A person’s wealth
can be made up of many different assets. It can comprise of liquid savings,
stocks, mutual funds, bonds, real estate, vehicles, retirement accounts (IRAs,
pensions), and other types of assets. But how does the composition of net worth
differ for a person with middle income compared with that of an ultra-rich?
The chart above breaks
down the difference in the composition of wealth between middle income, upper
income, and ultra-wealthy (top 1%) Americans.
Middle Income:
Home is Where the Wealth is
For Americans in
the middle class ($0 to $471k of net worth in 2017), principal residence is
their main asset. For households that fall in this wide range 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.
As their income ladder moves up this situation changes.
Upper Income:
A Diversified Portfolio
If a household
has a net worth that ranges between $471,000 and $10.2 million, it is in the
upper income band. 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 the 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 their 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 50% of
the US equities.
Reference:
1. Nick Routley, How the Composition of
Wealth Differs, from the Middle Class to the Top 1%, www.visualcapitalist.com
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