Thursday, 29 July 2021

How Rich Are the Rich: Defining the Classifications of Wealth

Having a lavish lifestyle – collecting luxury bags and watches, cruising around the world, and driving supercars – is just a fantasy for many people. And those who are lucky enough to actually live this dream are often collectively called “the wealthy.” Individuals who fall under this bracket are further categorized based on their net worth. In the world of finance, net worth is defined as the total value of a person’s assets minus all their debts and other liabilities. 

There are at least three classifications of people based on their net worth. Experts from a reputable wealth management firm call them high-net-worth, very-high-net-worth, and ultra-high-net-worth individuals. Read on to learn what each of these categories means:

High-Net-Worth Individuals

A person whose net worth is between $1 million and $5 million is considered to be a high-net-worth individual or HNWI. In their 2020 study, World Worth Report estimated that there are over 5.9 million US citizens who fall under this bracket. That number accounts for about 60% of all of the world’s HNWIs in that same year. Other countries with a high number of people who are considered to be HNWIs are Japan (3.4 million), Germany, (1.5 million), and China (1.1 million). 

Because they are essentially millionaires, HNWIs get a different kind of treatment from financial institutions. After all, the more wealth you have, the more complicated it is to manage it. In some wealth management institutions, HNWIs are often provided with special accommodations and access to various kinds of additional services. Private wealth managers also often encourage their HNWI clients to invest in private equity and hedge funds to protect and further increase their assets.

Very-High-Net-Worth Individuals

If the value of a person’s liquid financial assets reached $5 million but does not exceed $30 million, they will be considered a very-high-net-worth individual (VHNWI). The number of people who fall under this category is significantly smaller compared to HNWIs. According to a 2020 report by Wealth X, there are over 2.6 million individuals around the world who are VNHWIs. The combined wealth of all of these people amounts to a staggering $2.6 trillion.

The US has the most VHNWIs at around 969,000. This number is considerably higher than the runners-up: China (260,000), Japan (186,000), and Germany (130,000). According to the same report, most VHNWIs are around 60 years old. The younger VHNWI population can be found in Middle East Asia, particularly Qatar and UAE. 

Ultra-High-Net-Worth Individuals  

The wealthiest people, or those with over $30 million worth of financial liquid assets, are called ultra-high-net-worth individuals (UHNWI). This group includes the members of the so-called “three-comma club,” more popularly known as billionaires. According to a 2020 report by Wealth X, fewer than 300,000 individuals fall under this category. Yet, they control a tremendous sum of wealth, which amounts to over $35 trillion.

The majority, or about 93,000, of all UHNWIs, reside in the US. Other countries with a large number of UHNWIs include China (27,000), Japan (20,000), and Germany (15,000). The global UHNWI population is still heavily dominated by males. Although the number of wealthy women is steadily increasing, right now, they only account for about 10% of the total UHNWIs in the world.

How to Have a Higher Net Worth? 

A person whose net worth is less than $1 million but over $100,000 is considered to be an “affluent” individual. Some wealth managers call people in this bracket “sub-HNWI” too. If you fall under this category, there are things you can do to increase your net worth and become a millionaire. It takes some time and effort, but it’s totally doable.

One of the ways to increase your net worth is to invest. Affluent individuals often enjoy compounding returns of investment, which increase their net worth significantly after a certain period. Over the past decades, the stock market has been proven to be one of the best vehicles for wealth creation. But the stock market is highly volatile, and investing in it takes a lot of risk management and mitigation effort. When in doubt, feel free to get in touch with a wealth management firm and consult an advisor to avoid any financial mistakes. 

It’s also a good idea to invest in more tangible assets, like real estate and private lands. Gold, jewelry, antiques, and artworks are also a great addition to your investment portfolio. All of them increase value over time, so buying them now will definitely have a positive impact on your net worth in the coming years.

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