From Gerd Kommer and Felix Grossman
The book The Missing Billionaires – A Guide to Better Financial Decisions by two American asset managers Victor Haghani and James White contains a fascinating calculation on the subject of “The rich become poor again much more often than we think”. We reproduce this calculation below in a slightly modified form.
In 1900, there were around 4,000 people in the United States with assets of $1 million or more. In the absence of more precise data, Haghani/White simply assume that a quarter of these 4,000, i.e. around 1,000 people or households, had assets of at least five million dollars. Inflated with the average US inflation rate over the 122 years from 1900 to 2022, five million dollars from 1900 in money in 2022 (the end date of the calculation in the Haghani/White book) corresponds to about $180 million, and when inflated with the growth of the American economy (and thus roughly the growth of US household incomes) corresponds to around $6 billion. The correct inflated value of this “truth” is probably somewhere in between (see the following info box “Inflation”).
Infobox: The correct method of inflating historical amounts of money
Typically, prices, incomes or assets from the long-ago past are transformed (“inflated”) into today’s monetary values using the average consumer goods inflation rate. It is doubtful whether this is correct. There is much to be said for using the generally higher nominal growth rate of household income instead, or, as a replacement that is easily available to everyone, the nominal growth rate of gross domestic product per capita (Williamson et al. 2026). This method results in higher values in today's money.
It is on these 1,000 people – just over 0.001% of the then US population of 78 million – that we focus. We call this wealth elite our “MB Group” for “Missing Billionaires” based on the Haghani/White book. Why we talk about Missing Billionaires will become clear immediately.
Let us now make the following simple, obvious assumptions: The 1,000 people were each part of a couple, i.e. a family. To date, these families have continued to grow in membership at the same rate as the entire U.S. population. In 1900, all members of the MB Group invested their total assets in a broadly diversified portfolio of US stocks (a representative sample of, for example, 40 stocks). Families withdrew 2% of their assets each year in real terms for subsistence purposes. [1] Given the high level of wealth, this is a generous assumption. This rate of withdrawal would have allowed for a standard of living that would have been many times more demanding than that of the average American, without any further professional activity on the part of the people concerned.
“Real withdrawal” means that the corresponding absolute withdrawal amount from year 1 (i.e. 1900) was increased every year with the inflation rate, so that the consumer goods purchasing power of the withdrawal remained unchanged. Over time, the families paid taxes on dividends and any realized capital gains, taking a buy-and-hold approach, taking into account their withdrawals, that helped effective To reduce the tax burden significantly below the statutory (legal) tax rate. (We explain how this works - in practically every national tax system - in a separate Blog post)
At the end of 2022, the original 1,000 families would have become around 4,300 families, each with an average Minimum assets of around 2.3 billion dollars. Minimum assets because we expected a starting value of five million for all families, whereas in reality this value was probably only the lower limit of the wealth of the 1,000 families in question.
In their book, Haghani/White even come up with 16,000 families for the year 2022 with a minimum wealth of one billion dollars per family, because their calculation was overall less conservative than ours when it comes to the assumed effects of costs, taxes and withdrawals.
In fact, in 2022 there were only 730 families in the USA with assets of a billion dollars or more. Haghani/White write that presumably not a single one of these families is closely related to the original MB group. In other words: Probably none of the 1,000 super-rich families in our MB group from 1900 managed to stay in the top group of super-rich over these five generations.
Asset collapse among the super rich
The apparently surprisingly universal and rapid decline in wealth of the super-rich can also be illustrated with other figures. The first Forbes 400 list of the super-rich in the USA was published in 1982, over 40 years ago. [2] Of the 400 families in the 2022 issue of Forbes magazine, less than 10% were included in the first list in 1982, according to Haghani/White.
The short “half-life” of the wealth of the super-rich in the USA is analyzed even more comprehensively and clearly in the scientific study “The Rich get poorer – The Myth of Dynastic Wealth” by Arnott/Bernstein/Wu 2015.
To our knowledge, there are no such complex studies on the extent of the wealth collapse of “normally rich” families with assets of “only” a few million euros, but we see no reason why these wealthy, but not super-rich, families should be subject to other rules.
Why do we regularly read “the rich are getting richer” in the media and in populist books on economic inequality? This has two main causes. The first is that there is a lot of cherry-picking in the underlying time frames and regional units (e.g. a single country versus the entire world) in order to get to the sensationalistic desired result of many journalists: “Economic inequality is increasing and the rich are getting richer.”
