Average Net Worth of the 1%: Here's how much the super-rich in the world are really worth!

 

Many people perceive being wealthy as having nice houses and a pleasure yacht. But the kind of money that the wealthiest 1% of the world's households has dwarfs this concept. This segment of the population large portions of major corporations, multibillion-dollar investment funds, islands in the Caribbean, and even rocket ships taking them into outer space.

The average net worth of the 1%, aka the richest 1% of the global population's households, has mushroomed over the past two decades. It now towers higher above the net worth of the average citizen than ever before. Here are some of the basic facts about how the 1% lives.

6 Investing Mistakes the Ultra Wealthy Don't Make

 

The ultra-wealthy, known as ultra-high-net-worth individuals (UHNWIs), make up a group of people who have net worths of at least $30 million.

The net worth of these individuals consists of shares in private and public companies, real estate, and personal investments, such as art, airplanes, and cars.

When people with lower net worths look at these UHNWIs, many of them believe that the key to becoming ultra wealthy lies in some secret investment strategy. However, this isn't usually the case. Instead, UHNWIs understand the basics of having their money work for them and know how to take calculated risks.

KEY TAKEAWAYS

Ultra-high-net-worth individuals often understand the importance of savings, the basics of investing, and how to take calculated risks.

Concentrating portfolios with investments only from the U.S. and the EU is an example of an approach that overlooks potential opportunities elsewhere, such as the emerging markets.

UHNWIs do not try to keep up with their neighbors or compare themselves to others but focus instead on achieving their objectives and goals.

Periodically rebalancing portfolios is essential when trying to achieve the right mix of stocks and bonds over time.

UNNWIs often find opportunities in private markets that are overlooked by investors that focus only on public markets.

In the words of Warren Buffett, the No. 1 investing rule is not to lose money. UHNWIs aren't mystics, and they don't harbor deep investing secrets. Instead, they know what simple investing blunders to avoid. Many of these mistakes are common knowledge, even among investors who are not particularly wealthy. Here is a list of the biggest investing errors UHNWIs avoid making.

1. Only Investing in the U.S. and the EU

While developed countries such as the United States and those within the European Union are thought to offer the most investment security, UHNWIs look beyond their borders to frontier and emerging markets. Some of the top countries that the ultra-wealthy are investing in include Indonesia, Chile, and Singapore. Of course, individual investors should do their research on emerging markets, and decide whether they fit into their investment portfolios and their overall investment strategies.

2. Investing Only in Intangible Assets

When people think of investing and investing strategies, stocks, and bonds normally come to mind. Whether this is due to higher liquidity or a smaller price for entry, it doesn't mean that these types of investments are always the best.

Instead, UHNWIs understand the value of physical assets, and they allocate their money accordingly. Ultra-wealthy individuals invest in such assets as private and commercial real estate, land, gold, and even artwork. Real estate continues to be a popular asset class in their portfolios to balance out the volatility of stocks. While it's important to invest in these physical assets, they often scare away smaller investors because of the lack of liquidity and the higher investment price point.

However, according to the ultra-wealthy, ownership in illiquid assets, especially ones that are uncorrelated with the market, is beneficial to any investment portfolio. These assets aren't as susceptible to market swings, and they pay off over the long term. For example, Yale's endowment fund has implemented a strategy that includes uncorrelated physical assets, and it returned an average of 10.9% per year between June 2010 and June 2020.

3. Allocating 100% of Investments to the Public Markets

UHNWIs understand that real wealth is generated in the private markets rather than the public or common markets. The ultra wealthy may gain a lot of their initial wealth from private businesses, often through business ownership or as an angel investor in private equity. Additionally, top endowments, such as those run at Yale and Stanford, use private equity investments to generate high returns and add to the funds' diversification.

4. Keeping up With the Joneses

Many smaller investors are always looking at what their peers are doing, and they try to match or beat their investment strategies. However, not getting caught up in this type of competition is critical to building personal wealth.

The ultra-wealthy know this, and they establish personal investment goals and long-term investment strategies before making investment decisions. UHNWIs envision where they want to be in 10 years, 20 years, and beyond. And they adhere to an investment strategy that will get them there. Instead of trying to chase the competition or becoming scared of the inevitable economic downturn, they stay the course.

Further, the ultra-wealthy are very good at not comparing their wealth to other individuals. This is a trap that many non-wealthy people fall into. UHNWIs stave off the desire to purchase a Lexus just because their neighbors are buying one. Instead, they invest the money they have to compound their investment returns. Then, when they've reached their desired level of wealth, they can cash out and buy the toys they want.

5. Failing to Rebalance a Personal Portfolio

Financial literacy is a big problem in America, but everyone should understand the practice of rebalancing their portfolios. Through consistent rebalancing, investors can ensure their portfolios remain adequately diversified and proportionally allocated. However, even if some investors have specific allocation goals, they often do not keep up with rebalancing, allowing their portfolios to skew too far one way or the other.

A balanced portfolio typically includes the right mix of cash, stocks, and bonds based on a person's age and risk tolerance.

For the ultra-wealthy, rebalancing is a necessity. They can undertake this rebalancing monthly, weekly, or even daily, but all UHNWIs rebalance their portfolios on a regular basis. For the people who don't have the time to rebalance or the money to pay someone to do it, it's possible to set rebalancing parameters with investment firms based on asset prices.

6. Omitting a Savings Strategy From a Financial Plan

Investing is essential to becoming ultra-wealthy, but many people forget about the importance of a savings strategy. UHNWIs, on the other hand, understand that a financial plan is a dual strategy: They invest wisely and save wisely.

