At 7.6 billion people, the world has never been more populous than it is today. While the rate of growth in some countries is slowing, one thing is certain: High net worth individuals are rapidly increasing in numbers and capitalizing on new levels of wealth and prosperity.
Who are these high net worth individuals? What is the most accurate high net worth definition? How can you attain this wealth status? The following should provide clarity on this subject matter, which may inform how you can get into high net worth — or ultra-high net worth – territory.
How many high net worth individuals are there worldwide?
There are a number of different estimates for the actual number of high net worth people. For instance, according to a late 2020 report from Afrasia, the total is in excess of 13 million. However, analysis from Capgemini Research Institute suggests the total is considerably higher than that, since there are 13.3 million high net worth individuals in the United States, Japan, Germany and China alone.
“At 5.9 million, the United States has more high net worth people than any other nation.”
These four countries account for almost 62% of the global HNW population. At 5.9 million, the United States has more high net worth people than any other nation, up from 5.3 million from the previous year.
The ultra high net worth are also more numerous today than in the past, but the data varies as to the actual number of them worldwide. Wealth-X puts the figure at over 290,700 worldwide, which accounts for 0.003% of the world’s population. The Capgemini Research Institute says this segment of society is closer to 183,400, substantially less than Wealth-X’s estimate.
What defines a high net worth individual?
A potential explanation for the wide range is differing definitions of what constitutes “high net worth.” According to New World Wealth, the high net worth definition applies to anyone whose wealth is at or above $1 million. This is calculated by subtracting a person’s liabilities from the sum total of all their assets.
As income rises, the greater variability there is in the high net worth definition. For example, New World Wealth correlates the very high net worth with those whose wealth is $10 million or more. But for Wealth-X, the high net worth definition isn’t quite as elite, classifying the title to anyone whose income is $5 million or more.
The same disparity applies to the ultra-high net worth category; organizations have different interpretations of the ultra high net worth definition. The Capgemini Research Institute says this designation applies to any individual whose net worth is $20 million or more. But New World Wealth says it applies to those valued at $100 million or more in terms of investable assets.
Regardless of the actual high net worth definition, more people fit into this category than ever before, particularly in specific countries.
Where has the high net worth population increased the most in recent years?
In addition to being home to the most high net worth individuals, the United States has also witnessed the lion’s share of the growth.
In 2019, for example, there was an 11% jump in the high net worth population in North America compared with the previous year, according to the Capgemini Research Institute’s latest World Wealth Report. This marked the first time since 2012 the Asian Pacific region didn’t lead the way. Over the same period, wealth growth rose nearly 8% in Asia.
“The United States saw the second-largest net inflow of high net worth individuals in 2019.”
This fact may, in part, be attributable to North America attracting more people who were already in this elite category. As noted in Afrasia’s report, the United States saw the second-largest net inflow of high net worth individuals in 2019, behind only Australia. Switzerland, Canada and Singapore also witnessed robust growth in high net worth arrivals.
Even on a per capita basis, the United States is a world leader in wealth. It’s among the top five nations in this regard, according to Afrasia, along with Monaco, Luxembourg, Switzerland and Australia. On average, assets for the high net worth amount to $175,000 per person, more than seven times the global average ($24,000).
What are some of the best practices high net worth individuals engage in for wealth management?
While there may be a relative handful of overnight millionaires, and many inherited their fortunes, the vast majority of high net worth individuals attained their success and prosperity through hard work and determination. And not necessarily in terms of schooling. In fact, several of the world’s wealthiest men and women never attended college, or if they did, dropped out (e.g. Microsoft founder Bill Gates, Facebook creator Mark Zuckerberg, Apple co-founder Steve Jobs, etc.).
Effective wealth management — the ability to maintain income and potentially create more money-making opportunities — frequently involves the following activities:
1. Asset allocation
At the heart of asset allocation is one’s portfolio — the blend of stocks, bonds, commodities, and mutual funds that are leveraged to balance risk when investing. If you invest currently or are considering doing so, you’ll have to decide which assets to include in your portfolio and how you apportioned those assets to stocks and other investment vehicles that are deemed safe and those that may be at a higher risk in terms of potential losses.
2. Diversification
Diversification and asset allocation go hand in hand, so much so that they’re often misconstrued as or presumed to be the same thing. In reality, they’re very different. Simply put, while asset allocation is the how, diversification is the how much. For example, you may put a third of your assets toward real estate, another third toward bonds and the final third in money market accounts. Diversification is the number of individual assets you maintain. The more you have, the greater the diversification. Similar to asset allocation, diversification balances risk.
3. Customized tax strategy
Tax strategies are about as numerous as there are pages in the tax code. Because each person’s portfolio and estate planning goals are unique, there is no single solution to which is the best. What they all have in common is paying as little as possible to maximize its use, whether that be by setting up a trust or reducing tax liabilities, such as certain types of property that are not producing income.
4. Asset review
Just as wealth can be a moving target, the same goes for assets: they’re not linear in terms of worth and income creation. That’s why it’s important to review assets and why so many high net worth individuals do so on a regular basis. The Balance notes that investments, collectibles, real estate (e.g. second or vacation homes) and one’s primary residence are the main asset classes that deserve ongoing examination.
Whatever your wealth goals are, or what wealth management tools you use, more money brings more responsibility. Life insurance premium financing can allow you to keep your assets where they are so you can obtain the proper life insurance protection for your estate. Contact Global Financial Distributors today to learn more.
