Connect with us

Money

The Jump from Millionaire to Billionaire, and How Long That Takes

Published

on

Some people say that making the first million is the hardest.

Others, like oil tycoon T. Boone Pickens have quipped that the first billion is a “helluva lot harder”.

Regardless of which is true, it’s interesting to examine how long it took the world’s wealthiest to reach the million and billion dollar benchmarks, as well as how many years were in between.

Millions to Billions

Today’s infographic comes to us from Betway, and it provides a study of the 100 wealthiest billionaires that topped the 2018 edition of the Forbes Rich List.

The Jump from Millionaire to Billionaire, and How Long That Takes

Based on the top 100 billionaires studied from the Rich List, the average age for hitting millionaire status is 37. Meanwhile, the billion dollar mark is hit on average at the age of 51.

This puts the average time period to go from millionaire to billionaire at 14 years.

Making the Jump, by Industry

Even with this small sample size, it’s clear that how fast this jump happens depends greatly on industry.

Tech entrepreneurs were by far the fastest on the list to go from millionaire to billionaire, with an average time of only 7.3 years. That number is averaged down by entrepreneurs such as Jeff Bezos, who has singlehandedly been able to amass an impressive empire of companies and assets in a very short period of time.

Tech EntrepreneurMillionaire (Age)Billionaire (Age)Difference
Jeff Bezos33352 years
Bill Gates26315 years
Mark Zuckerberg22231 year
Larry Ellison42497 years
Larry Page25305 years
Sergey Brin26315 years
Ma Huateng33363 years
Jack Ma354510 years
Steve Ballmer30388 years

Other industries don’t have the same luxuries as tech, where products can go from Zero to One at such high speeds.

In the automotive, construction, and real estate industries, for example, there are costly physical assets to deal with, as well as fiercer competition. At the same time, innovations are often more incremental, and companies cannot be scaled as fast.

Making the Jump, by Country

Interestingly, the jump from millionaire to billionaire took the longest in the United States, with a period of 14.1 years on average for self-made billionaires.

CountryTime to go from $1M to $1B
Russia9.0 years
China9.9 years
Japan11.0 years
United States14.1 years

While this may seem counter-intuitive, there are a couple of caveats worth mentioning.

For starters, the sample size is extremely small at just the top 100 billionaires, which means that a country like Russia has only so many in the mix. This low sample size can distort figures, and not be particularly representative of a true average.

Further, economies like Russia and China have recently transitioned from more controlled economies to more market-driven ones. This has allowed oligarchs and well-connected individuals to take advantage, while amassing new wealth at astonishing rates.

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading
Comments

Investor Education

Structured Notes: The Secret to Improving Your Risk/Return Profile?

Structured notes provide some downside protection, while allowing investors to participate in market upswings. Learn all about them in this infographic.

Published

on

Structured Notes

Structured Notes: The Secret to Improving Your Risk/Return Profile?

Structured notes are gaining momentum in the market, with a whopping $2 trillion in assets under management (AUM) globally.

So why haven’t more investors heard of them?

Traditionally, structured notes had a $1 million minimum investment. They were only available to high-net-worth or institutional investors—but they are now becoming more accessible.

Today’s infographic from Halo Investing explains what structured notes are, outlines the two main types, and demonstrates how to implement them in a portfolio.

What is a Structured Note?

A structured note is a hybrid security, where approximately 80% is a bond component and 20% is an embedded derivative.

Structured notes are issued by major financial institutions. Since they are the liability of the issuer, it is critical that the investor is comfortable with the issuer—as with any bond purchase.

Almost all structured notes have four simple parameters.

  1. Maturity – The term typically falls within 3 to 5 years.
  2. Payoff – The amount the investor receives at maturity.
  3. Underlying asset – The note’s performance is linked to the price return (excluding dividends) of an asset, such as stocks, ETFs, or foreign currencies.
  4. Protection – The level of protection the investor receives if the underlying asset loses value.

As long as the underlying asset does not fall lower than the protection amount at maturity, the investor will receive their initial investment back in full.

This is the primary draw of structured notes: they provide a level of downside protection, while still allowing investors to participate in market upswings.

Types of Structured Notes

There are a variety of structured notes, providing investors with diverse options and a range of risk/return profiles. Structured notes generally fall into one of two broad categories: growth notes and income notes.

Growth Notes

Investors receive a percentage—referred to as the participation rate—of the underlying asset’s price appreciation.

For example, a growth note has the following terms:

  • Maturity: 5 years
  • Participation rate: 117%
  • Underlying asset: S&P 500 index
  • Principal protection: 30%

Here’s what the payoff would look like in 4 different scenarios:

S&P 500 returnGrowth Note Return
50%58.5%
10%11.7%
-10%0%
-50%-20%

The S&P 500 can return a loss of up to 30%, the principal protection level in this example, before the note starts to lose value.

Income Notes

Over an income note’s life, investors receive a fixed payment known as a coupon. Income notes do not participate in the upside returns the way a growth note does—but they may generate a higher income stream than a standard debt security or dividend-paying stock.

This is because protection is offered for both the principal and the coupon payments. For example, say a note’s underlying asset is the S&P 500, and it pays an 8% coupon with 30% principal protection. If the S&P 500 trades sideways all year—sometimes slightly negative or positive—the note will still pay its 8% coupon due to the protection.

Income notes have another big advantage: their yields can spike in tumultuous markets, as was demonstrated during the market volatility near the end of 2018.
structured notes

Why did this spike occur? Banks construct the derivative piece of an income note by selling options*, which are more expensive in volatile markets. Banks then collect these higher premiums, creating larger coupons inside the structured note.

