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Found this interesting piece on the variability of the Top 1% in net worth across different countries. Top 1% in USA is now $5.81M. Monaco has the highest bar of course, $12.9M. No surprise, the 1% are accumulating more “claim checks”. A millionaire ain’t what it used to be.

https://finance.yahoo.com/news/rich-top-1-heres-ex...

I’d think 5.8 million for the top 1% in the U.S is rather low. I wonder if they’re talking individual or household?

I think that # is WAY too low

https://dqydj.com/net-worth-percentile-calculator/

plugging a paltry $10m into the above get you to the top 2%

And it really matters based on age groupings.

I’d think 5.8 million for the top 1% in the U.S is rather low. I wonder if they’re talking individual or household?

Probably individual, since that's the most available data? Just a guess.

That $5.8m threshold sounds vaguely plausible to me, especially if it's individuals. There are lots and lots of rich people, and some VERY rich people, but not really that many very very rich people.

Jim

I’d think 5.8 million for the top 1% in the U.S is rather low. I wonder if they’re talking individual or household?


I emailed Frank Knight several years ago about this. The answer was individual.



Aussi

Link to the report referenced in Yahoo article:

https://content.knightfrank.com/resources/knightfr...

I emailed Frank Knight several years ago about this. The answer was individual.

Do you know if the wealth includes the equity in primary residence or not?

Do you know if the wealth includes the equity in primary residence or not?

From page 2 of the report.

HNWI: High-net-worth individual – someone with a net worth
of US$1 million or more, including their primary residence.

Link to report

https://content.knightfrank.com/resources/knightfr...

Aussi

Link to report...

I like the Credit Swiss Global Wealth Report.
https://www.ubs.com/global/en/family-office-uhnw/r...
There is both a report and (for the real data geeks) an accompanying data book for each year if you scroll down. Lots of stuff if you can't sleep. e.g., average household wealth in Canada is only 70% of US, but median household wealth is 162% of US. See previous comment about there being a small number of very very rich folks in the US!

Sadly they've moved the goalposts on us, "ultra high net worth individual" is now defined as over US $50 million, or as I like to think of it, 80.83 A-shares. I think it was $30m a couple of years ago, and I think I remember it being $20m at some point.

They put the global count of US dollar millionaires at 59,400,000 at end 2022, and global average wealth at $84,718.

Jim

Including the primary residence is cheating. Maybe include 30% of house equity, similar (except as an asset) to how we count 30% of float as liability for BRK.
It is not hard for a person in a high cost-of-living area to be a millionaire if they bought a home > 4-5 years ago. Where are they going to go? Middle of West Virginia is not a practical option for many. Neither is renting.

Including the primary residence is cheating.

I think it's a reasonable definition of net worth. Note that they subtract debts, also logical, so it's only a measure of the equity. A person who owns their house is unquestionably richer than someone with otherwise identical paper assets who doesn't.

Where are they going to go? Middle of West Virginia is not a practical option for many. Neither is renting.

Rents have popped in a lot of places lately and seem above trend, so in that sense you make a case. But normally renting IS a pretty practical and sensible thing. The only reason the consensus US opinion seems counter to that is because it's perhaps the most socialized/subsidized housing market in the world. And because a lot of the opinion you hear is from the wealthier, house-owning classes.

As an aside, US residential real estate is (I've read) the single largest asset class in the world. It would seem odd to measure global wealth while counting that at zero : )

Jim

“But normally renting IS a pretty practical and sensible thing. The only reason the consensus US opinion seems counter to that is because it's perhaps the most socialized/subsidized housing market in the world.”

Indeed. I rented until I was 45yo when got married late and all along the way the naysayers told me I was silly not to buy something and build equity. I just tried to live pretty modestly and squirrel away extra funds towards stock investing rather than owning a home. That route worked pretty well and helped me achieve independence earlier than otherwise. Different strokes for different folks.

That sounds like a brilliant strategy to me. For the vast majority, owning a home and dealing with all the taxes and upkeep is not a great investment compared to owning stocks IMO.

It might be a good idea to own a home for other reasons, but not as an investment.

Home ownership absolutely SHOULD be included in net worth calculations.

