The difference between the wealth of the 1% and the middle class - June 12, 2019

The difference between the wealth of the 1% and the middle class

The difference between the wealth of the top 1% and people with middle-income is huge. While the middle class have most of their money stuck in their main residence, the richest only keep 7.6% of their wealht in it. There’s one important lesson we can learn: the richer someone is, the more diversified portfolio they have.

What’s the difference between the wealth of the top 1% and the middle class? It’s not only about size, there’s a huge change in composition, too. To put it simple, the richer somebody is, the more diversified portfolio they have, generally with more stocks and other equities. Luckily, Edward N. Wolff collected important data on the subject.

Differences in wealth composition

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What does the middle class have?

As it can be seen from the chart above, there are huge differences between assets. For the middle class, the main asset is a principal residence. That alone makes more than half of their wealth in most cases. Pension accounts are another important part for them, but other assets like stocks and securities are much rarer. This also means that the middle class’ wealth is far from being diversified.

What does the upper class have?

The most obvious difference between the middle class and people with upper income is that they have a much more diversified wealth. They mostly have an equal balance between principal residence, pension accounts, stocks and other equities, which means that they have lots of different assets. It’s also interesting to see that liquid assets aren’t overdone, but they still probably have more than enough of that.

What does the 1% have?

The top 1% again has a well-diversified wealth, although they are different from others. First of all, they have a great deal of stocks and other securities and funds. According to Visual Capitalist, they own 40% of all stocks on the market. What’s even more interesting is that they have a lot of unincorporated business equity and/or real estate. This means that they have their own businesses. Jeff Bezos, Bill Gates and Mark Zuckerberg are great examples of this: their main wealth comes directly from their companies.

What can we learn from this?

The most important lesson we can learn from this is that the wealthiest are focusing on diversifying their portfolios. Although they have incomes from one source, they are also trying to find other ways to secure their money. Sure, it’s a lot harder to do the same for an everyday person whose main wealth is their homes, but still: trying to put all your eggs in several baskets can never hurt.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.