14 Feb How The Wealthiest 1% Invest
Taking note and replicating the actions of those who are successful investors is one way in which we can hope to generate our own fortunes, so why not look at how the wealthiest 1% of the population invest?
What is immediately apparent, the wealthiest 1% are invested in assets that generate regular streams of income, namely businesses and equities – in particular, dividend stocks are a common focus, whereby publicly listed companies will share their profits with shareholders. While the top 10% own over 90% of stocks, securities, businesses, they also buy investment properties, which are then rented out to tenants and allow for the mortgage to be subsidized. Ultimately, the top 1% are focused on accumulating their wealth through the steady growth and appreciation in their assets, but at the same time generating cash flow.
Unless you are fortunate enough to own a property in the fastest growing cities in the world such as New York, London or even Vancouver, house prices haven’t generated much wealth for you across the last decade. What’s more, people have been funding this asset through excessive levels of debt, while neither producing any income or notable growth from it. The only fortunate (yet ironic) element to this is that it has been supported by record low interest rates that came about as a result of the subprime mortgage crisis.
Eventually, however: interest rates are going to increase, and like with any other asset, houses will go through booms and busts – what happens to those who borrowed beyond their means and now find themselves in a position unable to manage their debt? The bottom 90% make up 59% of housing market wealth – should the housing market fall over, they would be the ones most affected.
In considering how the wealthiest 1% have built their wealth, despite contrary belief, it hasn’t been based upon large levels of debt – in fact, only 5% of total debt is held by this segment. This is in stark contrast to the next 9% of the population who hold about 21% debt, and the bottom 90% of society who average an astounding 74% debt! Any debt this 1% do incur, they focus on putting towards income-generating assets which grow annually and allow them to pay off their debt sooner – otherwise, they fund it through equity, and that’s why they continue to be filthy rich!