Category Archives: Financial Planning

How Wealth is Allocated Among Net Worth Levels

In Tuesday’s Forecasts & Trends E-Letter, I focused on how our national savings rate has plunged to only 2.9%, the lowest in a decade. I included a chart showing how the Top 1% of income earners save 38% of their income, whereas the rest of the Top 10% save only 12% of their income. I also pointed out how outstanding credit card balances have skyrocketed over the last year.

As I was doing the research for this week’s E-Letter, I ran across a very interesting graphic which illustrates how people of various net worth levels have their assets allocated. The chart is courtesy of Jeff Desjardins, editor of Visual Capitalist and is based on data from the Fed’s Survey of Consumer Finances report for 2016 which was recently released.

A person’s net worth can be made up of many things, of course. Net worth, the measure we use to gauge wealth, is actually the sum of all of a person’s assets after subtracting liabilities (such as loans). Therefore, net worth can be comprised of liquid savings, stocks, mutual funds, bonds, real estate, business interests, vehicles, retirement accounts (IRAs, pensions) and many other types of assets.

Take a few minutes to look at the chart below – there’s a lot to be gleaned from it, at least for me. Notice in particular how people’s asset distributions change as their net worth increases.

The chart above illustrates that the composition of assets can vary greatly from people with a net worth of $100,000 versus people with a net worth of $1 billion. There were many things that jumped out of the chart above for me.

First, what lept out at me the most was the fact that most billionaires are very illiquid. On average, they have over 60% of their net worth in business interests, many of them privately-held. Such businesses can be difficult to sell or liquidate.

Second, I was very surprised to see that those with net worth of $1 million or more don’t have more of their assets invested in stocks, mutual funds and fixed income investments (bonds).  As shown above, billionaires have less than 25% of their net worth invested in stocks and bonds.

Third, I was struck by how little those with $100 million or more in net worth have in liquid assets (cash equivalents). Those with $100 million or more appear to have well below 5% in liquid investments, and billionaires have less than half of that in cash equivalents. Maybe that shouldn’t be a surprise to me, since I have long heard that millionaires and billionaires are generally not very liquid.

Fourth, and this is no surprise, for those with a net worth of $100,000, their home equity represents almost half of their total net worth. By comparison, for those with a net worth of $10 million or more, the value of their home(s) is a much smaller component of their net worth.

There are lots of other caveats that can be drawn from the chart above.  But what struck me the most was how much the richest among us have invested in illiquid investments such as business interests and how little they have invested in traditional investments such as stocks and bonds.

I wish the Fed survey asked what percentage these richest investors have invested in so-called “alternative investments” such as those we offer at Halbert Wealth Management, which do not include traditional buy-and-hold stocks or bonds.

As you saw last week, we have now added three successful real estate strategies to our recommended stable of offerings. We have had a great deal of interest in these programs, especially among clients and prospective clients who are looking for income.

And we have several other strategies which generate income with low drawdowns, that are largely or entirely unrelated to the performance of stocks or bonds.

Our stable of recommended investment strategies is more diversified today than it has ever been. We are able to help investors in ways we could not in the past. That’s a good thing!

I’ll leave it there for today. Hope you found this as interesting as I did.

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