How People Get Rich Now

April 2021

Every year since 1982, Forbes magazine has published a list of the
richest Americans. If we compare the 100 richest people in 1982 to
the 100 richest in 2020, we notice some big differences.

In 1982 the most common source of wealth was inheritance. Of the
100 richest people, 60 inherited from an ancestor. There were 10
du Pont heirs alone. By 2020 the number of heirs had been cut in
half, accounting for only 27 of the biggest 100 fortunes.

Why would the percentage of heirs decrease? Not because inheritance
taxes increased. In fact, they decreased significantly during this
period. The reason the percentage of heirs has decreased is not
that fewer people are inheriting great fortunes, but that more
people are making them.

How are people making these new fortunes? Roughly 3/4 by starting
companies and 1/4 by investing. Of the 73 new fortunes in 2020, 56
derive from founders' or early employees' equity (52 founders, 2
early employees, and 2 wives of founders), and 17 from managing
investment funds.

There were no fund managers among the 100 richest Americans in 1982.
Hedge funds and private equity firms existed in 1982, but none of
their founders were rich enough yet to make it into the top 100.
Two things changed: fund managers discovered new ways to generate
high returns, and more investors were willing to trust them with
their money.
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