What do the wealthiest households own that separates them from others?
The answer to that question can be found in research data from the Federal Reserve on the distribution of U.S. household financial accounts.
This data allows you to compare the level, composition, and share of assets and liabilities with households in other wealth percentile groups, and see what the wealthiest households buy and own that makes them different.
If you are interested in learning what assets are prioritized by the wealthiest households and how you compare, please read on.
Asset comparison of most and least wealthy households
To help you understand the difference in the asset ownership between the most and least wealthy groups, I compared the data from the wealthiest group (Top 0.1%) to least wealthy group (Bottom 50%). The composition of assets for those groups are presented in this chart.
These charts can help you understand key differences between the asset ownership of the most and least wealthiest U.S. households. Based on the Fed data on assets and liabilities, wealthier households:
- Own more assets that appreciate in value and generate passive income, like stocks/funds and investment real estate. As you move up the wealth percentiles, the proportion of assets held in stocks and business equity increases significantly. This indicates that these types of assets are key drivers of wealth accumulation for the very wealthy. Alternatively, households in the lowest wealth percentile tend to have a higher proportion of their assets in consumer durables that usually depreciate in value over time.
- Finance depreciating assets less often. Higher wealth households pay less to buy assets, using a lower percentage of higher-interest consumer credit to finance purchases of durable goods.
- Invest in assets that generate higher returns over time. Growing your wealth means prioritizing assets that generate the highest returns. Wealthy households understand the importance of owning assets that grow from compounding and generate passive income, while managing risk through asset diversification. Historically, the stock market experiences higher growth than the real estate market, making it a better way to grow your money. Although owning a house is important for wealth accumulation, owning “too much” house used a primary residence carries a high opportunity cost.
What the wealthy know
Regardless of your income level, what you decide to spend your income on can have a major impact on wealth accumulation. Wealthy people understand:
- The importance of living below their means: They avoid overspending and prioritize saving a significant portion of their income.
- Buying and owning physical goods that depreciate in value, like expensive cars and clothing, are not drivers of wealth accumulation. And financing these purchases can further decrease your wealth.
- Wealth accumulation buys independence, and the freedom to control their destiny.
- Knowledge is power: Clearly understand their financial situation, and make conscious decisions about how to allocate their money. How does your composition of assets compare to these groups? To see how you compare, download the MyWealth Distribution Analysis worksheet and personalize with your data.
Charting your path
If you need guidance developing your path to financial independence and want to Do-It-Yourself (DIY), then reading my books and using the worksheets will give you the know-how. If you need help getting started and are not interested in a DIY approach, then I recommend consulting with a fiduciary financial advisor.
It Pays to Know!
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Disclaimer: The information contained in this post is for illustrative purposes only and should not be construed as a recommendation to buy or sell specific investments.