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January 11, 2012

 

Title:  How the rich get richer

Sub-title: If you can’t beat em, may as well try to learn from them.

 

Earlier this month Pauline Marois, leader of the Parti Québécois, a Quebec-based separatist party, made headlines because of the reported sale of her Ile Bizzard home for just under $7 million.

 

Buried in one article was an interesting fact: that Marois’ property had been on the market since July 2009, for almost two-and-a-half years, far longer than the Canadian average of about three months. Yet while seven figure homes tend to take longer to sell because fewer people can afford them, according to one industry professional, another factor was at play.

 

“When someone doesn’t need the money, they can afford to hang on longer to get a better price,” said Liza Kaufman, an agent with Sotheby’s, the real estate firm credited with selling the property. “They can ignore lowball offers and wait until the market catches up with their demands.” Kaufman is right. The rich do things differently than the rest of us. And while much of the recent wealth-related media coverage has focused on how unfair all of this is, we thought that it might pay to look at some of the strategies the rich use to get richer.

 

Use time to their advantage. The rich, (who we will define as anyone in the top quintile of assets or income earners) never rush a deal. “Me and time as my ally against any two men,” is their philosophy. They wait (as Pauline Marois did) until the moment is right and then they strike. This applies not only to buying and selling real estate, but to business and career moves too.  

 

Marry each other. Remember when doctors used to marry nurses and lawyers used to marry legal assistants? Those days are coming to an end. With some many women now pursuing advanced degrees, doctors are now marrying doctors – presumably leaving the nurses stuck with marrying legal assistants. According to an article in Demography magazine, the odds of someone with a high school degree marrying someone with a college degree fell by 43 percent between the 1940s and the 1970s. Another study found a high degree of correlation between a woman’s earnings before marriage and the future earnings prospects of her mate.

 

Invest in education. Yes, we all know that the ticket to a good job is an education and that those with college degrees are just about the only group whose career prospects have remained strong during current tough economic times. The rich act on this advice early, by planning for and starting to save for their kids’ college education as soon as they can. As a result, the children of the well-off are far less likely to have to resort to student loans, and are thus less likely to get discouraged and drop out of college if times get tough. 

 

Develop and use better networks. Ever try to get to know a rich person? It’s not easy. You will rarely find one sitting next to you on the bus each day to work, in a middle class suburban library, or the public golf course. But the rich meet each other all the time. They sit on the same business and charity boards, belong to the same golf clubs, meet at their kids’ private school events, and so on. A rich guy who has five rich friends has exponential network leverage advantages over the middle class guy who has five middle class friends. For example if a rich parent can’t afford to give his kid a summer job, chances are he knows a dozen people who could. You don’t.

 

Buy friends. This works so subtly it is almost sublime to watch. No, a rich person does not pull out his wallet and throw around his money. But the power of the affluent, their access to information, events and people, mean that others are vastly predisposed to want to be around them. The easiest way to see how this works is to pay attention the next time a wealthy person, who owns an exceptional home that you know, holds a party.

 

Almost no one, particularly women, who are fascinated with the idea of seeing exceptional housing, will refuse an invitation. This power of attracting people into their circle of friends works in all aspects of the lives of the affluent, yes even when it comes time to finding marriage partners for themselves or their kids.

 

Put their money to work. Western governments have been printing money by the bucket-load non-stop for centuries. The resulting inflation and taxes on interest earned chip away at savings by reducing their purchasing power. The rich get around it by putting their money to work in businesses. Investing in businesses also provides a source of jobs for offspring, friends and contacts as well as huge tax avoidance opportunities, particularly when they are multinational in nature.

 

Profitable travel. Yes, I know, the rich are lucky, they get to vacation wherever and whenever they want. But the rich, even when they are at a vacation destination, are never really on vacation. For one, because the rich tend to vacation in high-end facilities and destinations, which keep out the riff-raff, like you and me, almost everyone they meet is a potential business, or social contact.  The rich also know that vacationing in exotic places such as the French Riviera, Russia, Brazil and China, gives them a chance to see the latest economic trends first hand, and to profit from ideas that may have taken off in one part of the world but have not yet made it into their home market.

 

*****

 

In short, while the strategies that the rich use to get richer are not available to any Joe, it pays to be aware of them. Because making it to the top starts with figuring out what those who are there do, to maintain the status quo.

 

 

Peter@peterdiekmeyer.com

 

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