for the right investment at the right price. It is why they like investments with long-term payoffs – such as timber, mining and infrastructure. And it's how they are able to benefit from compound growth – letting relatively modest gains grow over several generations. It is why they are almost fanatical about eliminating costs – taxes, investment charges and unrewarding living expenses. They know that wear and tear, over time, will wreck their family fortunes. It is why they develop long-lasting partnerships with the professionals they need to make sure their interests are protected and their plans are carried out. Let me ask you something. If you thought you'd live forever, would you do anything different? Wouldn't your attitude to your money change a little? Wouldn't you slow down, realizing that you're not in such a hurry to make money? And wouldn't you reduce your spending too – knowing that your money would have to last you a long, long time? The truly wealthy are careful to spend their money on things that hold their value over time. It is why they do not trade in and out of investments. Instead, they find a few positions and stick with them – for decades. [In this way compounding can take its miraculous effect] It is also why they prepare their families, over the course of many, many years, so that they will be prepared for the challenge of managing and enlarging the family wealth. This is what separates the serious money from the here-today-gone-tomorrow crowd. The serious money knows there's a lot more to successful wealth building... especially over the long run... than just stock picking. Instead of trying to control the uncontrollable - the returns you get from stocks - they are focused on what they can control. Of course, most really wealthy families have a family office somewhere in the background making sure these things are on track. And without someone dedicating time to making these things happen, they often don't. Most generational wealth transfers fail. Money that was hard earned is lost through poor investment decisions and lack of planning. When it comes down to it, you might say that successful families do all the things unsuccessful families don't want to do. [because it takes actual long term thinking!] These things take work. But if you're determined to keep wealth in the family, the sooner you start on them, the better. Sincerely, Bill Bonner Editor, Diary of a Rogue Economist

As I Learn I will Share - Multi-Generational Family Wealth Development.

I have not been a Family Financial Planner for very long. Some of the experiences I've learned, however, even in this short period of time have led me to believe I can help people by changing the "trajectory" of your thinking.

What do I mean by that? Simple. Trajectory is the angle upward or downward that a missile is fired, be it a bee-bee or stone from a slingshot or a bullet from a rifle or a long range ballistic rocket missile. Aim higher for a target longer away, aim straight forward for a short shot. When raising the trajectory in financial planning you set your sights on preparing to financially benefit your grand-children and great-great-grandchildren instead of just yourself and your own children or yourself and your parents.

Just as planning to be of benefit to your parents who may have not had the opportunities for, say, education that you may have had (they may have sacrificed all in order to send you to college) is a very good and admirable thing to do, setting your sights on preparing your estate to bless the lives of your more distant posterity is also a very good thing. Because it is easier to envision helping your parents and children because they are with you now, you may think something like, "I can't even wrap my thinking around how to plan for my great-great-grandchildren!" Don't worry. This is why I am writing: to help you see and understand what that map looks like and what steps are required to traverse the immediate roadway.

There are some things to consider when thinking about Multi-Generational Family Wealth Development - MG-FWD - that will likely be new, very new to you.
First, you must be prepared to talk about wealth creation with your children in the same way you will talk about driving and maintaining your vehicles. There is no mystery or secret to driving a car and auto-mechanics. It just takes education and practice and being safety minded.
Second, just as you can have more than one car at a time. In like manner you can have more than one financial "vehicle" that you are teaching your children to "drive" and maintain from their very young ages.
Third, It isn't being "sinful" in any way whatsoever to teach children how to use the various financial tools we call "Assets". Taking the "Rich Dad, Poor Dad" (Robert Kiyosaki) definition of  asset as anything that puts money into your pocket, teaching children how to accumulate assets so they will have more tools (cash in the bank) with which to do good is a very good thing.

Teaching children to associate money in all of its different forms with being of service to mankind (including immediate family, neighbors and community) will create in your family the greatest of all possible assets: creative, generous, benevolent business people who have also been taught how to duplicate themselves. Who taught them? You.

These are three of the first steps along the roadway of Multi-Generational Family Wealth Development - MG-FWD - a roadway that spans not just generations but often times centuries! These are families that, because of a culture of  educating their youth in the ways of benevolent wealth creation and maintenance, have amassed the resources over time to do great good such as begin and support colleges, universities, hospitals and other excellent people-serving organizations. They also, of course, establish people-serving businesses that employ hundreds or thousands of people, giving them opportunities to support themselves. What better service can person-A give to person-B than to give an opportunity to work and support self and family? Without the service employers give to employees - the service of giving them a job - local and national and international economies fail.

Take a few moments right now to wrap your thinking around these few ideas. Consider teaching your children how to save money, not for a rainy day but for future wealth creation. Consider combining your religious doctrines, i.e. loving and serving God by loving and serving your fellow man, with principles of  serving by creating employment opportunities for others. Consider establishing a family culture of benevolent wealth creation that will bless not only your own children but also your grandchildren and your great-great-grandchildren.

In doing these few mental exercises you will raise your eyes to a target further down the time-line; your visionary trajectory will change which will change your immediate day-to-day activities. You will immediately begin to spend less and save more so that you can teach your children by example and show them the things you will be learning here on this blog.

Start here. Raise your eyes to see further down the road. Keep reading, not just this blog but here is a good place to start. As you grow you will develop greater vision and habits that will create results that will, in an amazingly short period of time, astound you.

Take these first three steps and you will soon - within 18 months - begin to see the effects of a Law that a very smart man, Albert Einstein, called "The 8th Wonder of the World": The Law of Compound Interest over Time.

My next report will explain what I call "The Teeter-Totter of Habit".
Sign up now to follow this blog.  You won't want to miss a single idea of Multi-Generational Family Wealth Development or MGFWD. I like to call it looking and going "MG-FWD = MEGA-FORWARD".
Let's take the trip together, A? (I'm from Canada, A? Can you tell?)

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I'll keep you posted.
God Bless.
Cameron Cv