The differences between High Net Worth Individuals & the ultra-wealthy

Although there are a lot of similarities between high-net-worth individuals, those with a net worth of more than $1 million, and ultra-high-net-worth individuals, people with a $30-million-or-more net worth, several significant differences exist as well. These relate to how they earn and spend their money, and they relate to how they go about their lives away from the financial aspects of them.

Worldwide portfolios

Ultra-wealthy individuals are more apt to spread their portfolios around the world. This does not necessarily indicate that this is the best strategy for wealth building, but some do view this strategy as a way to manage risk. If one area of the world is going through challenging times, those with worldwide portfolios will be less adversely affected as compared to those who have investments predominantly in that troubled area.

Age differences

The average age of ultra-high net worth individuals is 63 while the average age for all high-net-worth individuals is 58. Interestingly, however, some countries are home to much older and much younger ultra-wealthy people.

A few examples at one end of the spectrum include France, which has an average age for these individuals of 74, and Brazil and Hong Kong, both of which are home to ultra-wealthy individuals with an average age of 68. At the other end are countries such as Russia (49) and China (50). Many of the younger individuals are self-made and still settling into what they would like to do with their money. For example, the philanthropic rates amongst younger ultra-wealthy individuals are lower than is the case for their older counterparts.

Working differences

Ultra-wealthy individuals are more apt to decide whether or not to work and how much work to do based on their personal drive to do so or lack thereof as opposed to feeling like working is a must. Of course, anybody with enough money to ensure that their basic needs are met has the freedom to do this, but those who are ultra-wealthy tend to lean much more so in the direction of only working because they want to.

One of the reasons for this is because many ultra-wealthy individuals get more pleasure out of wealth building than they do when they spend any of it; they have the mindset that spending less helps them get wealthier at a quicker rate. Instead of spending, they invest that money in real estate and other wealth-building activities. Earning compound interest whenever possible is of special interest to these individuals. Some view this spending-avoidant mindset as the primary difference between these two groups of people.

This difference in mindset does not necessarily mean that one way of thinking is preferred over the other. Perhaps you love earning enough to spend on the things that you enjoy and do not mind not being ultra-wealthy as a result. However, if reaching ultra-wealth status is of importance to you, focusing more on earning money and less on spending it appears to be a must.

Subtler displays of fortune

Those who are ultra-wealthy also tend to display their wealth in subtler ways. One example is Warren Buffett. He bought a house in 1958 that cost just $31,500 – $285,000 in today’s money – and still lives in it, he tends to eat $3 McDonald’s meals, and he usually get haircuts for less than $20. He also resisted making the move from a flip phone to a smartphone until 2020. Meanwhile, his estimated net worth puts him well in the ultra-wealth category: $80 billion.

Another example is Mark Zuckerberg. He tends to dress in a casual style, consisting of a t-shirt, jeans and sneakers. Although he spends more for those items than most do – his t-shirts often run him around $350 each – his look is still casual. He also tends to wear the same clothes on a daily basis.

Ultra-wealthy individuals also tend to place greater value on experiences than they do on physical items such as boats, bags and clothes. The former group particularly enjoys taking advantage of various types of travel and educational experiences. Another way to look at it is that these individuals put more of a focus on luxury lifestyles over luxury goods. Conversely, those with a net worth closer to $1 million are more apt to spend that money on items that help display their wealth to others.

Retirement comes later, if at all

People with this level of income tend to also view retirement as something that comes later than is the case for other individuals with many of them aspiring to never retire. Buffett is also an example of this latter category as the 90-year-old still spends numerous hours a day reading financial reports and statements and recently said that he has no plans to retire. Another example is Jorge Paulo Lemann, who has a net worth of $25 billion. He recently said that it’s a “horror” that people in Switzerland tend to retire at 60 while not seeing anything wrong with doing so.

Of course, some do prefer to use their money to retire early. It all depends on what you are looking to get out of the benefits you have received by smartly investing and otherwise taking care of your money. In fact, that latter mindset has been the driving force behind the FIRE movement; that acronym stands for, “Financial Independence, Retire Early.” One of the ways that they are able to do this is by resisting spending more on rent, cars and related items when they receive additional funds and to instead devote that extra income into passive investing and similar ventures.

In order to retire early, many people save 25 times their annual living expenses, a multiplier more than twice the normal figure of 12 that those hoping to retire in their 60s do since the members of the former group plan to be retired for a much longer time period and will need that extra money. Those who want to also pass on generational wealth tend to save an even higher multiplier.

Riskier investments and less stable fortunes

One con that the ultra-wealthy endure is being especially susceptible to any market volatility since their portfolios are generally equity-heavy. One example of this volatility occurred during the 2019 protests in Hong Kong, where its 10 richest people lost a total of $15 billion within a few weeks. Li Ka-shing, the richest, lost $3 billion and even took out advertisements, hoping to help calm those protests, including one that said that “the best of intentions can lead to the worst outcome” and an encouragement for those involved to “stop anger and violence in the name of love.”

Of course, a strategy of investing in riskier money-earning ventures makes sense to ultra-wealthy individuals as they have much less to lose than those who have fewer funds available to them; someone with a net worth of $30 million can afford to lose $1 million while someone with a net worth of $1 million cannot. Examples of these riskier investments include private equities, hedge funds and some types of real estate. As a result of this strategy, they do tend to experience more long-term success, but the volatility of those types of funds often results in partakers who are not as wealthy to more easily experience precarious situations.

Receiving little sympathy

Those who are ultra-wealthy are also more apt to be viewed by others as not having the right to experience angst and stress or, more to the point, to complain about it. However, in some ways, these individuals have less hope as they are not in a place in their lives where they can believe that money will make them happy; if that has not happened yet for them, it is likely not going to.

As a result of this general mindset that most people have, billionaires often feel isolated, unable to find a sympathetic ear. They also tend to struggle with trusting people and are usually surrounded by those who simply endorse their worldview and are neither honest nor challenging with them.

Differences also exist amongst the ultra-wealthy. Those who are part of families that have experienced generational wealth tend to have learned behaviors, for better or for worse, as opposed to those who were the first in their families to succeed with passive investing and other types of money-earning ventures.

Simply put, according to Brad Klontz, a psychologist who works with ultra-wealthy individuals, they have “different problems but not a lack of problems.”

Rules do not apply to them, which is a strength

Another point that Klontz has made is that ultra-high-net-worth individuals are more apt to not feel that rules apply to them. In their minds, being told that something cannot be done does not stop them in their tracks. It causes them to be more innovative with their thinking as they figure out a way to get through or around what would prove to be obstacles for most.            

 

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

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Joe Fairless