Want to kick off a touchy subject? Talk about wealth in a group that isn’t all rich or all poor. We already have enough taboos about money. Talking about money is usually tough because we recognize how easily it can be lost, both from the perspective of folks who are trying to make sure it doesn’t happen to them, and from the perspective of folks who already know what it’s like to not have enough. Taboos and our reactions blossom under such circumstances. Whether you think wealth should be more evenly distributed or not, the taboo touches on the uncertainties and ephemeral nature of what we think of as money and wealth. It is rarely piles of cash, which makes any accumulation or redistribution more academic than realistic.
Forbes’ list of billionaires was updated about the same time as OxFam released a study claiming that 80 will hold half the world‘s wealth. That leaves over 7 billion to divide up the rest, including 1,746 billionaires. It is entertaining to imagine what would happen to the lives of 7,000,000,000 people if 70 or 700 of them donated almost all of their wealth (maybe keeping a few tens of millions for the essential comforts.) The only way such a redistribution would happen is if there was some sudden awareness of common consciousness that encouraged ultimate empathy. It could happen, but probably not. The fantasy version of the redistribution would be something like a cyber attack that shuffled everyone’s accounts and evened everything out. Wealth is not that simple.
Financial wealth isn’t a pile of cash in a vault. There’s probably some billionaire that has recreated Scrooge McDuck’s gold vault, or at least thought about it. The majority of wealth is not cash. Wealth is stocks, bonds, real estate, resources, assets – things that can be traded for cash, but are mostly left the way they are. If every billionaire’s cash was redistributed, almost all of them would still be billionaires because of their other assets (except for those folks just on the edge of the club.)
Wealth is fickle. Millions of Americans had the lesson delivered when their house’s value dropped 10%, 40%, 70%. The house hadn’t changed. The land hadn’t changed. The price had changed, actually, the supposed price had changed. Their wealth diminished. A drop of $100,000 in a house’s value didn’t show up in someone else’s account. The same thing is true in almost any investment. We trade stuff, and sometimes use cash, but frequently not. For very large transactions, cash is only the intermediary. Want to buy a billion dollar company? It’s probably done by first selling a billion dollars of another company, or bonds, or by going into a billion dollars in debt. It is easier to trade stocks than cash.
Watch a stock. There may be a billion shares in a company. If a trade for 100 shares moves the stock a penny, the company’s market cap gets adjusted by $0.01 x 1,000,000,000 = $10,000,000. Neither the company nor the shareholders suddenly made or lost ten million dollars, but the market cap and everyone’s portfolios got adjusted. If the company was bought, the difference becomes apparent. If every shareholder sold, the difference is moot because that many sell orders would change the stock by far more than a penny. If Bill Gates decided to give everyone his shares of MSFT, the price would drop and much of the wealth could evaporate.
Wealth redistribution may never happen. If it doesn’t, then wealth may experience the evaporation that’s been witnessed many times since we invented money. Our economic system is not static. Wealth inequality is increasing. Wealth concentration is increasing. A finite system can’t have an ever-increasing inequality or concentration. Extrapolating from the situation in 2015 means eventually one person has the majority of the wealth, and that isn’t realistic. No king or queen every ruled that much of the world since we left Africa.
It is possible that changes will be made to the system in terms of laws and regulations, or out of compassion. Two of the strongest proponents for change are two of the wealthiest billionaires: Bill Gates and Warren Buffett. Both have spoken up for more philanthropy and higher taxes for the rich.
If changes aren’t made intentionally, change will happen eventually. We witnessed the evaporation of wealth in recent stock market crashes. The wealth that is represented by bonds, real estate, and commodities are all subject to similar uncertainties. Bonds are now paying negative interest in Europe. Precious waterfront may soon be on the wrong side of the shoreline. Oil plunged when most expected an eternal rise. No investment is absolutely secure. People with wealth know this, which is why they worry more than most. Their fall can be greater, and they’re more likely to be aware of the fragility of the scaffolding holding up the system.
Despite the uncertainties, and the inevitable intentional or unintentional change, it makes sense to invest. The conventional wisdom that working harder is the best way out of poverty only made sense when working harder produced greater wages. Minimum wages increases are happening, but are insufficient. Money can make money. Investing can produce impressive results (the return of which is eagerly awaited). Investing with money, however, is best done with discretionary income. One approach: Pay all the bills for a frugal lifestyle, with a bit of comfort. Get rid of debt, without hurting yourself. Build up a reserve. Then invest. And modify to meet your wants, needs, and style.
Considering the uncertainties, one of the greatest wealthy lifestyles has nothing to do with the rich and famous. A person living sustainably on property they own in a place they enjoy can be wealthier than any of the billionaires that are worrying about market indices, interest rates, and commodity fluctuations. If our economic system fell apart through chance or action, the wealthiest people on the planet would be the people who were their own sustainable source of food, shelter, clothing, and healthy living. The wealthiest of them would probably be living in a community of such people. Such sustainable wealth costs far less than a billion dollars and is worth far more.