Not saying renting is a better or worse deal. That’s not issue. As Warren said he’d be a lot wealthier today if he rented his home instead of buying it in 1958. Still,his $1.45 million of equity IS part of his net worth (however miniscule lol).

The way I look at it: It would take nearly $1 million in long Treasurues to fund the principal & interest on my home in lieu of renting. That has value. Not near $1 million because I’d still have to pay taxes, upkeep, etc. But it’s tangible value. I’d be poorer without it.

As a footnote—I’ve thought a lot about Warren’s comments. Let’s assume he put 20% down when he bought his home in 1958 (which I THINK was pretty standard). If he rented instead and sent in monthly rent checks in lieu of mortgage payments—just the 20% down payment he KEPT INVESTED at his lifetime rate—that alone would be worth—I believe—enough to buy his entire Dundee NEIGHBORHOOD of 1500+ homes. Versus the single $1.45 million home his “investment” earned.

The preceding message not endorsed by Berkshire Hathaway Realty :)

owning a home and dealing with all the taxes and upkeep is not a great investment compared to owning stocks IMO.

It might be a good idea to own a home for other reasons, but not as an investment.

Yup. A house is not an investment, it is a consumption item. If it goes up in value, that is just an interesting and happy occurrence.
Over the long term, owning is cheaper than renting, because the rent _must_ include taxes & upkeep & mortgage AND profit to owner. Overall.

There was a newpaper article in our local area. This lady & her husband rented an apartment just before WW2. He went overseas and became KIA. She stayed in the same apartment from 1942 to 1999. Rent of course increased over the years. Instead of a 20 year (the standard back then) mortgage, she paid rent for 48+ years. She paid the landlord for the apartment twice over and still had no equity.

The only reason to include house equity in your net worth is to inflate the number. Just like you wouldn't include your car(s), yacht(s), clothes, household items. It is an illiquid consumption item. Until you sell it and shuffle off into a nursing home.

As Warren said he’d be a lot wealthier today if he rented his home instead of buying it in 1958.

He would be even wealthier if he had lived in a refrigerator box. Or his car.

No he could have lived in the same type of home in same neighborhood and own the neighborhood by now. He’d give up nothing and earn 1,500 homes versus 1.

As others have pointed out, homeownership comes with it a lot of associated expenses (property taxes, upkeep & maintenance costs, insurance, on and on). Yes we derive psychic income from it from many happy memories. But from an investment point of view it is a negative cashflow yielding asset so from a DCF calculation, it is worth a negative present value.

On the other hand it has utility value to others, so it is worth something just like a Monet painting. I think one's investable assets (thus excluding home equity) matters more at least in the long run. If I were producing one of these reports, I would look at both: overall net worth including home equity & net worth without.

As interesting as this discussion about wealth and how exactly it should be measured to come up with the top 1% might be: Is there a way to block/make invisible a whole thread? If not it might be a nice additional feature.

It might be a good idea to own a home for other reasons, but not as an investment.

Yes!! Like having a place to raise the kids, ensure your school system, develop neighborhood friends, and add some important stability for the children.

Like many of you, I've known kids that turned out perfectly well with housing that changed often. It happens in the military, it also happens with fast rising executives. But I've also seen the impact on some kids. Serious impacts with drugs and behavioral problems.

We had one home where our daughter grew up and went to school. We had moved several times with Exxon prior to that. But I said no more transfers until she finished high school. They kept me on anyway.

Later I helped her and son-in-law build a nice home in a neighborhood with an excellent school system where our two granddaughters grew up. They knew all the local kids, the names of the family dogs, and helped babysit the next generation behind them.

Both generations had stay-at-home moms during their early and school years. We also had many kids our daughter brought home from single parent families that needed a brief refuge.

It's not all about money. At least for me. But I'm pretty old fashioned I know.

As others have pointed out, homeownership comes with it a lot of associated expenses (property taxes, upkeep & maintenance costs, insurance, on and on). Yes we derive psychic income from it from many happy memories. But from an investment point of view it is a negative cashflow yielding asset so from a DCF calculation, it is worth a negative present value.

You have to include the imputed value of rent in the calculation because you are getting value by living there.