Investors can diversify their return profile by using a combination of growth and income notes.

*Option contracts offer the buyer the opportunity to either buy or sell the underlying asset at a stated price within a specific timeframe. Unlike futures, the buyer is not forced to exercise the contract if they choose not to.

Portfolio Applications

Structured notes are powerful tools that can accomplish almost any investment goal, and investors commonly use them as a core portfolio component.

  • Step 1: Select a portfolio asset class where downside protection is desired.
  • Step 2: Reallocate a portion of the asset class to a structured note
  • Step 3: Improve risk/reward performance.

The asset class will demonstrate an enhanced return profile, with less downside risk.

A Global Market

While relatively small in the Americas, the structured notes market is growing on a global scale:

RegionAUM (2019 Q2)
Americas$434B
Europe$526B
Asia Pacific$1,066B

In the first half of 2019, assets under management in the Americas was up by 4%. It’s clear the asset class presents enormous untapped potential—and investors are taking notice.

Lowering Barriers Through Technology

Technology is becoming more ingrained in wealth management—empowering investors to access structured notes more easily through efficient trading.

The market is already becoming more accessible. By 31 October 2019, the average transaction size had decreased by almost $500,000 over the year prior.

Technology also offers other benefits for investors:

  • Improved analytics
  • Investment education
  • Risk information
  • Increased competition = lower fees
  • Improved secondary liquidity

As more investors take advantage of this asset class, they may be able to improve their return potential while limiting their risk.

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading

Demographics

The Global Inequality Gap, and How It’s Changed Over 200 Years

This visualization shows the global inequality gap — a difference in the standards of living around the world, as well as how it’s changed over 200 years.

Published

on

How the Global Inequality Gap Has Changed In 200 Years

What makes a person healthy, wealthy, and wise? The UN’s Human Development Index (HDI) measures this by one’s life expectancy, average income, and years of education.

However, the value of each metric varies greatly depending on where you live. Today’s data visualization from Max Roser at Our World in Data summarizes five basic dimensions of development across countries—and how our average standards of living have evolved since 1800.

Health: Mortality Rates and Life Expectancy

Child mortality rates and life expectancy at birth are telltale signs of a country’s overall standard of living, as they indicate a population’s ability to access healthcare services.

Iceland stood at the top of these ranks in 2017, with only a 0.21% mortality rate for children under five years old. On the other end of the spectrum, Somalia had the highest child mortality rate of 12.7%—over three times the current global average.

While there’s a stark contrast between the best and worst performing countries, it’s clear that even Somalia has made significant strides since 1800. At that time, the global average child mortality rate was a whopping 43%.

Lower child mortality is also tied to higher life expectancy. In 1800, the average life expectancy was that of today’s millennial—only 29 years old:

Life Expectancy in 1800 by Continent

Today, the global average has shot up to 72.2 years, with areas like Japan exceeding this benchmark by more than a decade.

Education: Mean and Expected Years of Schooling

Education levels are measured in two distinct ways:

  • Mean years: the average number of years a person aged 25+ receives in their lifetime
  • Expected years: the total years a 2-year old child is likely to spend in school

In the 1800s, the mean and expected years of education were both less than a year—only 78 days to be precise. Low attendance rates occurred because children were expected to work during harvests, or contracted long-term illnesses that kept them at home.

Since then, education levels have drastically improved:

 Mean Years of SchoolingExpected Years of schooling 
Global Average8.4 years12.7 years
HighestGermany 🇩🇪: 14.1 yearsAustralia 🇦🇺: 22.9 years
LowestBurkina Faso 🇧🇫: 1.5 yearsSouth Sudan 🇸🇸: 4.9 years

Research shows that investing in education can greatly narrow the inequality gap. Just one additional year of school can:

  • Raise a person’s income by up to 10%
  • Raise average annual GDP growth by 0.37%
  • Reduce the probability of motherhood by 7.3%
  • Reduce the likelihood of child marriage by >5 percentage points
  • Source

    Education has a strong correlation with individual wealth, which cascades into national wealth. Not surprisingly, average income has ballooned significantly in two centuries as well.

    Wealth: Average GDP Per Capita

    Global inequality levels are the most stark when it comes to GDP per capita. While the U.S. stands at $54,225 per person in 2017, resource-rich Qatar brings in more than double this amount—an immense $116,936 per person.

    The global average GDP per capita is $15,469, but inequality heavily skews the bottom end of these values. In the Central African Republic, GDP per capita is only $661 today—similar to the average income two hundred years ago.

    A Virtuous Cycle

    These measures of development clearly feed into one another. Rising life expectancies are an indication of a society’s growing access to healthcare options. Compounded with more years of education, especially for women, this has had a ripple effect on declining fertility rates, contributing to higher per capita incomes.

    People largely agree on what goes into human well-being: life, health, sustenance, prosperity, peace, freedom, safety, knowledge, leisure, happiness… If they have improved over time, that, I submit, is progress.

    Steven Pinker

    As technology accelerates the pace of change across these indicators, will the global inequality gap narrow more, or expand even wider?

    Subscribe to Visual Capitalist

    Thank you!
    Given email address is already subscribed, thank you!
    Please provide a valid email address.
    Please complete the CAPTCHA.
    Oops. Something went wrong. Please try again later.

Continue Reading
Get more Visual Capitalist with VC+

Subscribe

Join the 130,000+ subscribers who receive our daily email

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Popular