Own Like a Billionaire?

By Kevin Estes

Who Are the 0.1%?

According to the Federal Reserve, the wealthiest 1/10th of 1% of U.S. households had at least $46.4 million in the third quarter of 2022.

By the end of 2023, approximately 133,364 households owned:

• about 13.6% of the net worth in the United States,

• nearly $20 trillion, and

• averaged $150 million per household.

(See Sources at the bottom of this article for more detail.)

These are the wealthiest households in the country. However, perhaps more interesting than how much they own is what they own.

Their Business is Business

What the Top 0.1% Own

Business ownership is over two-thirds of their net worth:

• Corporate equities and mutual fund shares, 46%

• Private businesses, 22%

That’s not what less wealthy Americas own.

What the Bottom 50% Own

The least wealthy half of American households own very different assets:

• Real estate, 50%

• Consumer durable goods, 19%

For these individuals, real estate is primarily the equity in their home. Consumer durable goods include vehicles, appliances, furniture, etc.

Primary Differences

Real estate and consumer durable goods together are about:

• 12% of net worth for the 0.1% wealthiest households

• 69% of net worth for those in the bottom half

The wealthiest households’ have less than one fifth (1/5th) the weighting of the least wealthy households.

Public and private business ownership accounts for about:

• 69% of net worth for the 0.1% wealthiest households

• 6% of net worth for those in the bottom half

The wealthiest households have about 12x the weighting of the least wealthy households.

Other categories have less meaningful differences.

Physical Limits

Part of the difference is likely due to physics. The bigger a home is, the more effort (and cost) it takes to clean, maintain, and repair it.

Scaling with leads to outlandish numbers.

Refrigerators

• one (1) refrigerator with $100,000 net worth

• 1,500 with $150 million

Do they even have 1,500 electrical outlets?

Vehicles

• two (2) vehicles with $100,000 net worth

• 3,000 with $150 million

That’s like 10 car dealerships with 300 vehicles each!

Square Footage

• 2,000 square foot home with $100,000 net worth

• 3 million square foot home with $150 million

The Willis Tower in Chicago (formerly the Sears Tower) is about 4.5 million square feet. All for one household?!

Fortunately, a $150 million brokerage account takes the same physical space as one with $100,000 - none!

May Not Be Causal

It’s important to note that these households may not be wealthier because they own different assets. It might even be the reverse!

Nonetheless:

• durable goods tend to depreciate over time and

• home appreciation has lagged that of stocks - especially after accounting for home size and expenses.

Owning assets which have historically risen in value faster may have helped the wealthiest households grow their net worth.

No Fluke

It’s not just the outliers! The differences grow with wealth.

Real Estate

Real estate’s proportion of net worth trends down with higher wealth:

• 50% for the bottom half

• 38% for the 50-90% wealth percentiles

• 24% for the 90-99% wealth percentiles

• 16% for the 90-99.9% wealth percentiles

• 9% for the top 0.1%

Physical limits likely matter more than financial limits for higher net worth households.

Larger homes and more acreage require more time and/or cost to maintain. All else equal, higher expenses slow wealth creation.

Durable Goods

Consumer durable goods’ proportion of net worth also trends down with higher wealth:

• 19% for the bottom half

• 6% for the 50-90% wealth percentiles

• 3% for the 90-99% wealth percentiles

• 1% for the 99-99.9% wealth percentiles

• 3% for the top 0.1%

As with real estate, the limits may be more physical than financial.

Owning some durable goods is all but required for all wealth levels:

• a vehicle is a necessary form of dependable transportation across most of America

• a cellphone is critical for everyday communication

• a refrigerator, washer/dryer, and washing machine are needed for healthy living

There’s an interesting bump at the top 0.1%. That may be driven by some people in the top wealth bracket buying multimillion dollar luxury items like yachts and airplanes.

Equities

Corporate equities and mutual funds’ proportion of net worth rises with wealth:

• 4% for the bottom half

• 9% for the 50-90% wealth percentiles

• 26% for the 90-99% wealth percentiles

• 41% for the 99-99.9% wealth percentiles

• 46% for the top 0.1%

The jump is especially sizable from the 50-90% to the 90-99% categories, which may be partially caused by a relative fall in the amount of defined benefit pensions.