I'm still back at the principle residence should definitely be included in the net worth calc., all of it, IMHO.

Simplistically here is how I think of it, 2 people #1 has 5 million in cash and stocks, no house #2 has a 5 million $ house, no mortgage, no cash, no stocks.

Some here would say 1) has 5 million net worth and 2) has 0$ net worth.

Then 1) turns around and sells all of there stocks, adds to the cash pile and buys a $5 million house. All their networth is now gone, huh?

If you do a balance sheet for both of them, they each have Assets and Liabilites and the difference is Equity or Networth. How can the house (asset) not be part of the Equity/Networth calc???

You can always sell the house, even if it takes time, or causes family anxiety etc. It's definitely part of your networth!

Postscript...you own a business, its also hard to sell and turn to cash, is it part of your net worth,...rhetorical

You have to include the imputed value of rent in the calculation because you are getting value by living there.

Yes, but you are not making a large capital investment when you rent. Technically it comes down to return on equity capital invested, with the benefit of imputed rent as a positive cashflow offset by all the negative cashflows associated with home ownership. I suspect most people will find net cash flows are pretty small if any all.

You have to include the imputed value of rent in the calculation because you are getting value by living there.

Yes, but you are not making a large capital investment when you rent...

The best way to think of a house purchase is as two wholly separate things: first, you are starting a little business as a landlord. Capital has to be found, maintenance and taxes have to be paid, and in return you get some rental income from somebody. This is an investment. One which is pretty attractive in the US relative to elsewhere because of the weird mortgage market and the tax advantages on interest. US houses historically rise in price on average over time, around inflation + 1%/year if maintained but without improvements, so with easily available financing and leverage this can sometimes be attractive even when the rental income isn't. You go into this business only if you have the financial capacity, you think the financial returns will be worth it, and that they will be better than any other uses you may have for that capital.

Secondarily and separately, you are signing a lease on the same property and paying rent on it to that landlord (by coincidence you), in return for the use of it. The rent is at fair market value and might be more or less than what it's costing the landlord. The lease is slightly unusual in that you get to pick the place, it can't be cancelled without your permission and you are able to talk the landlord into approving any changes you want, but it's mainly just payment in return for use.

This isn't a novel view. Inflation is calculated based on imputed rent rather than mortgage payments for exactly this reason: only the second transaction is a useful measure of that person's expense profile. The first one (the equity portion of it) is useful for estimating the person's net asset value and investments, but the landlord's profitability on the deal isn't a useful input to inflation.

The decision on whether to buy or rent is pretty much only a factor in the thinking of the "landlord" half of the equation--is it a viable and attractive investment? For the tenant, it's only the small unusual non-financial aspects of the lease that make any difference--it's otherwise a wash whether your landlord is you or someone else.

Jim

What difference does it make? Who cares? It's just a d1ck measuring contest.

I thought the same thing in 2015 when Trump was running for President. "My net worth is $10B." "That liar, he can't be worth more than $6B."

Early on when we were buying a house, the mortgage broker told me to include the value of our cars and "household items" (like clothes, books, etc.) in the net worth section of the mortgage application. She said, "Surely all that is easily worth $50,000. You do want to get approved, don't you?"
(Years later on another mortgage application, the underwriter noted "He has more money in his 401K than this loan amount. Approved.")

Quibbling about house in net worth is mostly like two bums fighting over a cigarette butt. Even if you won, it doesn't make a difference.
It's just a feel-good moment to put a large number on paper.

Once your real, concrete net worth is over a certain amount, the value of your house, your car(s), your clothes, etc. are immaterial.

Now, about the number of angels that can dance on the head of a pin..............

Regarding your house not being an investment, not counting towards your net worth:

I am a 67 year old probably top 10%'er in wealth who has lived in California for the last 28 years.

I don't know if there is a time since California became a state in the US (1850) that California real estate has not been an amazing investment. I heard the storie when I got here in '96 and thought "Darn it all to heck, I got here too late." Well the house I bought in '97 for $254,000 is now worth $2,060,000.

That's 6.5% CAGR for 27 years in REAL DOLLARS (inflation adjusted).

