7 Secrets Wealthy People Know about

Amassing and Maintaining a Fortune

By Abram Brown | Forbes 7 hours ago

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Reuters - Facebook CEO Mark Zuckerberg smiles after addressing the audience during a media event at
Facebook headquarters in Menlo Park, California March 7, 2013. REUTERS/Robert Galbraith

Becoming wealthy enough to keep the wolf from your door doesn't mean an end to
unwanted callers. For every newly minted billionaire, there are cautionary tales of the
well-heeled undone by visits from the the tax man, the loan officer and Uncle Sam
himself.

A fortune requires finesse. As well as a willingness to embrace financial exotica, trips to

Bermuda and the drive to start your own business--as a survey of FORBES' knowledge of
the world's wealthiest people reveals. Below are seven tricks, secrets and maneuvers
regularly conducted by those with more than a shekel or two to accumulate and maintain
their fortunes.

1. Start Your Own Business

Warren Buffett, chairman and CEO of

Berkshire Hathaway (AP/Nati Harnik)Click over to FORBES' roll of billionaires, and you'll

notice something if you dig into the biographies. Nearly all of the 1,426 billionaires made
their fortunes through an entrepreneurial spirit (or their fortunes come from a family
member who created the business). Ten-figure sums aren't earned by rising through
corporate ranks. They're made from creating the whole shebang from scratch. It will
likely occur by happenstance, in the most unsuspecting of ways.Recall that the world's
fourth richest man, the aforementioned Buffett, left the working world in 1955 with plans
to retire. Shortly after, cajoled by a seven-person group of family and friends,
twentysomething Buffett formed a partnership that laid the groundwork for his $53.5
billion fortune. He did so over a small dinner at the Omaha Club.

[More from Forbes: Billionaire Hedge Fund Managers]

2. Put Growth Investments In A Roth IRA

The investments with the greatest potential for growth should go into a Roth IRA. They
sit there tax free, and as long as you wait until the age requirement (59 and a half),
withdraws won't be levied either. Employees at fast-growing private companies often go
this route. Peter Thiel did it as CEO of PayPal in 2001, buying 1.7 million shares for 30
cents a share through his Roth. The 2002 eBay acquisition of PayPal make those shares
produce a $31.5 million profit. The man who founded PayPal with Thiel, Max Levchin,
has also done something similar. His Roth has already sold 3.1 million Yelp shares and
holds another 3.9 million. Result: some $95 million that an elder Levchin can withdraw
tax free.

3. Find Stocks You'll Never Sell

At the forefront of investing royalty in the last century was an intense man with round
glasses from northern California named Philip Fisher. He became the first to author an
investing book that cracked The New York Times bestseller list with Common Stocks and
Uncommon Profits in 1958. It became an establishing text for modern growth investing,
laying out a 15-point strategy that wound up catching the attention of a young man from
Nebraska: Warren Buffett, who would make tens of billions of dollars through a
combination of Fisher's tenets and those by value investing founding father Benjamin
Graham.
Today, Fisher's son, Ken, is also a billionaire. He manages a $42 billion asset
management company, and still calls northern California home. The younger Fisher is
perhaps more value oriented than his father--especially favoring the price/sales ratio
when assessing a company's worth--but there's a particular point in his father's work that
he says is never far from his mind. Probably because it plays well in value investing, too.
It's the idea that you buy a stock with the mentality to own it forever.
Papa Fisher had good reason to buy and never let go. He faced capital gains rates that
topped 45%. (Today's, by contrast, cap gains are much lower at 20% or so.) He bought
DuPont and Dow Chemical in the 1930s, selling them only four decades or so later. He
picked up Motorola in the 1980s, and still owned shares when he died at age 96 in 2004.

