There’s a lot to learn from the rich - January 14, 2018

There’s a lot to learn from the rich

The rich are getting richer while the middle class is not growing as fast, that is a truth we’ve all heard a lot in the last years. But now Warren Buffett, the third richest person of the world looked at the matter as well, and had some interesting insights.

The wealth of the richest is growing faster than the wealth of all the others, writes Warren Buffett, CEO and chairman of Berkshire Hathaway in the Time. He also adds that the lower classes are still doing better than ever before, even though they may not feel like that.

What Buffett believes

As the third richest person on Earth puts it: “the wealth of the [Forbes] 400 increased 29-fold–from $93 billion to $2.7 trillion–while many millions of hardworking citizens remained stuck on an economic treadmill. During this period, the tsunami of wealth didn’t trickle down. It surged upward.”

But he also underlines that in the 30s “with all of his riches, John D. [Rockefeller Sr.] couldn’t buy the pleasures and conveniences we now take for granted.” He also adds that many believe that the slowing growth of the US’ GDP is not enough, but he points out that “in 25 years–a single generation–1.2% annual growth boosts our current $59,000 of GDP per capita to $79,000. This $20,000 increase guarantees a far better life for our children.”

But the richest are still growing

Although Buffett proves a point, the fact that the wealth of the richest is growing fast still remains. For a while now, we are seeing statistics that show how fast the wealthiest are growing. Some time ago we also wrote about this, pointing out that “in 2014, it took 80 of the wealthiest to have as much money as the poorest 50%, now [in 2016] it only takes 62 of them.”

This doesn’t seem to change as time goes by, and even if Buffett is right about the better life the middle class can lead, the rich will get richer. Donald Trump’s new taxation laws may even help this happen faster in the USA.

What to learn from the richest

It’s obvious that inheritance makes it easier for the richest, but there are important things to learn from them as well. We wrote about Bloomberg’s article that was based on a Swedish paper that analysed what the wealthiest do differently. The reason seems to be simple: “there’s one big reason why the rich still come out ahead – instead of stocks, the middle class puts a large share of its wealth into residential real estate. Houses tend to earn lower returns than stocks.”

That doesn’t mean that the richest don’t have real estate investments, but they usually make them using loans while the middle class uses their own money. Stocks also seem to be safer according to another paper: “at the collapse of the housing bubble exacerbated wealth inequality, because stocks recovered more strongly than real estate did”. 

All this shows us that stocks and mostly a well-diversified professional portfolio might be the best investment for everyone, no matter how rich they are.

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.