28 September 2023

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Wealthy Americans: Yes to Stocks, No to Real Estate

Luigi Campopiano

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The amount of money one possesses often determines their investment choices, with wealthier individuals favoring stock markets. While household wealth varies significantly among the population, the composition of that wealth also differs. This disparity reflects varying behaviors, investment choices, and evidently, financial literacy levels among the affluent and less affluent.

This study focuses on the American market and allows us to compare three different investment styles based on the amount of money managed. The graphics illustrate the behaviors of investors with varying levels of wealth:

• Average Income: Home is where the wealth is. For most middle-class Americans, their primary residence is the cornerstone of their net worth. On average, a combination of housing and retirement accounts makes up nearly 80% of total wealth. Assets such as stocks and mutual funds constitute only about 4% of wealth in this income bracket, reflecting a tendency towards reduced participation in the stock market in recent years.
• Higher Income: A diversified portfolio. Real estate investments make up a smaller portion of wealth, with a higher mix of financial assets such as stocks and mutual funds. Nearly half of the families in this group own real estate properties beyond their primary residence. As families become wealthier, they tend to hold a smaller proportion of liquid assets compared to other components of their net worth.
• Top 1%: The expansion of business assets. The primary residence accounts for only 7.6% of wealth, with nearly half of the wealth falling into the categories of business assets and real estate. Notably, there is a much higher ownership of financial assets: the top 1% of families own over 40% of stocks.

But why do the wealthy invest so differently by diversifying into stock markets?

Simply observing and noting the data on the growth of the major American stock index (S&P 500) would provide insight. The wealthiest individuals are more aware of how financial markets operate, explaining their inclination towards stock markets.