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🐧 How high net worth households allocate their wealth
INSIDE: Asset Allocation by Wealth Tier, Benchmarks, 5 Asset Class Patterns
Dexter Zhuang
February 11, 2024 • Estimated Reading Time: 10 minutes
I’m often asked, “how do wealthy people allocate their assets?”
Today, in 10 minutes or less, you’ll learn:
👨👩👦 How US Households Allocate Their Net Worth by Wealth Tier
✅ Asset Allocation Benchmarks for Financial Independence Seekers
📊 Patterns and Trends across 5 asset classes: Primary Residence, Retirement Funds, Stocks, Real Estate, and Business Interests
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🤑 How high net worth households allocate their wealth
After synthesizing data from Tiger21, Hampton, and the US Federal Reserve, I’ve learned a few key lessons about asset allocation.
In particular, the US Federal Reserve provides a rare glimpse into asset allocation by household net worth tier.
From $10k all the way up to $1B.
Here’s the skinny:
Expect your net worth composition to change significantly as wealth grows.
Here’s 6 of my key takeaways:
$1M-$10M net worth is a useful benchmark for financial independence seekers.
Primary Residence as % of assets decreases as wealth accumulates.
Retirement Funds as % of assets peaks at $100k-$1M net worth, then declines.
Stocks as % of assets grows as wealth accumulates.
Real Estate as % of assets peaks in between $1M-$10M net worth then declines.
Business Interests as % of assets grows as wealth accumulates.
1/ $1M-$10M net worth is a useful benchmark for financial independence seekers
Many Money Abroad readers are chasing financial independence.
Given that most people I know have a FIRE number within the $1M-$10M net worth range, this tier is a helpful reference point for myself (and these readers).
Asset Allocation of Wealthy Households ($1M-$10M)
Liquid: 5%-10%
Primary Residence: 10%-25%
Retirement Funds: 10%-25%
Stocks and Mutual Funds: 10%-30%
Real Estate: ~10%
Business Interests: 20%-40%
What surprises me:
Relatively small % allocated towards stocks and non-primary residence real estate
Business interests make up a huge chunk — and an even bigger one for the ultra-wealthy ($10M+)
2/ Primary Residence as % of assets decreases as wealth accumulates
For many households, buying a home is the ultimate dream.
Despite not having much, my parents prioritized home purchase as one of their top financial goals.
The Fed data shows that while primary residence makes up over 30% of net worth for households with $10k to $100k, this drops to single digits for households with over $10M.
Hampton’s dataset of high-net-worth entrepreneurs shows a similar pattern. Primary residence allocation % drops as net worth grows.
My suggestion:
Shoot for primary residence to make up no more than 30% of your net worth. It’s generally illiquid, which reduces flexibility.
And if 2008 taught us anything, it’s that tying up a large part of your wealth in one property can lead to heaps of risk in a bad market.
