By definition, wealth relates to the amount of money a person has. Levels of wealth create different perspectives on spending, saving and investing. These are all well-known facts of personal economics.
But Spectrem’s new study Asset Allocation, Portfolios and Perceptions of Providers offers a clear look at where investors differ in some of the basic asset categories depending on their wealth level. Along with age, advisor dependency and occupation, the wealth segmentation in the study is one of the greater values in determining how investors differ in terms of wealth outlay.
The Spectrem study looks at the portfolios of investors with a net worth between $100,000 and $25 million, not including the value of their primary residence. With that in mind, total investable assets range from 35 percent among investors with a net worth up to $500,000 all the way up to 74 percent for investors with a net worth between $15 million and $25 million. The biggest jump in the percentage of investable assets occurs between investors with a net worth between $500,000 and $1 million (44 percent of investable assets) and those with a net worth between $1 million and $3 million (58 percent).
The difference in the percentage of investable assets is offset by the corresponding difference in assets which are occupied in other areas. The component of personal finance that takes up most of the assets of a less wealthy investor is principal residence. Investors with a net worth under $500,000 have 44 percent of their total assets assigned to their principal residence, compared to the 6 percent of total assets taken up in principal residence for an investor worth more than $15 million.
Of course, this is on a percentage basis. The home of a wealthy investor is probably worth more than that of a much less wealthy investor, but the wealthier investors have a large percentage of their home paid off compared to the less wealthy investors.
There is also a bit of difference based on net worth in insurance and annuities as a percentage of total assets. The range is 9 percent of total assets for an investor with a net worth between $500k,000 and $1 million compared to 3 percent for the wealthiest investors.
The differences continue when looking at how investors distribute their investable assets based on their individual wealth levels.
The largest differences occur when considering Individual Retirement Account ownership and deposit accounts. Investors with a net worth below $3 million have 30 percent or more of their total investable assets set aside in retirement accounts (up to 34 percent for those with a net worth under $500,000) while wealthier investors have a smaller percentage but more value in their IRA accounts (the wealthiest investors have 18 percent of their investable assets in IRAs).
Deposit accounts range from 19 percent of investable assets for the least wealthy investors to just 9 percent for the wealthiest.
There is also a range of investments in stocks and bonds, from 12 percent for the low end of wealth to 21 percent for the upper end.
The Spectrem study delves further into the makeup of the retirement account investments based on type of product invested in, with a similar dive into what their managed accounts are invested in.
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