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How the Composition of Wealth Differs, from the Middle Class to the Top 1%

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Visualizing the Composition of Wealth, from the Middle Class to the Top 1%

A Breakdown of Wealth, from Middle Class to the Top 1%

Just as household wealth varies greatly across the population, the composition of that wealth changes as well. Simply put, the person next to you at the grocery store will likely have a much different asset mix than, say, Warren Buffett.

Today’s chart breaks down the differences in the composition of wealth between middle income, upper income, and ultra wealthy (top 1%) of American households to help us better understand the building blocks that make up net worth. Let’s dive in.

Middle Income: Home is Where the Wealth is

It’s no surprise that the principal residence is the cornerstone of net worth for most Americans in the middle class. For households that fall in this wide range ($0 to $471k of net worth) the combination of housing and pension accounts make up nearly 80% of total wealth on average.

Assets like stocks and mutual funds only make up about 4% of wealth in this income bracket, partially mirroring the trend of lower stock market participation in recent years.

As we move up the income ladder, however, this situation changes quite a bit.

Upper Income: A Diversified Portfolio

If a household has a net worth that ranges between $471,000 and $10.2 million, it is considered to fall in the upper income band above. This represents the 20% richest households in the U.S., minus the top 1%, which are put in a separate bracket.

For this group, the principal residence makes up a smaller slice of the wealth pie. Instead, we see a higher mix of financial assets like stocks and mutual funds, as well as business equity and real estate. Almost half of households in this group own real estate in addition to their principal residence.

As households become wealthier, we tend to see a lower share of liquid assets as compared with the other components of net worth.

The Top 1%: The Business Equity Bulge

In the richest 1% of households, the principal residence makes up a mere 7.6% of assets. At this stage, almost half of assets fall under the category of business equity and real estate.

A prime example of this is Jeff Bezos. The lion’s share of the Amazon founder’s net worth is tied to the value of his company. Another example is President Trump, whose sprawling real estate empire comprises two-thirds of his estimated $3.1 billion net worth.

One of the more prominent features of the ultra rich wealth bracket is a much higher level of financial asset ownership. In fact, the top 1% of households own over 40% of stocks.

stock ownership by wealth bracket

As well, this tiny group of ultra wealthy households earns 22% of total income, up from 8% in the 1970s.

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Chart of the Week

Ranked: The Richest Countries in the World

These countries hold 74% of the world’s $204 trillion in private wealth. See the 10 richest countries, and how their totals have changed over time.

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Ranked: The Richest Countries in the World

Since the 2008 financial crisis, global private wealth has been steadily growing.

In fact, overall private wealth worldwide reached $204 trillion in 2018, which is a 26% increase over the past decade.

This week’s chart, which uses numbers from the Global Wealth Migration Review 2019, examines the top 10 richest countries and the growth of private wealth from 2008 to 2018.

RankCountryPrivate Wealth in $USD (2018)10-yr change (%)
#1๐Ÿ‡บ๐Ÿ‡ธ United States$60.7 trillion27%
#2๐Ÿ‡จ๐Ÿ‡ณ China$23.6 trillion130%
#3๐Ÿ‡ฏ๐Ÿ‡ต Japan$19.1 trillion18%
#4๐Ÿ‡ฌ๐Ÿ‡ง United Kingdom$9.1 trillion4%
#5๐Ÿ‡ฉ๐Ÿ‡ช Germany$8.8 trillion7%
#6๐Ÿ‡ฎ๐Ÿ‡ณ India$8.1 trillion96%
#7๐Ÿ‡ฆ๐Ÿ‡บ Australia$6.0 trillion48%
#8๐Ÿ‡จ๐Ÿ‡ฆ Canada$6.0 trillion23%
#9๐Ÿ‡ซ๐Ÿ‡ท France$5.9 trillion-7%
#10๐Ÿ‡ฎ๐Ÿ‡น Italy$3.8 trillion-14%

Combined, the 10 countries above represent 74% of total private wealth worldwide.

These trends are staying consistent with the numbers seen in 2017. Asian countries such as China and India showed the highest uptick in wealth gains, holding their #2 and #3 spots on the list, while European countries such as France and Italy actually saw a decrease.

