Are You a Member of “The Invisible Rich”?

Alexander Green
by Alexander Green, Chief Investment Strategist, The Oxford Club
multi-millionaires

What do most rich people look like?

You might be surprised. During my 16 years in the money management business, I dealt with a lot of highly affluent individuals.

And if you imagine that most of them drive Bentleys, wear Armani suits and sport diamond-encrusted Rolexes, you’re wrong. Dead wrong.

Most of these folks act, dress and talk the same way you do. (Or maybe a little worse, since they generally don’t have to impress anyone.) Picture someone browsing around a Tractor Supply store, and you’ll have just the right image.

I call them “The Invisible Rich.” And they’re all around you.

According to Barron’s, last year, the number of U.S. households with $1 million or more in investable assets totaled nearly 6.8 million. That’s 5.5% of U.S. households. Include home equity, and that number grows substantially.

So it’s reasonable to assume that better than one in 20 people you bump into each day have a net worth at the seven-figure mark... or higher.

How did all these Americans attain their financial freedom?  Fortunately, we don’t have to wonder, thanks to the work of Dr. Thomas Stanley.

Stanley conducted decades of research on the habits and characteristics of America’s wealthy and wrote several best-sellers, including The Millionaire Next Door and The Millionaire Mind.

Stanley points out that the vast majority of millionaires do not have exceptional skills. They do not have hit records. They do not play in the NBA. They did not found a software company in their garage.

They are ordinary people who worked and saved and invested their money sensibly. In The Millionaire Next Door, Stanley detailed seven common denominators among those who build wealth successfully:

  1. They live well below their means.
  2. They allocate their time, energy and money efficiently, in ways conducive to building wealth.
  3. They believe that financial independence is more important than displaying high social status.
  4. Their parents did not provide economic outpatient care.
  5. Their adult children are economically self-sufficient.
  6. They are proficient in targeting market opportunities.
  7. They chose the right occupation.

In short, your net worth is essentially a result of the choices you make.

To generate significant savings to invest, you need to make good career decisions, the right lifestyle decisions and smart spending decisions. It takes forethought. It takes discipline. And it often means making hard choices.

According to Stanley, the most productive accumulators of wealth live well below their means and religiously save and invest the difference.

Millionaires spend far less than they can afford on homes, cars, clothing, taxes, vacations, food and entertainment.

The wannabes, on the other hand (people with higher-than-average incomes but not much net worth), are merely “aspirational.” They buy expensive clothes, top-shelf wines and liquors, luxury cars, power boats, all kinds of bling and more houses than they can comfortably afford.

Their problem, in essence, is that they’re trying to look rich. This prevents them from ever becoming rich. (The Texas term is “all hat, no cattle.”)

Sure, the “glittering rich” - households with a net worth of $10 million or more - are often conspicuous consumers. That’s because they can comfortably afford it.

But, according to Stanley, the vast majority of millionaires in the United States...

* Live in a house that cost less than $400,000

* Are more likely to wear a Timex than a Rolex

* Generally pay less than $15 for a bottle of wine

* Have never paid more than $400 for a suit

* Are more likely to drive a Toyota than a BMW

* Spend very little on prestige brands and luxury items.

Yes, they’re frugal. But they’re also happy, not to mention financially free. They are not dependent on their families, their employers or the government.

That’s a great satisfaction, because it comes with a feeling of earned success.

If you could boil it down to a formula, it would look something like this: Save. Invest. Compound. Repeat.

Would you like to join the ranks of “The Invisible Rich”?  If so, the first step is clear.

As Stanley put it, “Stop acting rich... and start living like a real millionaire.”

Good investing,

Alex

Thoughts on this article? Leave a comment below.

Quench Your Thirst for Liquidity With This Stock

Saving and investing are the building blocks to growing wealth. Water is the basic building block of life on Earth. What if you could combine the two? That’s the promise behind one of Alex’s picks in The Oxford Communiqué: American Water Works (NYSE: AWK).

Here’s Alex explaining the case:

“Flint, Michigan plans to spend $55 million to replace all the lead pipes leading to home in the city. Unfortunately, that’s just the top of the iceberg.

“The Environmental Protection Agency estimates there are 10 million lead service lines that link water mains in streets to buildings. The average cost for each replacement line is about $5,000, for a total of $50 billion.

“There will be several beneficiaries of this tidal wave of spending in the years ahead. But few will profit more than American Water Works, the nation’s largest publicly traded water utility.

“American Water Works provides high-quality water and wastewater services to more than 15 million people in 47 states and parts of Canada.

“It oversees a mind-boggling network of pumping stations, plants and storage facilities, as well as 48,000 miles of pipes.

“In 2015, it spent more than $1.2 billion replacing and improving water systems around the nation. And over the next five years, it will invest more than $6 billion to build, repair and replace others within its territories.

“Aside from replacing lead pipes, the EPA estimates that more than $600 billion needs to be spent to maintain and upgrade our weathered and aging water systems.

“Aside from organic growth, the company is expanding through acquisitions and the water industry remains ripe for consolidation. There are more than 150,000 public water systems in the U.S. Many municipalities are tired of dealing with all the compliance obligations. Most would like to wash their hands of the responsibility of protecting, maintaining and upgrading these systems.

“And, of course, American Water Works is happy to step in.

"Since its initial public offering in 2008, American Water has seen its shares more than triple. The dividend has increased every year too.

“But with the nation facing hundreds of billions of dollars’ worth of new infrastructure spending over the next few years, there is still plenty of upside here.”

- Aaron Task with Alexander Green

Live Twitter Feed