My guess is that most UHNWIs would do better to simply park their money in Vanguard index funds and call it a day.
You may have a local equivalent, but you may not.
1. Companies don't die, so are not liable to inheritance tax.
2. (Holding) companies often don't pay capital gains taxes, so money can compound tax free. You only pay tax at the end, when you take it out of the company.
3. If they're using (some) debt to invest, using a company shields them from liability and bankruptcy (Google Einar Aas, he bankrupted himself in personal name because he traded using a personal account with leverage)
Donald Trump, if his public finances are to be believed, would have roughly the same net worth had he just invested the money his dad gave him in mutual funds. Instead he managed to create a series of failing companies and questionable ties... but managed to live the high life and stamp his name on bloody everything.
Trump is the harbinger of a return to patrimonialism. Family offices, a return to patrimonialism. You get a bunch of people who never really understood civics or finance and you try to govern them technocratically, and you’re going to struggle. But everyone in this demographic understands families. They see this dude being passed down wealth, and ‘making something’ of it, and setting his kids up. People understand that, especially the type of person who doesn’t necessarily understand how the neoliberal world works, in ways that are both in their favor and against it.
Family offices are another data point in this trend towards capital accumulation, stark income inequality, and a retreat from public exposure.
Conversely, plenty of funds do 15-20% in the short term. 15% only takes 57 years, and 20% brings it down to 44.
So, doable, but you'd be considered a pretty amazing investor. And this all assumes the money was invested from the day he was born.
It's not uncommon for aggressive growth funds to take a 20% tumble in a year. Downside is much, much more destructive than many understand especially when one must also account for fund management fees (typically .7%) which are collected whether the fund gains or loses!
But the simple fact is that a 50% loss requires a 100% gain just to get back to even, which is still a loss once inflation and operating costs are factored in.
Here's a simple question that most people fail: Q: A mutual fund loses 50% in a year. In order to break even the next year, your fund must earn ? 1) inflation 2) 50% + inflation 3) 50% + your income tax rate 4) 100% + inflation 5) 100% + inflation + operating costs + 'it depends'
The correct answer is 5. The correct answer is nearly 106%- One must make up for actual loss (100%) PLUS operating expenses for both years (usually 0.7% per year: 1.5%), plus inflation for both years (2%/annum: 4%). Of course there are tax implication for gains/losses taken outside of a qualified retirement plan (401k,403b,etc.) and sheltering losses can complicate substantially, but hopefully this illustrates a point about the impact of losses.
I don't know, perhaps you couldn't very easily leverage properties back then for cash (i.e. once they had been paid off), or interest rates were very high (a quick google teaches us that in 1970, the interest rate was 8.5%)?
https://www.nytimes.com/interactive/2018/10/02/us/politics/d...
https://www.forbes.com/sites/katestalter/2016/09/01/would-do...
https://www.nytimes.com/interactive/2018/10/02/us/politics/d...
Where's the $3 billion number coming from?
Additionally, we could say that success in active investing is (often) a function of how much you're willing to spend to find the right opportunities. For an UHNWI, this is likely enough to beat the market, especially if a high percentage of investors are passive, leaving more opportunities for corrections open.
As another commenter said, the goal is usually to avoid becoming poor first and foremost, rather than becoming richer.
Is this also true at the level of the small investor ?
Say I'm willing to spend a few hours a day learning and researching about stocks. Does this mean that over time, I'll be able to significantly beat the index funds ?
Or is it, more likely, a fool's errand, because that as a small investor, I don't really have enough bandwidth and money to significantly diversify ?
You don't have a chance unless you are doing the same amount of work with more sophisticated tools, with the same trading tools.
You might win based purely on chance, but you are extremely unlikely to.
Some of the high frequency traders can rake it in. But they are using teams of highly paid analysts to look for opportunities and those opportunities don't last long before they have to move on to the next thing. And I would assume it's getting harder and harder for them as time goes on and more enter that market.
Sure, but it seems like the solution to that isn't "new and innovative private investments", it's "invest more money in treasury bonds from stable first-world governments and maybe precious metals".
This is why people invest some money, however minute, into shorting the entire stock market.
There was a factoid going around years ago that said Donald Trump's net worth was equal to the value of his inheritance if it had been invested in an index fund.
But note that under that hypothetical, he never would have spent any of it. Do you think the historical Donald Trump ever made any splashy purchases? Where did that money come from?
Having a high net worth while living the high life involves a lot more money than having a high net worth while living an ascetic life, and implies that his returns were a lot more than the index fund experienced.
Incorrect, it would have been worth substantially more, at about 13 billion (his current wealth is around 3-4 billion). So he still would have been able to spend billions and be further ahead than he is today.
Source: https://www.forbes.com/sites/katestalter/2016/09/01/would-do...
If he invested without margin then he would have made half of what he actually made. And that's without any spending at all.
Frankly I would have done the same, I think running a bunch of different businesses would be more stimulating than maximizing wealth through stocks. But objectively he's paid a financial price for that.
Also, while some of Trump's lavish expenses are pretty much just lavish expenses (business jets and the like), some of his superficially ridiculous personal expenses, like gold-plating half of his entire penthouse apartment in Trump Tower[1], don't necessarily hurt his net worth that much because he could always sell the tower with the tacky gold-plated penthouse to someone else who could extract some value by removing the tacky gold plating and having two valuable assets left over: (a) a penthouse apartment in a Manhattan high-rise and (b) gold.
Most of Trump's losses came from a variety of failed business ventures, which isn't necessarily a huge criticism. Some people just like doing a bunch of business ventures and they don't all have to succeed to be a net positive. It's just that if Donald Trump spent the same lavish amounts of money and invested less money in his own ventures and more money in index funds, he would be richer today.
Of course, in this hypothetical scenario, would he become a cartoonish real-life personification of American capitalism, host a reality TV show, get a lot of Twitter followers, and develop the dedicated fanbase necessary to eventually be elected President? Probably not.
[1] I'm not entirely making this up, though my only source is a foggy memory of the first season of The Apprentice, when Donald Trump invites the guests to tour his penthouse apartment.