A bright spot here is that the largest component of wealth for the top 0.1% is publicly traded companies. Those are accessible to all! Also, public companies can often be sold more quickly than private ones.

Private Businesses

Private business’ proportion of net worth also grows with wealth levels:

• 2% for the bottom half

• 4% for the 50-90% wealth percentiles

• 9% for the 90-99% wealth percentiles

• 15% for the 99-99.9% wealth percentiles

• 22% for the top 0.1%

Much of the private business wealth for the top 0.1% is likely held by founders and executives of private companies. Small business owners often have much of their net worth tied up in their business.

Angel investing, venture capital, and private equity investments also play a role.

Each of these ownership forms may require an event like a business sale or Initial Public Offering (IPO) to access the capital.

Pensions

Pensions are still a surprisingly high percentage of net worth.

They’re split into two categories:

• Defined benefit - companies promise to pay a certain benefit after the employee retires

• Defined contribution - companies contribute a certain amount to employee retirement accounts over time

Defined Benefit

Defined benefit pensions are an especially high percentage of wealth in the 50-90% percentiles:

• 5% for the bottom half

• 17% for the 50-90% wealth percentiles

• 11% for the 90-99% wealth percentiles

• 4% for the 99-99.9% wealth percentiles

• 2% for the top 0.1%

That may in part be due to the types of occupations with defined benefit pensions. Important positions like teachers, first responders, and government workers often receive defined benefit pensions instead of higher base compensation.

Defined Contribution

Defined contribution pensions peak at the 90-99% wealth percentiles:

• 6% for the bottom half

• 9% for the 50-90% wealth percentiles

• 10% for the 90-99% wealth percentiles

• 6% for the 99-99.9% wealth percentiles

• 1% for the top 0.1%

Missing Ends

It’s striking that defined benefit and contribution pensions represent such a small percentage of wealth for both the bottom half and top 1%.

For those who’ve accumulated less wealth:

• lower pay positions often lack access to pensions

• pensions are being phased out and younger households may never be able to participate in one

For those who’ve accumulated more wealth:

• some of those in the top 1% may have worked for - or owned - small businesses which invested in growth instead of funding a pension

• high income industries like financial services and technology have prioritized other compensation like bonuses and stock grants

• workers with good pensions may not have needed or been able to invest as much personally - limiting their wealth creation during what’s generally been a strong market for decades

Other

The “other” category includes all other assets, including:

• cash and cash equivalents,

• bonds and other debt,

• cryptocurrency…

This category is noteworthy in that it’s sizable and remarkably consistent at 14-17% across the wealth group:

It Depends!

However, it’s critical to recognize ownership is not “one size fits all".

A household may make different real estate decisions if they have a:

• low fixed rate 30-year mortgage or

• a high 5-year Adjustable Rate Mortgage (ARM).

A small business owner may make different decisions if:

• business is growing 20% a year in an growing industry or

• holding steady with high profitability in a shrinking one.

Someone may make very different investments if they are:

• early in their career and were recently promoted or

• are just hoping to make it to retirement in two years.

I hope this helps!

If you’re interested in a review of your specific situation…

Disclaimer

In addition to the usual disclaimers, neither this post nor these images include any financial, tax, or legal advice.

Sources

Board of Governors of the Federal Reserve System (US), Minimum Wealth Cutoff for the Top 0.1% (99.9th to 100th Wealth Percentiles) [WFRBLTP1311], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/WFRBLTP1311, April 1, 2024.

Board of Governors of the Federal Reserve System (US), Share of Net Worth Held by the Top 0.1% (99.9th to 100th Wealth Percentiles) [WFRBSTP1300], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/WFRBSTP1300, March 27, 2024.

Board of Governors of the Federal Reserve System (US), Household Count in the Top 0.1% (99.9th to 100th Wealth Percentiles) [WFRBLTP1310], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/WFRBLTP1310, April 1, 2024.

Board of Governors of the Federal Reserve System (US), Net Worth Held by the Top 0.1% (99.9th to 100th Wealth Percentiles) [WFRBLTP1246], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/WFRBLTP1246, April 1, 2024.

Board of Governors of the Federal Reserve System (US), Survey of Consumer Finances and Financial Accounts of the United States, https://www.federalreserve.gov/releases/z1/dataviz/dfa/, 2023: Q4.