How the Wealthy Get Wealthy

6/1/2021

Do the wealthy just get wealthier?  Do individuals who are extremely wealthy, those with over $5 million dollars in net worth, not including their primary residence, work harder, or smarter, than the rest of us?  Many investors who do not fall into that category search for ways to accumulate that level of wealth.  Even among those that are ultra-wealthy there is a desire to gain insights from those who have higher levels of wealth than themselves.  Spectrem Group reveals the wealth creation factors for these ultra-wealthy investors in their most recent research.

The ingredient that 93 percent of ultra-wealthy investors say was a source of wealth for them is hard work.  That solid work ethic is echoed by 90 percent of investors with $1 million to $5 million in net worth.  Working hard is the most identified source of wealth even for those with $100,000 to $1 million in net worth, however only 77 percent of those investors feel that hard work is a source of their wealth.  That does not mean that wealthier investors work harder, they simply believe that hard work is a component of how they have been able to accumulate their wealth.

Frugality is another behavior that can contribute to wealth creation.  Many individuals are frugal out of necessity, having to be mindful about their expenses in order to pay bills and save for retirement.  Eighty-six percent of ultra-wealthy investors feel that frugality is a source of wealth for them.  Around two-thirds of investors at lower levels of wealth feel that being frugal is a source of wealth.

Smart investing is identified by 81 percent of ultra-wealthy investors as a source of wealth.  Being able to make intelligent decisions regarding investments can be critical to wealth development and achieving high levels of wealth more quickly.  Only 53 percent of those investors with a net worth between $100,000 to $1 million feel that smart investing is a source of wealth.  This can be a complicated matter, as investors at lower levels of wealth have fewer assets to be putting into investments, so the impact of those smart investing decisions are not going to have as much impact.  A financial professional can also be making decisions on an investors behalf that contributes to wealth accumulation.  Fifty-nine percent of investors with a net worth between $5 million and $25 million identify that decisions made for them by an advisor was a source of their wealth.  Only 37 percent of those investors with $100,000 to $1 million feel similarly. 

Some of these investments may involve a certain degree of risk taking, but do investors feel that taking risks contributed to their wealth creation?  Sixty-two percent of ultra-wealthy investors identify taking risks as a factor in their wealth creation.  That risk can be several things; investments, opening a business, buying property, or many other risky actions that can result in wealth creation.  Taking risks is a wealth creation factor for less than a third (31 percent) of those investors with a net worth between $100,000 and $1 million.

For those investors who desire achieving a net worth above $5 million, it is worth noting that hard work, frugality, and smart investing are the three top sources of wealth.  Not every aspect of wealth creation is a behavior trait that can be duplicated however, as 31 percent of these ultra-wealthy investors identify inheritance as a source of wealth, and 44 percent identify simply being in the right place at the right time as a source of their wealth.  Those aspects of wealth creation are not in an individual’s control, so it is best to focus on those components of wealth creation that can be controlled.