How the top 1% invest
Wondering how the richest Americans build their wealth? The answer may lie in the way they structure their portfolios, which have significant differences compared with the other 99 percent of U.S. households.
According to new research from Goldman Sachs, which analyzed data from the Federal Reserve’s Distributional Financial Accounts, the top 1 percent of households have bought $1.2 trillion worth of equities and mutual funds since 1990, compared with the remaining 99 percent of Americans – who have sold a net $1 trillion.
The difference in shares of equities owned by the wealthiest and the bottom 90 percent is nearing its widest gap in about three decades, according to the report.
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The average net worth of the top 1 percent of households, according to the report, is $22 million, compared with an average of $717,000 for the rest of U.S. households.
While the wealthiest Americans have generally been net buyers of stock, the other 99 percent of Americans tend to increase equity purchases when interest rates fall.
Overall, U.S. households own 36 percent of U.S. equities – at least twice as much as any other major investor group – which indicates that demand among households can influence equity supply and demand.
And for the coming year, Goldman Sachs expects households will overall remain net buyers of equities, but demand will be reduced when compared with 2019 – as interest rates rise, likely reducing purchases slightly among 99 percent of U.S. households.
The group expects the S&P 500 to increase another 4 percent to 3400 by the end of 2020. As of Thursday, the index was trading around 3,250.
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The index has risen more than 21 percent over the past year, in the late stages of an extended bull market.
In addition to holding 61 percent U.S. equities, the top one percent typically has 12 percent cash, 11 percent allocated to real estate, 6 percent to pensions, 5 percent to debt and 3 percent to durables.
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