There are a couple of ways (disclosure, I am not a billionaire :-))

First, nobody really needs a billion dollars in "cash" it just doesn't make sense as "cash" deposits pay a below inflation rate return in most places (meaning it loses its "value" over time) and even a negative interest rate in some places.

Second, it isn't like there is a "fixed amount of money" in the world and if someone has all of it, everyone else has none.

So if you are a billionaire, and most of your billions are in stock of a particular company, and you are a US citizen. You file a form with the Securities and Exchange commission (SEC) to sell some shares every month or quarter or year. Or you file a form that says you will sell X shares 3+ months from now. The SEC posts this information publicly so that other investors will know about it ahead of time and decide what to do. The point being that you are a "big investor" or an "insider" and selling might be seen as a signal, and this makes the signal loud and with a time delay so that the other investors can respond. Then the appointed time comes and your shares get dumped on the market and you collect however much money they happen to bring in (less taxes).

You will see lists like this one (http://www.nasdaq.com/symbol/goog/insider-trades) for Google. Which itemize those sales. So lets say you need 15 million a month to operate your private jet, you set up a system that will sell enough stock to net at least 15 million a month to cover that. You don't want to sell it all since you might want to vote your shares but you have to get around so you let some go.

A lot of tech billionaires set up trusts for their children which they fund such that their children will never have to work and can live a comfortable lifestyle. A number of tech billionaires have been setting up foundations (like the Bill and Melinda Gates foundation) which can convert stock to cash in a tax advantaged way and do good things with it. Sometimes the foundations are created to give the billionaire a vehicle for influencing others while nominally keeping their hands clean. (not working so well for Trump and Clinton but I read about a number of foundations being used in this way.)

So generally if you look at the insider trading you will see billionaires selling stock in 10 to 100 million dollar chunks and using it for different things.

Somewhat related, if you or someone else knows: is there any special process for transferring or handling large amounts of money? For example, if you're buying a $5m private jet, how would you pay for it? A regular check or bank transfer?

Also, do the banks keep any security checks in place? e.g. If I had $10m and there was a request to transfer out $5m, I'd definitely like the bank to run it by me.

For a slightly unrelated but perhaps interesting side note, I doubt most billionaires are flying around in $5m private jets. A Gulfstream G650 runs around $66m. Roman Abramovich owns an Airbus A340-300, among other aircraft, that Wikipedia lists at $238m. $5m might get you a custom interior with a nice exterior paint scheme.

If anyone is interested, here's a link to a firm that designs custom interiors/exteriors for private jets. I believe the Airbus with "Bourkhan" written on the side is Abramovich's. http://www.pegasusdesign.mc/

Disclosure, I'm not a billionaire, I just like airplanes.

Short answer to your question is "Private Banking":

https://en.wikipedia.org/wiki/Private_banking

You have a specific account manager, who you know, and is in communication with you about that Jet purchase. Yes, it probably is a wire, but maybe to an escrow, depending.

You do not need to go the private banking way to have such level of service. I am living in Germany at the moment, I have an account in a Sparkasse (A savings bank).

As I needed to buy a car, I informed my account manager that I would buy one, gave her the bank account information of the car dealer and told her that if everything is in order, I would call and ask her to perform an "instant" money transfer.

Just went to the car dealer, looked at the car, call my account manager, 30 minutes later the money was available on the account of the car dealer and I was ready to go.

For the day-to-day stuff, we use a pure online bank, but I am happy to pay the higher fees of a Sparkasse for such cases where trust is needed.

I think there is a bit of a difference between buying a car and buying a jet.

I bought a car last year and just paid for it using my chip-and-pin debit card, my bank told me that they can identify accounts for car dealers and don't question large payments to them.

The car handlers in Germany do not allow that for large amount of money. You can authorize a transfer without limits with your card (Lastschriftverfahren), but the handler will not have the money directly so he cannot be sure he will be able to pull the money out of your account. They want money in an irrevocable way on their account, which I understand.