As a result, the ultra-wealthy can focus on increasing their cash inflows as well as reducing their cash outflows, thus increasing overall wealth. While it might not be common to think of the ultra-wealthy as savers, UHNWIs know that living below their means will allow them to achieve their desired level of wealth in a shorter amount of time.

10 Steps to Financial Security Before Age 30

Being financially secure before you reach 30 may seem out of reach for many people in their 20s, but it's possible. Working toward financial security need not be an exercise in self-deprivation, though many people assume it to be.

Attaining this goal even has some immediate benefits given that financial insecurity can be a serious source of stress.

The following are 10 steps to consider to achieve financial security before you turn 30.

KEY TAKEAWAYS

Knowing how much you spend can keep spending in check.

Live within your means, don’t use credit to fund a lifestyle, and set short-term achievable financial goals.

Become financially literate and save what you can for retirement.

Take calculated risks, such as moving to a city with more job opportunities or taking on a new job that pays less but has more upside potential.

Invest in yourself by continually upgrading your skills and knowledge.

Strike a balance—working toward financial security doesn’t mean you need to deprive yourself. 

1. Track Your Spending

Knowing how much you spend and on what keeps your spending in check. A free budgeting app like Mint can help you do this.

You might discover that ordering in food several times a week costs more than $300 a month, or recurring charges for streaming services and subscriptions you never use are a waste of your hard-earned money. If you can afford to spend hundreds a month on ordering in—great. If not, you’ve just discovered an easy way to save money in addition to canceling those streaming services you forgot you had.

2. Live Within Your Means

Keep your standard of living below what your earnings can accommodate. As you advance in your career and gain more experience, your pay should increase. But rather than using this excess income to buy new toys and live a more luxurious lifestyle, the best move is to put the money toward reducing debt or adding to savings. If the cost of your lifestyle lags behind your income growth, you will always have excess cash flow that can be put toward financial goals or an unexpected financial emergency.

3. Don't Borrow to Finance a Lifestyle

Borrowed money should be used when your gain will outrun your borrowing costs. This might mean investing in yourself—for your education, to start a business, or to buy a house. In these cases, borrowing can provide the leverage you need to reach your financial goals faster.

On the other hand, using credit for a lifestyle you can't afford is a losing proposition when it comes to building wealth. And the added interest expense of borrowing further increases the cost of the lifestyle.

4. Set Short-Term Goals

Life holds many uncertainties, such as an economic crisis or the loss of a job, and much can change between when you are in your 20s and, say, 40 years later when you may retire. As such, the prospect of planning far into the future can seem daunting.

Rather than setting long-term goals, set a series of small short-term goals that are both measurable and precise—for example, paying off credit card debt within a year or contributing to a retirement plan with a set contribution each month. If you set goals, you'll have a better chance of achieving them than you would if you merely said you wanted to pay down debt, but failed to set a timetable. Even the process of writing down some goals can help you to achieve them.

 As you achieve short-term goals, set new ones. The constant setting and achieving short-term goals will help you reach longer-term goals, such as having a solid nest egg when you retire.

5. Become Financially Literate

Making money is one thing, but saving it and making it grow is another. Financial management and investing are lifelong endeavors. Taking the time and effort to become knowledgeable in the areas of personal finance and investing will pay off throughout your life. Making sound financial and investment decisions is important for achieving your financial goals.

6. Save What You Can for Retirement

When you're in your 20s, retirement likely seems a lifetime away, and planning for it may be the last thing on your mind. If you can take a few steps now to start saving, compounding will work in your favor. Even a small amount saved early in your life can make a big difference in your future. Building a retirement nest egg becomes more difficult the longer you wait.

Try setting up automatic monthly contributions to a retirement plan, such as an employer-sponsored 401(k) if you have access to one, or an IRA if you don't. You can increase your contributions when your income rises or when you've achieved more of your short-term goals.

 If you implement the pay yourself first ideal, you won't have to worry about how much you're contributing. The most important thing is to develop the habit of saving.

7. Don't Leave Money on the Table

If you work for a company that offers a 401(k), make sure to contribute at least up to the maximum of what your employer will match, otherwise you are leaving money on the table. In addition, you can deduct your contributions in the year you make them, which lowers your taxable income for the year.

If you don't work for a company that offers a 401(k), contributing to a traditional IRA will result in tax savings too because you can also deduct contributions.

8. Take Calculated Risks

Taking calculated risks when you are young can be a prudent decision in the long run. You might make mistakes along the way, but when you are young, you have more time to recover from them.

Examples of calculated risks include:

Moving to a new city with more job opportunities

Going back to school for additional training

Taking a new job at a different company for less pay but more upside potential

Investing in high risk/high return stocks

As people get older, some may assume more responsibilities such as paying down a mortgage or saving for a child's education. It's easier to take risks when you have fewer responsibilities.

9. Invest in Yourself

Look at yourself as a financial asset. Investing in yourself will pay off in the future. Your skills, knowledge, and experience are the biggest assets you have. Increase your value by continually upgrading your skills and knowledge and by making smart career choices.

Though this investment often starts with going to college or a trade school, keeping skills up to date and learning new ones that are in high demand can help make you a more attractive and higher-paid part of the workforce. Investing in yourself should continue over the course of your lifetime.

10. Find the Right Balance

Striking a proper balance between your life today and the future is also important. Financially, we can't live as if today is our last day. We have to decide between what we spend today versus what we spend in the future. For example, set a short-term goal to save for a trip to a destination you've always wanted to see instead of using a credit card to finance it. Finding the correct balance is an important step toward achieving financial security.