I don't know about where you live, but this is America and you would NOT have owned that house without a Mortgage. Mortgage is French for "leverage". In America, mortgages don't cost much more than inflation. Which means you could easily have made 12% CAGR a year after inflation and after paying for your mortgage if you had put 20% down.

So if you are the type who thinks whether or not you should include your house in your net worth is a MORAL question, then I have nothing for you. Go and skip the clams at the buffet, have extremely few sexual partners and don't do the stuff that most people think is fun with the one you are left with, Cover your head, and serve God.

But if you think it is a practical consideration than consider just the impact of home ownership on people in my family:

1) My sister hates stock, the one time I put some of her money into BRK for her she first asked me to set a stop loss for $1/share lower than the current price, and when I didn't do that she actually figured out the Schwab website for the first time so she could sell that thing! I'm sure she wondered how I could be so mean as to practically set her money on fire like that? But meanwhile, she has owned houses without mortgages for the last 35 years. Two years ago she put her $1,000,000 "not an investment" up for rent and moved into a brand new 3 bdrm home in South Carolina for $350,000. Consdiering she has probably not made more than $35,000 in a year for way more than 1/2 of her adult years, she seems to be doing OK living off her "not an investment."

2) My ex-wife is scared of the stock market and so has all the money I gave her in the divorce in cash. Meanwhile, she was renting a cute little 2bdrm townhome a mile from the beach. Well this is not only America, it is also California, and to make matters worse, San Diego. Her landlord was raising her rent by 10% a year. Now renting a townhome, THAT is definitely not an investment! And she was paying that growing nut from accounts that were not growing even 1/2 that fast. But recently she figured out she could buy a tiny 2 bedroom apartment about 4 miles from the beach and she could put more than 50% down. Her mortgage plus taxes plus HOA will be about what her rent is now. But her mortgage payment will not go up at all, her taxes will go up ~1% per year. And her equity, well, do you have any idea what real estate prices do in California? In San Diego? And we are having some inflation now? But no, her house is not an investment. If it were, it would be the best investment she was willing to make, but it isn't an investment.

3) My financial adviser is super cautious. He's not a goldbug, he's not an idiot, just very cautious. So while the SP500 was doing its thing the last 20 whatever years and quadrupling, my financial advisor only doubled the bulk of my retirement savings. Before inflation, which meant he at least didn't lose any money for me after inflation. Meanwhile, I have owned houses with significantly more than 20% equity in them during that entire time. I now have as much equity in my house as my financial adviser has for my retirement in the account he is managing. If I had kept every house I'd ever bought in California, I'd be about 3x as wealthy. But it wasn't an investment, so I gave it to my financial adviser who very prudently has not lost it for me. But meanwhile, 80% of the increase in my networth over the last 5 years has come from my house. But its not an investment, so it doesn't count. (I do have money I have managed for my retirement deriving entirely from my 401k contributions since 2008. I have as much money in those accounts as I have with my financial adviser because I am not a professional, so I took horrivying risks like investing in AAPL, BRK, TSLA, and unfortnately not much else of significance.)

Anwyay, whatever the reason, it is hard to find Americans who bought most of the houses they have lived in who are not doing better financially because of that. As some of you on this board may have noticed, Warren Buffett is not a typical investor. Warren Buffett probably could have been immaterially richer if he had rented his whole life. But most of us Americans are nowhere near as good at investing as Warren Buffett is, and many of us have inadvertently served ourselves well by buying houses.

Mortgage is French for "leverage"

No, it's French for "dead (or death) pledge". (Or more accurately, it's fully and completely English, but is derived from the French and there from Latin).

Brian

As others have pointed out, homeownership comes with it a lot of associated expenses (property taxes, upkeep & maintenance costs, insurance, on and on).

So does renting, it's just not individual things you directly pay (except maybe insurance if you have renter's insurance, which you probably should). The owner of the property has to pay all those, and the rent takes all those into account, so you're paying them whether you know it or not.

Brian

most renters I know have a lot of expenses. Frequent moving being the biggest.

That's 6.5% CAGR for 27 years in REAL DOLLARS (inflation adjusted). Perhaps 5.5% if you use the Fed calculator. https://www.minneapolisfed.org/about-us/monetary-p...