Trends in the Wealth Landscape

Over the last 10 years, China has experienced the largest increase in wealth at 130%. This growth also means that China now boasts more high-net-worth individuals (HNWIs) than any other country except the United States.

While India doubled its total private wealth over the 10-year period, wealth per adult remains at just 22% of the global average.

The U.S. continues to lead in wealth numbers, holding 30% ($60.7 trillion) of the world’s total private wealth. Unsurprisingly, the U.S. remains home to the most millionaires in the world.

The World’s Millionaires: Top 3 Countries

  • United States: 17,350,000
  • China: 3,480,000
  • Japan: 2,809,000
  • World total: 42,155,000

Source: Credit Suisse

Australia now tops the above list in terms of highest wealth per adult, and it is second in the world only to Switzerland in the context of major nations.

Despite the recent turmoil and uncertainty stemming from Brexit, the United Kingdom still saw overall growth in the past decade, moving from #5 to #4 rank on the list of countries with the highest private wealth.

Projections from New World Wealth estimate that total global wealth will reach $291 trillion by 2028, driven by strong growth in Asia.

Rising Wealth Inequality

Unfortunately, this growth is also linked to the growing problem of wealth inequality gap across the globe, and the gap seems to get bigger every year.

The average global wealth per adult is approximately $27,000 – but of the total adult population, 64% have a net worth of less than $10,000. The bottom half of adults in the world now own less than 1% of all household wealth.

By contrast, 85% of all household wealth is owned by the richest 10%, and the top 1% own almost half (47%) of the worldโ€™s household wealth.

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Animation: How Billionaires are Preparing for the Next Bear Market

No one likes to lose money, even if you have billions to spare. See how the world’s most elite investors – like Ray Dalio – are protecting themselves.

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How Billionaires are Preparing for the Next Bear Market

No one likes to lose money, even if you have billions to spare.

It’s why the prospect of a bear market – a prolonged downturn which sees stock prices fall by at least 20% over two months or more – is something that keeps even the world’s most elite investors awake at night.

To hedge against this concern, the world’s billionaires use a variety of strategies and tactics to protect their wealth, including setting up their portfolios with specific asset allocations that can help soften any blow caused by an extended market downturn.

Protecting Wealth

Today’s animation comes to us from Sprott Physical Bullion Trusts and it highlights a strategy being used by billionaires ranging from Ray Dalio to John Tudor Jones II.

Because market sentiment can change so quickly in the market, these elite investors protect themselves by having diverse portfolios that include uncorrelated assets.

Correlated vs. Uncorrelated

While this sounds complicated, uncorrelated assets are simply investments that don’t move up or down in the same direction as the other asset classes in the portfolio. A small allocation to these uncorrelated items can help protect the value of a portfolio when market sentiment changes.

The King of Uncorrelated Assets

What kind of asset classes can be used for this kind of purpose?

While options like real estate, commodities, and cash can contribute to a more diversified portfolio beyond traditional stocks and bonds, many experts say that gold is the undisputed king of uncorrelated assets.

The price of gold doesn’t usually doesn’t move with the wider stock market – and often, because of its history, the yellow metal can even increase in price during the course of a bear market.

Here are some of the reasons billionaires turn towards an allocation in gold:

  • Gold has acted as a store of value for thousands of years
  • Gold can lower the volatility of a portfolio
  • Gold can act as a hedge against inflation in some scenarios
  • Gold is a traditional safe haven asset that investors flock to when the market goes astray

Billionaire Actions

To kick off 2019, a new billionaire jumped onto the gold bandwagon – along with previous advocates such as Ray Dalio, David Einhorn, John Paulson, and John Tudor Jones II.

The newest entry to the club is Sam Zell, the pioneer behind real estate investment trusts (REITs). He bought gold for the first time in January, citing that it is “a good hedge” and that “supply is shrinking” as new mine discoveries dries up.

With market volatility back in the fray, it’ll be interesting to see how many more of the world’s elite investors also jump on the bandwagon.

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