Millionaires Make a Return To Boom Levels
| June 25, 2010 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
The number of millionaires rose by 16-16.5% in the U.S. and increased by 14% worldwide in 2009, depending on which report you use; this level of millionaire households was last seen in 2007. Interestingly, this increase occurred despite contraction of the world gross domestic product (GDP). The primary reason for the increase is due to stock market rallies. Consider that the global stock market capitalization surged from $32 trillion to $47 trillion in 2009, so shareholders benefited enormously.
Concentrated Wealth
The wealth was still highly concentrated. By far, the U.S. has the greatest number of millionaire household ranging between 3.1 million households (14th Annual World Wealth Report) and 4.7 million households (2010 Global Wealth Report). Americans account for 31% of the millionaire households. Over 50% of the world’s millionaires came from the U.S., Japan, and Germany. Singapore had the highest millionaire density, with 11% of all households having over $1 million in net worth. For the first time, the high net worth individual (HNWI, investible assets over $1 million excluding primary residences, luxury goods, and private businesses) population in Asia-Pacific was as large as that of Europe. Despite sizable gains in Europe, these gains were far less than growth in the economic and market drivers of wealth in Asia-Pacific. The ultra-high net worth individuals (investible assets over $30 million excluding primary residences) had a 21.5% rebound in wealth in 2009. Note that ultra-high net worth individuals account for 35.5% of global wealth HNWI wealth and makes up only 0.9% of the HNWI population.
Good News
With the plethora of bad economic news, such as Will the Economy Collapse in 2011?, bad housing and unemployment news, and the market correction of May, it is easy to forget or at least discount the fact that if you were an investor throughout in 2009, you likely had a good year overall. This is especially true if you increased your exposure to emerging markets in Latin America and Asia. Also, keep in mind that the more money you have, the more difficult it is to determine your true net worth in many cases. For example, valuation of private companies can be very complex, and the opinions often disagree depending on which method you are using. Thus, after a particular point, net worth becomes somewhat arbitrary anyway.
If you can actually count your money, then you’re not a rich man. (J. Paul Getty)
Additionally, don’t forget who the average millionaire is. Remember that the typical millionaire is not a Wall Street titan, a corporate fat cat or a celebrity but rather a hard-working entrepreneur (32%) or professional (19%). Moreover, even though both the 14th Annual World Wealth Report and the 2010 Global Wealth report rightfully exclude primary residences in determining HNWIs, keep in mind that approximately 97% of millionaires are also home owners. Typically, millionaires have small outstanding mortgage balances and only approximately 25% paid $1 million or more for their current homes. Millionaires typically save and invest 15% of their earned income, which only represents 7% of their total net worth. In other words, frugality is a common tenet amongst millionaires. With good money management, investing skills, a long enough time frame, and a reasonable income, several of us will likely enter the millionaire ranks as well. Thus, this recovery in wealth reflects a rebound in wealth for many more hard-working, tax-paying Americans than it does jet-setters. That’s simply because millionaire jet-setters are in the minority of the millionaire population.
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
A million bucks is definitely not what it once was. It's important to take account of where it is. If it's in an IRA it's really equivalent to $750,000 or less compared to being in other places. It is good though to see the number of millionaires recover after the 2008 crash.
You are right. You would need about $3 million in today's USD to have the same purchasing power of a millionaire from the early 1980's. Regards, ShawnBy IRA, I'm assuming you mean a conventional IRA.
This is interesting, how there was an increase in millionaires in the US – especially considering average savings rates continue to fall.Principles of sound personal finance – living within one's means, saving a significant percentage of income, etc – are timeless principles. By making solid decisions and setting up their financial life wisely, some people have been able to move foward better than others in these economic times.
I agree that 1) solid principles are timeless and 2)some people are better able to use these principles in this environment to get ahead. That said, I think for the most part savings had little to do with this increase in millionaires other than it being a solid foundation of a good financial plan. In other words, the liquidity was needed to decrease risks in the event something bad came up. This increase in millionaires in 2009 definitely came from capital appreciation of paper assets.
I read the article as well, and I guess it's true, but i'm not so sure. If it is, it means most people have a lot of their wealth in the stock market and have recovered. Hmmmm… donno about that.I have 30% of my wealth in the market, 35% in fixed income earning 4%, and 35% in property earning a 6% rental yield, and my own house. Pretty balanced imo, and perhaps my net worth is back up to 2007, but it's b/c it took 2 years of extra work to get it back there. Is that the point? That we are back to pre-crisis levels in 2010, by simply working 2-3 more years? If so, that's not a shock at all. Best,Sam
Yo Sam,That's a very interesting point. It did take 2-3 more years for wealth to be reclaimed. That's essentially the reverse of what happened last year. 2008 losses in the US erased all the gains from the previous two years. I know a few months ago the DOW & S&P; had both recovered around 70% of their values, and since most balance sheet millionaires invest at least 15% of their earned income income anyway, it seems reasonable people are getting back to 2007 levels of wealth. As you point out, the recession did cause people to lose ground due to loss time. Your portfolio is very balance, especially for your age. I'm a little surprised that you only have 35% of your wealth in stock since most people tend to be more bullish about the stock market when they are young. Your portfolio is very balance!Regards,Shawn
I'll share with you some insight. The reason why I only have 35% of my wealth in the markets is because of the absolutely dollar amount. In the beginning, you are happy to continue dollar cost average and putting everything into the market.After a while, you stop, and just want to build on cash savings b/c a 4% return on let's say $500,000 is a healthy, risk from $20,000 a year. If you have $500,000 in the stock market, with the way the markets are going, losing 20% is EASY to do, but that's a gut wrenching $100,000 down the drain. You become seriously RISK ADVERSE and aren't looking for that 20% upside for $100,000 b/c you already have a lot, and are probably making a decent amount already.If you have a $300,000 401K balance pre-crisis that goes down 50%, it's going to take a 100% move to get you back.. and if there is no move up, it will take you 8 years contributing $16,500/yr to get back.
I certainly follow your logic. Although I do invest in paper assets, I am quite RISK ADVERSE myself. We only have 35% of our investments in the market. I just have "met" so few young people with this perspective though, which is why I was shocked. However, your point about the more you have the less risk you want to take seems completely rationale. Given the fact most young people are broke, there is simply less money to risk.Shawn