Well, I'm sure a bank has enough cash on its own accounts to pay for a car instantly. My parents had a problem few years ago when they were buying a warehouse for big $$$, and the bank literally asked them to wait a couple days until they could gather that much money to actually pay out the loan. Now imagine that times hundred - I guess it's not a simple operation.

Were they doing it in cash? I can understand it if the warehouse was literally being bought in hard currency, but otherwise it seems a little strange!

No, they were taking a loan from a small local bank and the bank literally didn't have enough money sitting in the account to pay out all of it instantly - they had to ask their other branches to make the transfer to their account first, before they could make the transfer to the account of the seller.

How much money are we talking about here? It sounds like a lot of money if a bank had to call other banks.

Few million - but it was a small bank. Obviously BoA has that kind of money available at any moment, but that bank didn't. But I imagine even BoA would need a bit of notice if you wanted to pay $250M for a jet.

at the $millions level, although technically you could, you generally don't "send money" like you or i or even a typical rich person would do as individuals paying a regular bill. you talk to a person at the bank who calls up another person at another bank, and they wire the money from bank to bank or some kind of intermediary, like an underwriter or escrow co.

think of it like financing a new car purchase, on a grand scale. how many people were involved in a $30k car transaction? you, your SO, maybe your kids, the sales guy, the sales manager, the finance manager, the underwriter at the bank, the underwriter's manager at the bank, etc. sure you wrote the dealership a check for the down payment, but did you "send" anyone $30k? no, you were the centerpiece in a large, coordinated effort to get $30k sent from a bank to the car dealership, so you could drive off in a new car without much hassle or cash. scale up from there.

so, yes, there are all sorts of checks in place. on a $millions deal, possibly a dozen people or more will be involved either directly or tangentially. bankers, accountants, lawyers, sales people, etc. deals in the $millions range get complicated, and everyone wants extensive, exacting paperwork to ensure both that they get paid and they don't get accused of fraud.

rich people do not buy expensive things in cash. they tend to hold on to as much cash as possible, because cash is the only kind of money with direct control. avoiding 'debt' is a middle class phenomenon, i assure you. the poor and the rich are drawn to it like flies to shit because it helps them achieve their short term goals fabulously effectively, however different they may be, and however expensive (one can afford it, the other can't. guess who.)

yes, some genius solo entrepreneur could just do all of this himself but in reality it rarely happens that way. more money means more people.

>>think of it like financing a new car purchase, on a grand scale. how many people were involved in a $30k car transaction? you, your SO, maybe your kids, the sales guy, the sales manager, the finance manager, the underwriter at the bank, the underwriter's manager at the bank, etc. sure you wrote the dealership a check for the down payment, but did you "send" anyone $30k?

I'm not disagreeing with you, but I recently bought a car for much more than $30k, and I just paid using my chip-and-pin debit card at the dealership - so yeah, I guess the dealership got a transfer directly from Visa.

Not a personal finance discussion but tying up large amounts of cash in a depreciating asset is almost always the worst possible use of it.

Sure, but if you like cars and want a brand new one, then it doesn't really matter if it's a bad or a good decision, does it? Just like buying a new phone every year is a "bad" financial decision, but it doesn't matter when that's how you want to spend your money.

What I meant was you can usually finance it and save money. There are no additional incentives for cash buyers, while you can often get incentives to finance and sub-inflation rates or even get additional incentives to finances at a higher rate.

There isn't anything different really different in the transfer, as both the buyer and the seller have their own banks, the buyer tells his bank to send the funds to the seller's bank, it does, and the seller hands him the jet. Bank to bank transfers can easily be 10's of millions and hundreds of millions per transfer.

As for security, once you get to a couple of hundred thousand dollars in a bank they will generally assign you your own account manager and you can work out security restrictions with them. Generally you won't be doing a lot of "online banking" with those accounts but I could imagine people do. If you have a lot of money they probably would call your accountant to verify the transfer prior to enacting it if it didn't come directly from them.

