According to the latest figures,not only have the rich gotten richer, but their ranks have grown by 12% to 3.44 million. To join that club you’ll need somewhere between $1 million and $5 million in liquid assets, at which point you gain the illustrious title of High Net Worth Individual or HNWI.
As you might guess, HNWIs don’t invest like those of us of lesser means. I was curious where HNWIs kept their money, so I turned to the World Wealth Report put out by Capgemini. The report contains information about wealthy people around the world — how much money they have, how HNWIs in various countries compare to one another and, most importantly, where they invest all that money.
The number of HNWIs has increased nearly every year since the recession ended, thanks mainly to recoveries in the stock market and real estate. Interestingly, even though recoveries in those sectors made more HNWIs, those same investments are not working out as well for millions of other Americans. Like with many things, it all depends on which side of the table you’re on.
Asset Allocation
Across the survey data, one fact stands clear: The rich keep the bulk of their money in cash and cash equivalents, which would include regular savings and checking accounts and money market accounts with checking privileges. That accounts for nearly a third of the asset allocation for HNWI individuals in the US. That makes sense when you think about it because after the first couple million in net worth you’re not worried about chasing returns. 30 percent in cash would be way too high for the average investor.
The wealthy keep nearly 10% of their wealth in hard assets, like gold & silver, and collectibles.
The next asset class working for HNWIs is equities, with as much as 26% of their wealth working in the stock market. That works out for the wealthy as regular income is taxed at 39.5% at that income level; the money they make from capital gains is taxed at a much lower rate.
Next on the list are real estate and fixed income annuities at 20% and 16% respectively. Unfortunately, the study didn’t break down whether the real estate was the primary residence(s) or investment properties. One would expect HNWIs to have lavish homes with a lot of expensive property, but the people really making money are building condominiums and apartment complexes in the trendy parts of town. The reality of real estate investment is probably somewhere in between those extremes.
HNWIs Are More Optimistic About The Economy
Money can’t buy happiness, but apparently it can rent a sense of confidence about the economy and the ability to build wealth. Wealthy people not only feel better about the economy, they have more trust in their investment advisers. They believe their bank is on their side and, for the rich, that’s probably an accurate statement. My family and I have accounts at the same banks, but they get concierge service while I get the drive up window.
The wealthy are skeptical of the stock market, especially after the crash of 2007/2008, but they have more trust in the markets than the general public. Their confidence is quite high when it comes to their investment house, but the rest of us don’t feel as good about big banks. While HNWIs are wary of our institutions of government, they maintain a higher level of trust than the rest of us.
The wealthy also keep nearly 10% of their wealth in hard assets, like gold and silver, and collectibles. Again, there is no breakdown of whether that would be investment grade bullion or jewelry — but that is a significant amount of money in alternative investments.
Above all else, the wealthy among us have outsized confidence in their own ability to generate wealth in the next year. Looking at the numbers it’s hard not to get the feeling that confidence and trust go together, and the people who have both are doing really well.