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Dimensions of Wealth in Assets: A Million or a Billion ?
Friday 2 October 2015
When are you financially independent? Wealthy? Really rich? For most people, all millionaires are rich people. But the difference in the world of the wealthy and rich is immensely larger than one realises. Are you really aware of the difference between 1 million and 1 billion? Just take a look at this.
Strange as it may sound, the dimension of physical cash assets is best illustrated in this way.
1 million euros in 100 euro bills, stacked in cash, has a height of about 30 centimetres. Now look at the same stack a billionaire brings to the table?
120 centimetres? Two meters? Three meters? No, it would be 300 meters. That's right, you would never have imagined that. And to illustrate this:
The Cathedral in Cologne only stands 157 meters high in the skyline.
So, when looking at the dimensions: 30 centimetres compared to 300 meters. This clearly spells out the difference between the rich and super rich.
In recent years I have repeatedly noticed that that a large number of investors feel a lot richer than they really are. They are so impressed by the large totals showing, in their custody and bank account statements, particularly after the sale of real estate or entire companies and business entities. One is well advised
not to be so impressed. Let us just take a look behind the scenes at the measures used in private international banking to categorise High Net Worth Individuals, or HNW's.
. In the global banking arena the wealthy are categorised as those who hold more than 30 million euros in capital assets in the respective bank.
. International "First Class Service" is only offered from amounts over 300 million euros by bankers in Zurich, Geneva and London.
If you show up in the banking hall at the counter with lower sums, you will indeed receive a courteous welcome. The fact is, however,that nobody will bend over backwards to provide you with the exceptional personalised service you expected.
Basically, a "forward looking strategy" is strongly suggested for investors in the management of their assets. Not a fearful wealth preservation posture,
but a targeted, active asset expansion with a long-term perspective is recommended for all wealthy investors. This requires talent, first-class advice and learning to deal with risk. All this should lead to a balanced investment strategy.
What is not well understood by the less than rich:
This is not about an insatiable greed and hard-to-follow measures, but about the longest possible preservation of assets, preferably for many generations to come. Because the real challenge for holders of large assets are the setbacks we face as fate has shown us. The recurring crash scenarios in financial markets,
which are the real litmus test.
And it is here where the amount of assets plays a very crucial role. To illustrate this, we draw again on an example from our millionaire and our billionaire.
In the last financial debacle of 2008, an acquaintance of mine, who was from a family with a great heritage, now in it's 6th generation, lost some 97% of the assets in a company which collapsed. Since before the crash he possessed just over 1 billion euros, what is left for him, after this disaster, was only
30 million euros.
In comparison, if his enterprise had only been worth 1 million euros, he would today be left with a total asset balance of only 30,000, - Euro. I hardly need to explain the difference to you and leave the unspecified consequences for the future to your imagination. The point made is crystal clear.
Conclusion: No one knows what the future will hold. What is certain is that even good stocks may in bad times fall 90% or more. Not only in 1929 and again in 2008, this has happened numerous times in the past.
Whoever is focused on building a considerable fortune or already has one to manage, should not feel like a "lucky man". Grinning inwardly and feeling smug,
sleeping blissfully at night and happy with oneself, this is the wrong approach. The wealthy investor has a serious mandate to devote his energy to make sure
the assets are hedged and that the descendants will benefit from the systematic expansion of assets. This is also true for the mega-rich: Carry on