New Wealth Creation
Contributed by Lewis J. Walker, CFP®
Bloomberg News (6/17/17) covered a report from Boston Consulting Group on the growth of the global wealth gap, “most notably in the U.S.” Worldwide roughly 18 million households control more than $1 million or more in wealth, representing the top 1% of the global population and holding “45% of the world’s $166.5 trillion in wealth.” Is this good or bad?
In some circles the “wealth gap” is seen as destructive, a pox on society. The top 1%” often are cast as targets for tax increases and wealth redistribution schemes, tax dodgers not “paying their fair share.” James Hodgkinson, the gunman who shot Republican Congressmen at baseball practice, advocated higher taxes on the rich. His Facebook postings were replete with vitriolic denunciations of the successful, calls for wealth redistribution, repudiations of capitalism and the corporate culture. Yes, he was a deranged, envious extremist, yet there are millions who cheer political calls to take more from the envied 1%.
Jeffrey Tucker, Foundation for Economic Education, fee.org, published a timely commentary on 6/15/17, entitled “Envy Kills.” In extreme cases envy morphs into violence and chaos. Nevertheless, countless immigrants, legal and illegal, flock to America seeking financial opportunity and personal security. You don’t have to be royalty, high born, or the right caste. You do have to work hard, be creative, develop talents and skills, study and learn, be civil, have good work habits, nix destructive behavior, and hone prudent money skills.
The Boston Consulting Group (BDC) noted that half of new wealth came from appreciation of assets (e.g., stocks, real estate) held by the already well off as the bull market in certain asset classes rolls on. However, BCG notes that “new wealth creation,” i.e., “people saving money earned through labor or entrepreneurship,” made for 28% of America’s wealth creation in 2016. Conversely, almost 66% of new wealth creation was in the Asia Pacific region. Asians in general are hardworking and creative. Many are entrepreneurial. “Getting rich,” legally and ethically, in China no longer is discouraged by the state.
What might this mean for you? How many of you work for a closely-held small business, own non-traded shares of an enterprise? A small business is defined as having up to 500 employees. Such firms comprise 99.7% of U.S. employer firms, 64% of net new private sector jobs, and 49% of private sector employment. (sba.gov). The first of the baby boomer wave turns 71 this year. Many boomer entrepreneurs over the next 10 to 20 years will retire, voluntarily and involuntarily. Businesses will be sold, merged, acquired. Some will just close their doors for various reasons (lack of planning, no market for the firm, family fights). If you are an employee, a potential successor to founders, an acquirer, “the entrepreneurial wealth transfer” spells opportunity. Does your employer have a well-spelled-out plan for growth and continuity?
Many entrepreneurs approaching age 65 or 70 desire not to sell, but to stay with the firm, grow it, and develop a management team that can engineer an internal buyout. Planning for internal succession, or an outright sale, requires careful planning early in the game when founders and visionaries still have energy, passion for the business, and the business has growth potential. Buyers want to see depth of management strength, a team that can carry on when founders have retired. Many closely-held businesses have struggled to find successors. Effective teams don’t come together by accident or serendipity. They must be built and nurtured.
Tom Stanley, the Atlanta-based author was killed by a drunk driver in Marietta, GA, in February, 2015. Made famous by his Millionaire Next Door books, Professor Stanley postulated that millionaires were frugal, not flashy with cash, more likely to drive a pick-up truck or Chevy than a Cadillac or Mercedes. As advisors we find that millionaires do not broadcast their wealth.
Whether employees, professionals, or business-builders, millionaires next door often are down-to-earth, have passion for what they do, are spiritually well-grounded, family-oriented, have good money habits, and pay lots of taxes! They are to be cheered, not derided. Their wealth is to be used to maintain personal and family independence, nurture future generations, and bolster charities and faith-based good works.
Attacks on the successful, the 1%, or the top 10%, diminish the Land of the Free and The Home of the Brave. The “politics of envy” are corrosive.
Lewis Walker is a financial planning and investment strategist at Capital Insight Group; 770-441-2603. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which is otherwise unaffiliated with Capital Insight Group.