Research on economic inequality is incomplete
The second main cause: Practically all academic research on the distribution of income or wealth over time, i.e. on the question of economic inequality, which is important in socio-political discourse, is methodically based on viewing “rich” as an abstract statistical Aggregate to be viewed as a small percentage group at the upper end of the income or wealth distribution, e.g. B. 10%, 1% or 0.1%. However, this way of looking at the rich population segment must be distinguished from the completely different analytical approach “rich people as a non-abstract group of specific natural persons” - a difference of importance that can hardly be overestimated.
If inequality research were to be carried out systematically on the latter methodological basis (rich people as specific natural persons) in addition to the “conventional method” (rich people as an abstract percentage group), the resulting headline would almost invariably be: “The rich from 10 or 20 or 30 or 50 years ago have become relatively and often enough even absolutely poorer” or “the rich families of today are hardly the rich families of 20, 30 or 50 years ago years”.
This is the case because the... composition According to all we know, the group of rich people changes surprisingly strongly and quickly over time. There is a constant migration into this group (“from bottom to top”) and out of this group (“from top to bottom”). It is not a “closed club of rich people” or rich families who are, so to speak, forever at the top financially and everyone else is forever at the bottom.
Back to the traditional, conventional and, in our opinion, incomplete or even misleading measurement of inequality (riches as a statistical aggregate): Despite the different impression that the media has been giving us about it for years, even this form of economic inequality is in the respect that matters most, namely global level, decreased in the relevant past. The so-called GINI coefficient of disposable income, a mathematical measure of income inequality, shows more economic equality or less inequality at a global level (i.e. including all countries) today than in 1960. Compared to 1990, inequality has fallen particularly sharply. The main reason: household incomes in developing countries have grown faster overall than in industrialized countries. This is primarily due to market economy reforms in China, India and other large and small emerging countries.
If one looks at after-tax income and not - as is usually the case in most such inequality statistics - pre-tax income and income including state transfer payments ("social assistance", unemployment benefits, etc.), then income inequality has also decreased or moved sideways in most western countries (i.e. not just at a global level) since 1990.
Fake news in the media about “The rich are getting richer”
A considerable part of the reporting on the alleged increase in economic inequality (with the implication “the rich are getting richer”) even cites figures and developments as “evidence of increasing inequality” that clearly do not say or can say anything about inequality, e.g. B. the increase in absolute Number of billionaires in a single country or worldwide over time. Such an increase would occur over a given extended period even if the inequality would remain unchanged or fall simply because it is the necessary consequence of the combined effects of population growth, economic growth and inflation.
Interim conclusion: The fact that economic inequality is increasing and, by implication, the rich are getting richer and the poor are financially stagnating or becoming poorer are clearly false statements in this generalization. (a) Globally, economic inequality has trended down relatively consistently over the last 50+ years, (b) it has also fallen in rich Western countries since a peak in the early 1990s, especially when after-tax income and government transfers are taken into account. (c) Specific Rich families don't always get richer, but as a group they probably get poorer (relatively and/or absolutely) in the long term. At least that is what the few available data and studies that inequality research has provided so far indicate.
Another cognitive deception at the level of the individual observer plays a role in this complex and ethically and sociopolitically charged topic: Why do we hear in the media and in our personal social environment much more often about specific people becoming rich than about rich people becoming poor? Because the former are proud of it, some even brag about it, while the latter almost always keep it quiet because they see their financial decline as a defeat and/or shame.
But whatever. What is crucial here is that the composition of the richest 10% or 1% changes surprisingly dramatically over time. It is not always the same people or families who are in this top group today as they were ten years, 25 years or 50 years ago. Not clearly communicating this factually and socio-politically important fact, barely researching it empirically, and literally keeping quiet about it can be seen as a systematic failure of sociological and economic inequality research. [3]
The reasons for this failure are obvious. By using the narrative “inequality is increasing and the rich are getting richer,” you as a researcher will receive much more attention in the media, in the public and in politics, you will be more likely to increase your own research budget and, moreover, you will not encounter any opposition anywhere. The same applies to journalists who, of course, achieve more circulation and clicks with the clickbait headline “inequality is increasing” than with the actually correct headline “according to the most important criteria, inequality is decreasing and most of the rich from 20+ years ago are poorer today”.
At the level of the individual household, the false narrative reinforces the false belief: “Once rich, always rich” and complicates the fundamental mind shift that a household that has become rich needs to transition into a truly functioning asset protection mindset.
