If you look at the top of the list of the world’s wealthiest people, one of the striking things is that the source of their money can be summed up in one word. Bill Gates: Microsoft. Carlos Slim: telecom. Amancio Ortega: retail.
In short, they were concentrated in one area. It wasn’t just luck that produced those positions: They knew how to double down when they recognized a winning idea. “It’s the ability to see the thing that is working for you, and concentrate it and feed the flame,” said Marc Compton U.S. Trust, Bank of America's managing director and market executive for Silicon Valley.
That is one of the characteristics of the wealthy that emerges from US Trust’s survey of 680 people with more than $3 million in investable assets. Along with having the ability to focus, they place a higher value on physical assets and are more willing to take credit risk — and risk in general. Taken together, the habits seem to suggest an ability to view their finances and their lives as a balance sheet so that they can double down on the winners and leverage when they need to.
If you don’t have that ability to focus, can you develop it? Can you learn to take more risk and think of the ways all your assets could work for you? My guess is that you probably can.
“If we thought more about our balance sheet, and managed our lives, and did that in strategic way, our odds for the financial success would better,” said Compton.
The survey by the private bank, which has $378 billion in AUM, contained lots of interesting — and mostly reassuring — nuggets, if you look at the wealthy as a bellwether for the economy. The survey respondents were feeling more confident, less worried about taxes and more ready to invest. Though only 48% of the wealthy said they considered themselves wealthy, that was up from 40% in 2012. And the impact of taxes has fallen away. Among business owners, this year, 7% said they would consider moving to a lower-tax state, down from 15% last year. And this year 13% said they were considering limiting the number of employees in response to taxes, down from 26% last year.
I wrote about the rise of private equity last week: Fully 75% of Millennials in the survey said they owned or were interested in owning private equity; 65% of GenXers said the same.
But the more compelling ideas in the survey are about reading between the lines. What do the wealthy do differently that enables them to build wealth?
• They are clearly more entrepreneurial than most people. Many of the U.S. Trust survey respondents were business owners. Compton said 78% built wealth through their businesses. Again, it’s that ability to zero in and be consumed by one project, or double down on a winning instinct within yourself.
Successful executives and business owners don’t keep eight irons in the fire; if they do more than one thing in their lives, it is often in succession, not all at once. (The flip side of that ability to focus is probably obsessiveness, which I have encountered many times interviewing CEOs over the years: They will try to control even the tiniest word choices in articles).
• The wealthy are more willing to take credit risk. Fully 42% had borrowed against existing assets to gain liquidity. That’s opposed to selling an investment — which would be the other route if you want to come up with cash.
“What the wealthy do is free up liquidity through their balance sheet through credit,” said Compton. They want that ability to go buy something, and go opportunistically to find that next property. A wealthy family might be willing to borrow against a house to buy land in West Virginia, for instance.
• Related to that, Compton said, they also see their financial lives as a collection of assets that can work together and are more apt to be interested in owning physical assets. My guess is that few Americans consider physical assets at all when they tally their total financial worth. Americans see their houses, for instance, as homes, not as assets they could potentially leverage to make their lives more comfortable, as with a reverse mortgage in retirement. In fact, the wealthiest people were most likely to borrow: 56% of those with investable assets of more than $10 million said borrowing money enables them to put their own money to better use.
Of course, you may not want to make all the sacrifices required to become wealthy. The majority of the business owners in the survey said the needs of the business come first, and one in four said they were better at communicating at work than in their personal lives. There are a lot of working vacations and interrupted family dinners contained in those survey answers.