How the US Invests

Question

For those of you who doesn't see the latest BP Money episode, Scott and Mindy shared how the US invests.  The screen shot below shows people by income classes.  At the left most side is the top 1% of income earners and at the right is the lowest to 20% of income earners.  Its interesting to see what investment classes they have their net worth in.  I thought I would share the data with the community.  The Fed has this data where it can be viewed over time in a lot of different ways.  If interested the website is https://www.federalreserve.gov/releases/z1/dataviz/dfa/compa...

Tim Delaney · Answer

I was playing around with the website after listening to the episode yesterday. It's an interesting tool to see how the wealthier allocate their assets.

It was also a great episode for those that did not listen.

Bill B. · Answer

I assume the graph is almost useless? Obviously the lowest 20% of income earners own zero real estate. They have a net worth of what $1,000? If anything it should say they “invest” in cars, as that’s probably their largest asset. Unless it’s being distorted by seniors who own their own home. And they don’t own their home to “invest in real estate”. They own it for a free place to stay.

Ps. It looks like the poor own the 2nd most private businesses. So unless you want to be poor don’t start your own business.

Pps. Yeah I see it says assets not investments but are you considering who was surveyed? At what age and what location? Senior farmers in the Midwest, college students in NYC, single mothers in Chicago? Were the bottom 20% almost entirely in MS,KY,NM, new border crossing immigrants, and Indian reservations? Or did they mean the bottom 20% in LA? Are they saying don’t invest in what the poor invest in, only what the rich invest in? The people who can afford for an investment to go to zero, lose everything invested and move on to the next one?

Maybe they should put a map of where all the rich people live so we can move there and become rich.

Tell me what you want the graph to say and I’ll make one saying it. :-)

Pps. I didn’t mean for this to come off as a “why did you bother posting that.” Post. It was a complaint about the graph and its creators not you Paul. Sorry if it came off that way.

Daniel Murphy · Answer

Interesting, but I find the categories oddly broad.  Years ago, I read a book called the Ivy Portfolio largely about the Harvard endowment & other large endowments.  My quick & easy summary was that the lions share of their investments were broad based low cost index funds. But where the real returns came from was private equity & private placement opportunities.  As you move up the food chain (higher income, more connected network etc) you have opportunities for more niche investing.  Private equity, hedge funds that have access to alternatives etc.

Tim Delaney · Answer

There is definitely more opportunity for greater returns in investing in private businesses as opposed to publicly traded index funds. That works at an individual level as well, not just at a large PE, Hedge Fund level. If you have the aptitude, going out and buying your own small business can produce amazing returns in a relatively short period of time.

How the US Invests

Most Popular Reply