5 ways the rich have an advantage over you

financialpost.com:

The perfect amount of money is not more; the perfect amount of money is enough. It is a great quote and a good philosophy.

Too many investors chase returns when looking for the big score. Too many investors have enough money but spend all their effort on getting more. It can make for a sad, lonely life, despite the appearance of success.

But let’s focus on the advantages that really rich investors have over you and me. It takes money to make money, but once you have money, the advantages increase. Here are five ways the rich have an advantage over you.

You can largely ignore even very major market crashes if you have $65 million. Suppose the market takes a sudden 25 per cent hit. In such a scenario, you will have about $49 million left.

First, we are pretty sure you are going to be just fine with $49 million. Second, if you actually take any losses by selling stocks, you can reduce your capital gains tax bill. Third, assuming five per cent yields, your $49 million is still going to generate $2.45 million annually, and you can use that money to start buying stocks at their depressed levels. Win, win and win.

In June, the federal government bumped up the capital gains inclusion rate. Lots of investors — including yours truly — were angry about this. Not only does it increase your personal taxes, but it was very shortsighted. Canada has a productivity crisis and taxing risk capital at higher rates is not the way to improve productivity. But, ignoring this aspect, it barely mattered for the rich.

Back to our example: if our investor has $49 million now and capital gains taxes go up, what do you think they do? They don’t sell stock, that’s for sure. They borrow money against their assets. This defers taking capital gains and