So there were no closing costs on purchase? No costs for selling? Maintenance? Property taxes? Upgrades?

Aussi

It’s 100% part of net worth…when you’re dead.

Your Home net worth is considered just like Berkshire stock, CDs, or mutual funds. My state plans on grabbing an extra $100k in estate taxes—the exact same chunk as it would if my home was BRKB stock. My kids plan on enjoying a stepped up ASSET tax basis in tax free inheritance. Or I can reward even more folks— hiring a lawyer to affect that process lol.

So whether you want to count it as net worth or not NOW, your legislature, your kids, and possibly even lawyers most definitely WILL….Later. And if all of THEM count it as your net worth—I’m sorry but you have no choice lol. It’s a valuable tangible asset and it will be fully monetized by you…or some one…lol.

That's 6.5% CAGR for 27 years in REAL DOLLARS (inflation adjusted).

Though I don't doubt you, and I'm sure it has worked out well for a whole lot of people in a lot of attractive cities, especially well to do people in good areas of popular cities, beware extrapolating too much from one data point.

There are some very serious number crunchers and research papers that have studied what has happened on average in the US. Few places are average, but to the extent it matters, constant quality US residential real estate rose in price at only inflation + 1%/year in the 20th century. For each place that it soared (like yours), there was a place that it crashed.

If you don't have better information than the average schmuck then that 1% is what someone buying a US residence should probably expect, plus or minus a cyclical adjustment for the luck of the purchase date. Local price to income ratios relative to their historical average are a good starting point for adjustment. They are elevated in big US cities lately.

Affordability is a different thing, since it's cyclical in a different way with real interest rates, so it's not as good a yardstick for doing a cyclical house price adjustment. For the median family buying the median home, mortgage payments doubled from roughly 14% of monthly household income in 2020 to nearly 29% in June 2023, the highest since 1985. I don't have more recent figures handy.

Jim

Few places are average, but to the extent it matters, constant quality US residential real estate rose in price at only inflation + 1%/year in the 20th century.

100% makes sense. It is also easy to get too excited by the increase in house prices in the last couple of decades, which is mostly a result of interest rates going down from double digit rates to close to 0%. That won't happen again. I still remember my first mortgage cost me 10.5% in 1991. And we bought our first house (1500 sq ft) at the bottom of housing recession driven by the end of cold war which shrunk the defense industry in CA in 91 & sold it in 97 for roughly the same price to trade into a bigger house.

This is a snippet from Alice Schroeder's Snowball: Warren particularly disliked buying houses, considering money spent on them as lying fallow, not earning its keep.

I don't think there's any question that, strictly financially and on average, purchasing a house is an inferior investment to putting the same money in equities. But the range of relevant personal and local considerations make the issue difficult to analyze beyond that bare observation.

I will offer one that hasn't been mentioned yet: using your house as a source of leverage for an equity portfolio.

I have refinanced my house with "cash out" three times in thirty years, most recently at 2.75% (good until 2029). For most of those thirty years I've had more (now a lot more) than my original downpayment in the market. My current mortgage is for a good deal more more than the house cost when I bought it; but it's less than half what the house next door rents for.

Baltassar

Serious question for Ed Norton’s pal: If your financial advisor has so seriously underperformed the index over twenty years why have you retained him?

I would imagine the % of poster here who use a "financial advisor" is very low

That's 6.5% CAGR for 27 years in REAL DOLLARS (inflation adjusted).

I can beat that by 1% over twice the period. 54 years ago my Dad bought a flat in Bombay (now Mumbai) for $3000. Now it's worth $1 million. That's a nominal CAGR of 11.35% or real CAGR of 7.47%. In US dollars. A lot more nominal (and a lot less real - over those years average inflation was 7.3%/year in India) in Rupees because the USD:INR ratio has gone up from 8 to 83 in 54 years.

But some might point out that Mumbai is not India any more than San Diego or California are US.

Serious question for Ed Norton’s pal: If your financial advisor has so seriously underperformed the index over twenty years why have you retained him?