These individuals can easily call up banks and get a loan on their worth.

"Hey, Morgan Stanley I need 2 mil deposited in my account" - "ok"

This is also how they avoid income tax. ;) They can take in millions and it's just a loan. Then they pay it back off with stock or other asset deals.

This. There is a large section of private banking that have creative ways to provide loans/financing to major shareholders. As long as your stock remains stable, you can finance anything up to your net worth.

As long as.

http://www.wsj.com/articles/SB100014240527023035055045774024...

You might be able to move around when you incur income tax a little bit that way, but you can't avoid it.

This is exactly right, you can shift it into another tax year but you can't legally avoid it. But everyone's tax situation is different.

There are ways, e.g. by donating to your own accredited charitable foundation.

But then you can only use the money for certain purposes.

Of course, you can't get rid of your entire tax bill (well, maybe you can, in one tax year). But you can probably do more with charities than you'd assume.

For example: let's say you buy a mansion. This mansion has a forest or large amounts of land surrounding it. A charity focusing on land or nature preservation could acquire that land.

Deferring tax means you get interest on money that would have been taxed which acts as a tax break.

Ex: Supose you have 100$ your tax rate is 15% and you get 5% in interest. Pay 10% now you have (100$ - 15$) * 1.05 = 89.25 next year. Swap that order 100$ * 1.05 - 15$ = 90$ Next year or a ~7% tax break.

Push it off long enough (without interest or fees) and you pay arbitrarily close to 0% tax rate.

Yes, borrowing can increase the leverage on an investment. It can magnify gains, but it can also magnify losses.

No, you cannot use leverage to reduce taxes to zero. You are confused if you think that. Go play with the numbers some more. Don't forget that you have to pay taxes on the investment gains you make with borrowed money (as you did in your example).

You only need to pay capital gains when you sell an asset. As to deferring if you defer and save 10% then next year defer and save 10% of that it's a net reduction of 0.9 * 0.9 and every year you defer is another * 0.9. If nothing else inflation makes deferring tax loads very attractive.

It's true that you can somewhat increase your overall return by deferring capital gains taxes because you get to hold on to the assets you would have paid in taxes longer and those assets can earn a return for you (this is why certain types of tax advantaged retirement accounts are nice). But I think you are significantly overstating the potential gains when you say that you can save 10% a year.

For example let's say you have $1000. Tax rates are 15% and annual investment returns are 8%.

Under strategy A you sell and pay taxes at the end of every year. Under strategy B you only sell at the end of 30 years and pay taxes all at once.

Under strategy A you will end up with $6,738.55. Under strategy B you will end up with $8,069.6 which is about 20% more.

20% more is a lot so that's a strategy worth thinking about! But it's not reducing your tax bill anywhere close to 0.

In fact you actually pay more in total taxes under strategy B in nominal terms (and about the same in real terms assuming 2% inflation) because you have more overall gains.

Overall, I agree that deferring tax payments can be a very useful thing to do. I just dispute your statement that "Push it off long enough (without interest or fees) and you pay arbitrarily close to 0% tax rate." That's simply not true.

What tax rate does it take before: (1000) * (1 + 0.08 * (1-x)) ^ 30 = $8,069.6.

Plug some numbers in and it's ~9.9% effective tax rate not 15%. Extend that from 30 to 300 years and that % keeps dropping.

The numbers are even lower if that initial 1000$ was profit not principle.

I have $100 and i need $2 so i go through the trouble borrowing it? That's if you have a measly billion dollars. Now if you've got $10B, that's like financing 20 cents.

You're forgetting about taxes. If you sell something worth $100, you probably aren't going to pay $30 in tax on it (or probably anything at all).

If you sell something worth 100 million you're going to pay 30 or 40 million in taxes.

