Yep, to be fair, it's not intuitive. I think the best way to understand this is the very wealthy live in a different universe from me (and presumably you, given you're asking how this works).
Basically, the first thing to realise is the very rich don't manage their own money. They don't open their banking apps or balance their chequebooks…
Yep, to be fair, it's not intuitive. I think the best way to understand this is the very wealthy live in a different universe from me (and presumably you, given you're asking how this works).
Basically, the first thing to realise is the very rich don't manage their own money. They don't open their banking apps or balance their chequebooks. Other people do all this for them. And, those other people do it exceedingly creatively and well (because their own livelihood depends on it!). Which is all to say, historically, the wealth of the rich has well outpaced inflation for decades because they are fielding very different players than the rest of us (see: any wealth inequality chart of the last 50 years).
So, largely because of this, when they need money, the very wealthy go to the bank and say "I have $50m in shares, and want to buy a boat" and the bank manager says "sure, here's a $10m loan, secured against your shares, at an insanely-low interest rate for the rest of your life (P.S. Please Love Me)". And then, your wealth manager goes off and does their work, and your wealth grows at a rate higher than the bank interest rate and, boom, tax free 'income'!
And, if you think this is all theoretical, I'm not especially rich but I do have a house. And because I have a house, banks are very happy to give me decent credit so, for the last few years, I've put thousands into various '0% balance transfer' credit card offers. I paid the minimum each month, and never a cent in interest, effectively arbitraging 'income' to pay off my mortgage faster (*Banks hate this one weird trick!!*)... I'm not some unique financial genius or a wealth manager, but it was easy, untaxable, money.
Now, imagine what sorts of tricks and offers are available to a professional wealth manager with $300m-odd to work with (...and don't even get me started on the huge industries set up solely to revalue and churn-resell assets to build up equity so the wealthy can borrow more against them)
I'm not saying it isn't an uphill battle trying to convince people about this stuff. At face value, it fundamentally does sound unfair to tax 'unrealised' gains, until you get a glimpse into the 'wealth-dimension' where money just works very differently.
If you're interested in this stuff, I should warn you it's a rabbit hole, but for an alternative approach I'd highly recommend starting at https://pudding.cool/2022/12/yard-sale/
Thanks for the link that was very interesting. So you're saying you've been getting interest-free money from the same bank you have your mortgage with, to repay that mortgage?? That sounds a bit crazy... Why would a bank do that?
Haha, yes, why indeed! A glimpse into the 'wealth dimension' I guess? ;-)
To be fair, the trick to get the most from it is to shift from one bank's credit card offer to the next: Offers are drying up a bit now unfortunately - https://www.moneyhub.co.nz/balance-transfer-credit-cards.html - and obviously it's not something I'd recommend to anyone without very good financial discipline!
But basically when you get near the end of your 0% period, you apply for a new balance transfer offer from another bank, pay off any remaining balance, and max out the new card - they rarely asked for proof of the actual outstanding balance of the old card...All they care about is whether you can service the debt with them - i.e. you have some 'wealth' to secure it against.
Yep, to be fair, it's not intuitive. I think the best way to understand this is the very wealthy live in a different universe from me (and presumably you, given you're asking how this works).
Basically, the first thing to realise is the very rich don't manage their own money. They don't open their banking apps or balance their chequebooks. Other people do all this for them. And, those other people do it exceedingly creatively and well (because their own livelihood depends on it!). Which is all to say, historically, the wealth of the rich has well outpaced inflation for decades because they are fielding very different players than the rest of us (see: any wealth inequality chart of the last 50 years).
So, largely because of this, when they need money, the very wealthy go to the bank and say "I have $50m in shares, and want to buy a boat" and the bank manager says "sure, here's a $10m loan, secured against your shares, at an insanely-low interest rate for the rest of your life (P.S. Please Love Me)". And then, your wealth manager goes off and does their work, and your wealth grows at a rate higher than the bank interest rate and, boom, tax free 'income'!
And, if you think this is all theoretical, I'm not especially rich but I do have a house. And because I have a house, banks are very happy to give me decent credit so, for the last few years, I've put thousands into various '0% balance transfer' credit card offers. I paid the minimum each month, and never a cent in interest, effectively arbitraging 'income' to pay off my mortgage faster (*Banks hate this one weird trick!!*)... I'm not some unique financial genius or a wealth manager, but it was easy, untaxable, money.
Now, imagine what sorts of tricks and offers are available to a professional wealth manager with $300m-odd to work with (...and don't even get me started on the huge industries set up solely to revalue and churn-resell assets to build up equity so the wealthy can borrow more against them)
I'm not saying it isn't an uphill battle trying to convince people about this stuff. At face value, it fundamentally does sound unfair to tax 'unrealised' gains, until you get a glimpse into the 'wealth-dimension' where money just works very differently.
If you're interested in this stuff, I should warn you it's a rabbit hole, but for an alternative approach I'd highly recommend starting at https://pudding.cool/2022/12/yard-sale/
Thanks for the link that was very interesting. So you're saying you've been getting interest-free money from the same bank you have your mortgage with, to repay that mortgage?? That sounds a bit crazy... Why would a bank do that?
Haha, yes, why indeed! A glimpse into the 'wealth dimension' I guess? ;-)
To be fair, the trick to get the most from it is to shift from one bank's credit card offer to the next: Offers are drying up a bit now unfortunately - https://www.moneyhub.co.nz/balance-transfer-credit-cards.html - and obviously it's not something I'd recommend to anyone without very good financial discipline!
But basically when you get near the end of your 0% period, you apply for a new balance transfer offer from another bank, pay off any remaining balance, and max out the new card - they rarely asked for proof of the actual outstanding balance of the old card...All they care about is whether you can service the debt with them - i.e. you have some 'wealth' to secure it against.
Haha in French we have a saying "on ne prête qu'aux riches" which translates to "one only lends to rich people", which is quite fitting here 😂