Investment

How to Invest Like the 1% – A Wealth of Common Sense

Published

1 year ago

July 23, 2023

A lot of investors assume once you amass a large fortune that you’re welcomed into some secret club that unlocks the holy grail of investment opportunities.

Sure, there are plenty of really rich people who invest in excluding, expensive, complex strategies but the majority of the wealthy class has most of their money in normal asset classes like stocks and bonds.

Here’s a piece I wrote for Fortun about how the top 1% invests their money.

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In 1989, the top 1% of households in the United States controlled a little less than 23% of the wealth in this country. That number has now reached nearly 32%. By contrast, the bottom 90% have seen their share of wealth drop from 40% in 1989 to 31% today.

The rich have gotten richer, and they are extending their lead.

You could explain this rising inequality on various government policies but there is an investing component here as well. Many people assume there must be secret investment opportunities reserved for the wealthy. Surely, once you make more money there are exclusive deals, alternative investments, and superior investment managers at your disposal?

This may be the case for a handful of investors, but if we look at how the top 1% and top 10% allocate their assets, it shows a much simpler path to wealth.

The top 10% holds nearly 70% of U.S. wealth:

These numbers from the Federal Reserve are broken down by net worth, which is simply calculated by taking the assets and subtracting the liabilities.

When we break things down by assets and liabilities, you can see that while the top 10% controls 70% of the assets, the bottom 90% holds 75% of the debt:

The bottom 50% by wealth percentile owns just 6% of assets but a whopping 32% of liabilities.

Ownership in the stock market is still more uneven. The top 1% owns more than 53% of stocks while the top 10% holds 89% of the total:

Stocks are the asset class that historically has the highest long-term returns so it makes sense that the gap between the haves and the have-nots has grown.

Things are far more equal when it comes to the housing market:

While the bottom 90% by wealth holds just 11% of the stock market, they control 56% of the housing market. The bottom 50% owns less than 1% of the stock market but nearly 12% of the housing market.

This helps explain why the liabilities for the bottom 90% are so much higher since most of these households have mortgage debts to repay.

You can get a better sense of the differences between the various wealth percentiles by looking at their allocations to stocks and housing relative to their total assets:

Housing makes up more than 52% of financial assets for the bottom 50% bu just 13% of total wealth for the top 1%.

The top 1% also has a higher share in things like cash, bonds, and private businesses. But you can see from the chart that most of their wealth is invested in the stock market, while housing is by far the biggest asset for those in the bottom 90%.

So what can we learn about investing like the 1% when it comes to how they allocate their assets?

Don’t concentrate your investments. While the bottom 90% has most of their wealth concentrated in a single asset–their home–the top 1% has a more balanced approach. A house will likely always be the biggest asset for the majority of Americans, but it’s important to diversify your money into other assets like stocks and bonds.

Don’t go into a lot of debt. There are good and bad forms of debt. Most of us need to utilize mortgage debt because not many people have that much money lying around in cash. But it’s important to note that debt compounds against your net worth much like stock returns compound in your favor.

Buy stocks. Not everyone has the ability to own their own business, but you can own a share of corporate profits by investing in the stock market. The stock market remains the simplest way to build wealth over the long term by riding the coattails of the biggest and best companies in the world.

This piece was originally published at Fortune.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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