With the loan you won't pay any tax now, you might pay it later, or you might not ever pay it because you'll have that loan until you die and the bank will be the beneficiary of 100 million of your estate.

Then you just die with more assets which will incur higher estate taxes. The estate tax rate is higher than the long term capital gains rate.

Estate taxes are paid before creditors.

Yeah but you're dead so you don't care. :)

Well if your goal was to optimize your taxes to pass on as much as you could to your heirs you failed at your goal.

you only need $2. There's no need to cash in $100.

You're right I missread but the point is the same. Taxes. The whole thing changes when you're trying to be tax efficient.

capital gains tax is lower, no?

Sure, but you still have to pay taxes, whereas if you get a loan you just pay interest (probably a very low rate) and defer the taxes.

I think major shareholders of Kodak, MCI WorldCom, Enron or Polaroid would point out the concentration risk one is incurring.

They diversify into other investments. For very large holders of stock, they use a preset and scheduled sales plans to negate any color of insider trading or impropriety.

The very largest insiders have to disclose their sales publicly.

See for yourself: Zuckerberg's sales of FB.

https://biz.yahoo.com/t/15/8822.html

> Do they just simply wait until the stock is at a high point, and sell a lot? Maybe move that money to other investments?

Pretty much. If they own shares in a public company, they can just sell them on the open market.

You can see director's dealings on the company's 'Insider Transactions': (i.e. Apple: http://finance.yahoo.com/quote/AAPL/holders?p=AAPL)

If the company's not public — they can receive cash through salary/bonus/dividends. If they're privately financed (i.e. VC's) they can liquidate some of their shares during a funding round (they sell some of their shares to the VC).

(This is a total ELI5 — sorry to any financiers/accounts reading this)

At that level money takes on a whole new meaning. It's no longer a form of currency used to purchase things but more of an abstract perception of power.

Perception? It IS power. The power to influence politicians and elections. The power to influence how we educate our youth (e.g. Bill Gates and Common Core). The power to dominate everything.

It thoroughly undermines democracy, unless we want to redefine democracy as 1$ = 1 vote.

I've been finding myself quoting Game Of Thrones more than usual lately but:

“Power resides where men believe it resides. No more and no less.”

These billionaire are powerful only because we have collectively decided to put such high value on the product of their companies and investments. It all stems from perception.

If you claim that the benefits of our technological society are merely perception, I suggest that you are not perceiving all that clearly.

> “Power resides where men believe it resides. No more and no less.”

Follow it through. People believe what they are told, to a certain extent, so Power resides where people are told it does. Who tells them where it resides? Those who can afford to shout about it a lot.

Thusly a billionaire is powerful because they have the ability to make people believe it by projecting that position through "propaganda", and this doesn't go away. Money buys people listening to you. By the quote, that is essentially power, and so money is power.

Three possible strategies:

1) Sell immediately and diversify.

2) Sell a smallish portion of holdings at a market price periodically.

3) Never sell anything, borrow against the portfolio to finance personal needs.

Strategy (1) is suitable for heirs and retired executives.

Markets really-really like it when active executives stick to (3), though. Because it's not the most rational financial decision and due to AMT tax bill incurred on new stock grants to such active executive, most people at that level stick to (2), which can be traced via tools such as Yahoo! Finance.

(2) also has a benefit of reasonable diversification and obfuscation in regards to internal signals, i.e. traders reading the insider filings for any signs of unusually high buy or sell orders.

There are also less obvious ways to unlock cash, instead of just selling (you might not want to do that, because you believe your stock is undervalued or you want to retain control of your company, etc).

For example: let's say you own $500m worth of Google stock. Google stock compounds pretty well at the moment. Interest rates are low, around 1-2% per year.

You can borrow $200m quite easily by using your existing stock as collateral. That money could then be reinvested again in a low fee S&P fund and in some individual stocks, generating you a 10% yield per annum. 10% - 2% = 8% of annual gains, or $16m per year.

I think yes probably both.