There are many things that can make up your net worth: cash savings, primary residence, car, IRA, taxable bonds, or private business interest. Visual Capitalist has a infographic called What Assets Make Up Wealth? that shows how this mix changes with net worth. The data is taken from the 2016 Federal Reserve Survey of Consumer Finances.
Some overall observations:
- As net worth increases, the following components tend to make up a smaller percentage of the pie: liquid cash, primary residence, and vehicles.
- As net worth increases, the following components tend to make up a larger percentage of the pie: taxable investments (stocks, bonds, mutual funds) and business interests.
- Most multi-millionaires have business interests as the biggest component of their net worth.
I noticed a few unique quirks in the trends. At the $100k level, primary residence has its biggest share among all of the tiers. Perhaps as you go from the $10k to $100k, you are more likely to own a home and thus it temporarily becomes a bigger component of the picture.
At the $1 million level, pensions/IRAs have their biggest share among all of the tiers. Perhaps above that level, more of your net worth goes into taxable investments. Due to contribution limits, it is hard to hold more than a certain amount in tax-sheltered IRA and pension accounts.
At the $1 billion level, perhaps my eyes are deceiving me, but it appears that the vehicles sliver is nearly twice as wide than for the $10 million level. If a $10 million household has 1% in vehicles, that works out to $100,000. Okay, that’s a Mercedes S-Class or Tesla Model X. If a $1 billion household has 2% in vehicles, that’s $20 million in vehicles! Wow, those $10 million households now seem really tight! It takes a lot more money before they let loose and splurge on some fun toys.
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I’m guessing “vehicles” includes aircraft. Mystery solved!
You’re probably right. Here’s an recent NYT Magazine article about a private jet broker.
https://www.nytimes.com/2018/01/23/magazine/selling-airborne-opulence-to-the-upper-upper-upper-class.html
I noticed the vehicle increase as well. I wonder if it might be air planes. The only guy I know that has moved through 4 of those levels and close to the fifth has 4 airplanes now. About $3 million worth.
I’m wondering what all is classified within “business interests”. Maybe angel investor or a large holding/influence on a public company (enough to be a board voice)??? Or maybe just owning a business and the value of the business is factored into the net worth. Any idea?
I’m assuming it is more often the latter (share of private business), with the business being the reason they are billionaires in the first place.
Yep, yacht and private jets.
I wonder at what net worth points do you move from commercial first class to the occasional charter to NetJets (fractional ownership) to fully owning your own private jet. I guess you need to be a billionaire to move onto full ownership status.
I was going to suggest that planes, trains, and boats come into play at the Billionaire stage but maybe not trains 😉
I do love seeing where the net worth allocations go since I usually keep an eye on how my pie is sliced and direct it accordingly. It’s interesting that real estate is such a small slice for almost all tiers. I had expected it to be a bigger portion.
The real estate slice is exclusive of a primary residence.