What novels tell us about the collapse of wealth
Perhaps instead of relying on obviously incomplete or activist statistical methods and data, academic wealth and inequality researchers should evaluate the fiction literature of the last 200 years. It probably tells more “rich-to-poor” than “poor-to-rich” fates – the fates of specific people. Of course, these are initially fictional fates, but we can confidently assume that they are based on the real life reality in their society observed and experienced by the authors. Here is an example from the novel The green Henry by Gottfried Keller (1819-1890): [4] "The division of property [in the small Swiss town where the novel is set] changes a little from year to year and with every half century almost beyond recognition. The children of yesterday's beggars are today the rich in the village, and tomorrow the descendants of these are struggling to get around in the middle class in order to either become completely impoverished or rise up again." [5]
Thomas Manns (1875-1955) Buddenbrooks (Publication 1901), the most important social novel ever in the German language, is another example of a specific super-rich family that becomes poor again in two generations through a combination of materialized cluster risk (too little diversification), incompetence, wastefulness and laziness. (The laziness in the second generation of the family is glorified in various euphemistic terms, for example as “sensitivity” or “artistic inclination”.)
Otto von Bismarck (1815-1898) is said to have once said - in politically incorrect terminology from today's perspective - "the first generation creates wealth, the second manages it, the third studies art history and the fourth goes to waste." There are many popular variations of this observation. The Anglo-Saxon proverb “from rags to riches and back again in three generations” expresses the same point. [6]
The question now arises as to why rich families are apparently so bad at the discipline of “long-term asset protection”. Anyone who takes a closer look at this interesting question is likely to come to conclusions similar to ours. Seven possible individual causes of becoming poor are particularly striking in relation to rich people in Western countries:
(a) distribution of assets among an “excessively large” number of descendants,
(b) Distribution and reduction of assets through divorce (for the financial implications of divorce and separation, see our separate Blog post),
(c) too high taxes,
(d) excessively high, wasteful living standards,
(e) additional costs of liquid investments that are too high, [7]
(f) too many bad business investments (“your own company”),
(g) excessive philanthropic wealth transfers/donations.
The family in question has complete control over factors (b) and (d) to (g). It can influence factor (c) (high taxes) at least to a certain extent. Only factor (a) is de facto beyond the control of the actors, because here non-economic goals (many children want) take precedence over economic goals.
In a specific rich-to-poor case, more than just one of these seven causes will usually have been at work. However, the single most important cause here is – there is little doubt in our minds – cause (f): Too many bad business investments. (Please note that the five causes [a] to [e] have already been fully or partially taken into account in our Missing Billionaires calculation described at the beginning.)
In other words: The rich become rich because in the wealth accumulation phase they typically make very profitable, concentrated investments in the form of their entrepreneurial activities over a longer period of time.
The main cause of wealth loss for the rich
Rich families then become poor again mainly because at some point, as rich people, they make bad investments - again in the form of entrepreneurial activities - or, to put it more precisely, they make too concentrated (too extensive) loss-prone entrepreneurial investments in relation to their total assets and do so again and again over a long period of time. Very often, on the financial path down, investments are made in the same companies or industries as before on the path up. Sosner explains the theoretical logic of this asset decline process in 2022 (bibliography below).
The research of the American economist Bessembinder, which caused quite a stir among academic economists, also confirms this logic. Bessembinder's empirical analyzes show that the stock market's high long-term average returns compared to other asset classes ultimately come from only around 4% of all listed companies (stocks). The remaining 96% of all listed companies only contribute returns that are below market average and in many cases even 100% losses (Bessembinder 2018). The main cause in statistical jargon: stock returns are distributed in a strongly “right-skewed” manner. These results are likely to be transferable one-to-one to unlisted companies. When it comes to new companies (startups), around 50% fail in the first five years if you define “failure” as forced or voluntary liquidation and over 90% if you define failure as “the company did not meet the founder’s original financial expectations” (see our separate Blog post).
The famous American Vanderbilt family is a concrete, well-known example of the rich-to-poor phenomenon in the United States. Cornelius Vanderbilt died in New York in 1877 at the age of 80. At his death he was the richest person in the world. He had built up this fortune on his own without the initial advantage of a significant inheritance. In 1973, almost 100 years after the patriarch's death, the 120 direct descendants met at one Family reunion in New York. At this point in time, there was not a single millionaire left among the descendants - in money from 1973. The three main reasons for this almost unbelievable implosion of family wealth over about four generations: (1) concentrated investing that went wrong (materialized cluster risk), (2) splitting of wealth among many descendants in combination with an above-average birth rate in the family, (3) lavish lifestyles among too many family members.