I'll take that. Thanks to some significant gifts from my father-in-law to my wife, some well timed moves out of high tech around the turn the century and out of Citigroup just before it cratered, as well as discovering value investing just as the tech sector peaked, we find ourselves in a relatively enviable position. My wife trusted me to manage our growing wealth early in our marriage and I was fortunate enough to make more good decisions than bad ones (and there were some bad ones for sure). Through value investing I was able to grow our wealth at a significantly better clip than the S&P, despite my mistakes. Then COVID happened, followed by a very serious illness which befell our family, and for three years I have had to take care of my wife while raising our son and working to support the household. Investing takes time and attention, and, based on the amount of time some of the more well regarded investors on this board spend posting about investments, I don't have nearly the time or energy to do it properly anymore. My wife and I decided that, as she recovers, we would rather enjoy our time together without worrying about the day to day management of our finances. Ours financial goals have also shifted from accumulating wealth to preserving and tapping it.

Value investing has been good to us, especially owning Berkshire, but investing takes time and mistakes come in the form of not just bad investing decisions but also bad tax planning decisions, or bad allocation decisions, or bad withdrawal decisions. Financial planners offer more than stock picking in their repertoire of services. What they offer is the freedom from having to monitor existing investments, research new investments, the tax planning and income strategies in retirement that I lack, and, most importantly, the gift of time to travel and enjoy my family in ways I couldn't when staying on top of our wealth.

There is a price to pay for the freedom we've gained from swallowing my pride and arrogance in accepting the (somewhat costly) help of others. I frequently hear value investors denigrate financial planners, and with good reason if your only financial goal is market beating returns, but they offer more than just investment advice (most are not very good at that anyways). Financial goals change as your wealth grows and as you near retirement. Other considerations than market beating returns enter the equation, especially around tax planning and tax efficient withdrawal strategies. Financial planners, at least good ones, can help in many ways that go beyond just beating the S&P 500.

PP

"It's not all about money. At least for me. But I'm pretty old fashioned I know." Texirish


This is the deeper idea of wealth (and "fashion") that makes this group a home for me.
A heartfelt thanks to all the posters.

CmoreBmore

Serious question for Ed Norton’s pal: If your financial advisor has so seriously underperformed the index over twenty years why have you retained him?

3 reasons:

1) He did really well for us in 1999/2000 when I was able to move a large part of my net worth out of tech into the things that didn't crash in early 2000.
2) I knew he was looking for more security than SP500
3) I didn't keep track of how he was doing and only checked earlier this year after not paying much attention for more than 20 years.

So I knew he was underperforming the market but I thought he was getting me some safety doing this. But as it turned out, the SP500 hit it out of the park for these decades, so it was the wrong decades to think the SP500 was overpriced, at least in retrospect.

That's life though.

R:)

"But if you think it is a practical consideration than consider just the impact of home ownership on people in my family"

But it's just luck that your family happened to be in CA. What if instead they were in Kokomo, IN instead of in San Diego? If that were the case, their homes ALSO increased, but only 2X or maybe 3X if they were lucky.

It's the same argument as someone who says "Hey I beat the S&P500 over the last 10 years by a heck of a lot ... because I invested half my money into Nvidia". What if, 10 years ago, they chose IBM instead of Nvidia?

<< I’d think 5.8 million for the top 1% in the U.S is rather low. I wonder if they’re talking individual or household? >>

I think the $5.8 million number is "investible wealth" (e.g., your brokerage account.) It doesn't include the value of your home, or any businesses you own.

intercst

I think the $5.8 million number is "investible wealth" (e.g., your brokerage account.) It doesn't include the value of your home, or any businesses you own.

No, seems not.

It depends on the data source.
Some of the wealth management banks do a report that uses investable wealth as the definition. (since that's what they are targeting for AUM, presumably)
But Knight Frank, the specific source quoted here, uses net worth. Total assets minus total liabilities.
They use "individual" net worth, though, so the 1% threshold is presumably set at 1% of the total population, not 1% of households. This makes the cutoff number a lot smaller.

There sure are some interesting things in the report.
Who knew that it now takes over $1m of net worth to get into the reviled "1%" in China?

Jim

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