Does such a mentality have a place in today's world of milisecond trading? "If done right,
yes," says the younger Fisher. "People aren't perfect, though."
4. Insurance, Bermuda-Style

The latest tax loophole exploited by hedge funds involves the reinsurance business. A
whole host of billionaire hedge fund managers have started Bermuda-based reinsurance
companies since 2011,according to Bloomberg, and the roll includes bold-faced names
like John Paulson, SAC Capital Advisors' Stevie Cohen, Third Point's Dan Loeb. (They
were inspired by Greenlight Capital's David Einhorn.) By sending money through these
companies, the hedge funds recycle it and reduce personal income taxes and delay the
eventual tax bill. Normally the managers would be paying either ordinary income taxes
(39.6%) or long-term capital gains taxes (20%).

5. Make Your Corporation Pay You

Actress Hilary Duff (Kevin

Winter/Getty Images)Ever heard of these corporations: Screaming Lord Baltic, Flip-Flop

Films or On Nets Above People? Probably not, unless you're toiling in Warner Brothers'
back-office.
Each of those entities were incorporated by an entertainer, specifically those advised by
Scott Feinstein, who reps celebs like Aaron Paul, Hilary Duff and Taylor Lautner.
Feinstein suggests the maneuver because it allows clients to better manage taxes and

expenses. Celebs many times have trouble deducting some of large business expenses
they face. "These are people paying out like 20% or 40% in their income in expenses," to
people like agents and managers, Feinstein says. Why can't the silver-screen crowd make
the deductions? The Alternative Minimum Tax, something every American pays. "It
effects something like 20 million Americans, and it limits how many expenses you take to
eliminate your taxable income."
To get around this, celebs start a corporation and instruct producers to pay the
corporation, not them directly. (The government made an exception for entertainers to
earn wages this way, Feinstein says. You, in all likelihood, can not.) The corporation, in
turn, pays the entourage, and the star emerges with a lowered taxable income.

[More from Forbes: 7 Secrets Wealthy People Know]

While Feinstein favors this method, he refuses to take the blame for the oddity of the
corporate names: "I tell them to come up with something that means something to them."
Screaming Lord Baltic. Huh.

6. Think Like Zuck. Think Trusts

Doubts about Facebook the company's longevity aside, Mark Zuckerberg and his cofounder Dustin Moskovitz have already taken steps to secure their family's legacy.
As FORBES reported last March, Zuckerberg and Moskovitz put pre-IPO stock into a type
of financial instrument called a grantor retained annuity trust (GRAT). The pair, by
FORBES estimates, wound up moving more than $200 million to the trusts. Future
payouts will avoid the 45% gift tax that existed (in 2008) when these trusts were created.
Perhaps not as cool as sliding $1 billion past the IRS, but a GRAT is especially useful for
stashing away hard-to-value assets, like private companies shares, because it allows
changes to the trust's details if you're audited.

7. Cash Flow Is Important. Buy MLPs, Sell The Steak House

Where does Brad Pitt put his multi-million-dollar paychecks? It's not too much to
presume that he, like much of Hollywood, has money invested in master limited
partnerships (MLPs). Conversations with five of Hollywood's top money managers
revealed a cult following for these stocks, which generate strong yields and cash flow. Like
real estate investment trusts, MLPs pay no taxes. Hence, they have more to share with
investors, and payouts are more lightly taxed.

[More from Forbes: The World's 20 Richest People]

They're certainly more than one-hit wonders. The Alerian MLP Index's returns beat the
S&P 500's on a 1-year, 3-year-, 5-year and 10-year basis. The index, holding some 50
MLPs, favors gas-and-oil infrastructure companies like Enterprise Products Partners,
Kinder Morgan and Plains All American Pipeline.
Alan Goldman, a Los Angeles business manager with a star-studded rolodex and client
roster, says he's often left talking his crew out of pitches on the next trendy restaurant,
instead advising more consistent investments, like MLPs. "We find that they need to be
more conservative than Joe Average." Goldman sighs. "The restaurants are very, very
popular with entertainers. We look at something like a restaurant and just assume that
the money is gone."