Reason No. 1: The Vanderbilts had left most of the family fortune in the US railroad sector, where Cornelius had become fabulously rich through cleverness and hard work until his death. Shortly after Cornelius' death, however, the US railway sector went into permanent decline due to overcapacity and economic structural change combined with political decisions (which of course was not so easily visible in real time). [8] The Vanderbilts invested a smaller portion of the family fortune in the real estate sector on the American East Coast, with overall equally disastrous results.
If the Vanderbilts had started, from the first inheritance in 1878, to invest the existing gigantic family capital little by little in US stocks and to a smaller extent in government bonds, i.e. systematically reducing the enormous, as it turned out, fatal concentration risk in the family assets and instead diversifying broadly across hundreds of companies and all industries, some Vanderbilt descendants would still be billionaires and most would be multimillionaires today.
Preventing the Vanderbilts' addiction to extravagance, which is hardly believable, from the first generation after Cornelius onwards by setting up a family foundation (in the USA, a family trust) would also have helped.
The spectacular family fortune founded by John D. Rockefeller (1839-1937) developed not quite as catastrophically, but also remarkably negatively. Rockefeller, like Vanderbilt, was the richest American and probably the richest person in the world when he died. Relative to the value of its property in 1937, the Rockefeller family has managed to “eliminate” 97% of it in about 90 years (measured by the respective share of the US gross domestic product).
The fundamental difference between the “money mindset” and investment techniques, which is huge but not really understood by many (still) rich people get rich (wealth creation) and stay rich (Asset preservation and use of assets) we have here described in more detail.
Conclusion
Entrepreneurial cluster or concentration risks - often in connection with the attempt to increase returns by using the credit leverage effect (through debt-financed investing) - are the or one of the main destroyers of large family fortunes - either while the founding generation is still alive [9] or even stronger after the founding generation has transferred its ownership to the first subsequent generation. Because this is the case, reducing these cluster risks after the wealth accumulation phase has been completed is part of the “compulsory financial program” of a wealthy family if they want to maintain the wealth they have achieved across generations. The best way to do this is to invest an increasing percentage of total assets in globally diversified stock and bond investments, possibly supplemented with an optional moderate mix of gold and crypto investments.
Anyone who is additionally worried that their descendants will not be able or unwilling to handle the existing family assets responsibly could reduce or even completely eliminate this risk or concern with the vehicle of a family foundation.
Endnotes
[1] In bad years for the family wealth, the withdrawal was reduced (a common belt-tightening policy). Any withdrawals that were not made were made up for in the good years that followed.
[2] See entry “Forbes 400” in the English language Wikipedia.
[3] The now 96-year-old American economist Thomas Sowell drew attention to this failure in his publications decades ago. Apparently without success.
[4] The Green Heinrich is one of the most important educational and developmental novels in German literature of the 19th century.
[5] The book was published in its final version in 1879.
[6] “From rags [literally “rags”] to riches in three generations and back.”
[7] “Liquid investments” are investments in stocks, bonds, precious metals, raw materials, crypto currencies, bank deposits and financial products derived from these, such as. B. investment funds.
[8] These include the political decision not to charge tolls for the use of the highway system, which was greatly expanded in the first half of the 20th century.
[9] The former Austrian billionaire René Benko is a recent example from the German-speaking world.
literature
Arnott, Robert/William Bernstein/Lillian Wu (2015): “The Rich Get Poorer: The Myth of Dynastic Wealth”; Cato Institutes; Internet reference: www.cato.org
Bessembinder, Hendrik (2018): “Do Stocks Outperform Treasury Bills?”; in: Journal of Financial Economics 129 (3); pp. 440–457
Haghani, Victor/James White (2023): "The Missing Billionaires. A Guide to Better Financial Decisions"; Wiley Publishing (book)
Sosner, Nathan (2022): “When Fortune Doesn’t Favor the Bold – Perils of Volatility for Wealth Growth and Preservation”; in: The Journal of Wealth Management; winter 2022; Volume 25; No. 3
Williamson, Samuel H. et al. (2026): “Defining Measures of Worth – Most are better than the CPI”; Internet reference: https://www.measuringworth.com
This blog post is a slightly modified version of a section from our book, which will be published in June 2026 “Protecting assets intelligently: Effective strategies for reducing risk – a practical asset protection guide”.