What pandemic? The ranks of super rich people actually jumped 6.3% in 2021 by largely sticking with the same investment strategy — owning mostly S&P 500 stocks.
Holding onto mostly stocks, including those in the S&P 500, amid the pandemic is a big reason why the wealth of the 20.8 million richest people in the world jumped 7.6% in 2021, says an Investor’s Business Daily analysis of Capgemini’s World Wealth Report just released today. The world’s wealthiest people now control a record $79.6 trillion.
And it’s a bit of a surprise, too. In previous downturns, wealthy people panicked. But this time, they held their allocations to stocks steady. And they didn’t bail out and shift money into bonds, a move that would have erased wealth. Standing with stocks, instead, added to their piles.
High net worth investors “seek safer asset classes when financial markets are precarious,” Capgemini said. “However, in a curious deviation, equity markets quickly picked up in April 2020 during the Covid-19 crisis after an initial crash in March.”
So while Warren Buffett panic sold, most wealthy people held steady with stocks
Holding Steady With S&P 500 Stocks
Staying with S&P 500 stocks was a smart move.
Coming into 2021, high net worth individuals held 30% of their portfolios in stocks. That includes holdings in top performing U.S. tech stocks in the S&P 500. That’s the largest slice of their portfolios. It tops wealthy people’s No. 2 holding, cash and equivalents, at 24%.
But more importantly, wealthy peoples’ holding in stocks is now exactly the same as it was a year ago, Capgemini found. Holdings in cash actually crept down from 25% a year ago.
They made a savvy move sticking with stocks. The Vanguard Total Stock Market ETF (VTI) jumped more than 46% in the past 12 months. That’s the top showing of any major asset class in that time. Meanwhile, the price of the Vanguard Total Bond Market ETF is down nearly 3% in a year’s time. That wipes out its 2.3% yield.
“Asset allocations were nearly static from (the first quarter) of 2020 to (the first quarter) of 2021,” Capgemini said. “The quick recovery may be explained by market expectation of the real economy to recover soon, given that the Covid-19 crisis is not primarily a financial crisis.”
Likewise, wealthy investors mostly held their holdings in real estate steady at 15% of their portfolios. And exposure to bonds only inched up to 18%, from 17%. Meanwhile, those trying to hedge their bets kept a lid on it. The exposure to alternative investments rose just one percentage point to 14%.
Rich People Usually Panic
Seeing wealthy investors stay calm and stand pat with S&P 500 stocks is a bit unusual. They usually do the opposite.
Rich investors shifted money out of stocks and into real estate and alternatives during the stock market and economic disruption from 1998 to 2002, Capgemini found. And holdings in alternative investments hit a “hearty” 20% by 2005 as wealthy investors tried to shield portfolios from stock markets losses.
And then in 2006, wealthy investors loaded up on real estate taking the allocation to 24%. But that was just in time for the brutal subprime-driven real-estate crash. Rich investors panic sold, taking their allocation to real estate down to just 14%.
U.S. Tech Is The World’s Wealth Engine
But one shift that’s only become more pronounced is the amazing wealth minted by the U.S. technology sector.
Back in 1993, just 7% of the total wealth of the 400 richest Americans traced back to tech-related firm. That hit 27% in 1998. And now, tech is the No. 1 wealth generator, and 29% of portfolios for the richest Americans. And that’s meant a seismic shift in global wealth.
For the first time in five years, North America overtook Asia in both the most high net worth people and total wealth, Capgemini says. North America is now home to upward of 7 million high net worth individuals, up nearly 11% from 2019. That tops the 6.9 million wealthy investors who call Asia home.
And that’s largely due to tech giants, which dominate the S&P 500. “Technology stocks influence overall markets more substantially than traditional industries such as energy and utilities,” Capgemini said. Facebook’s market value alone just topped $1 trillion Monday. “Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Facebook (FB) and Microsoft (MSFT) value grew from 17.5% (of the S&P 5000) at the start of 2020 to 22% by mid-December 2020.”
Inside Millionaires’ Portfolios
Stock remains the largest position, despite the pandemic
|Asset Class||Allocation % 2020||2021 % Allocation||Representative ETF||Symbol||1-year % ch.||Yield|
|Stock||30%||30%||Vanguard Total Stock Market||(VTI)||46.6%||1.2|
|Cash, Equivs.||25%||24%||JPMorgan Ultra-Short Income||(JPST)||0.0%||0.9|
|Fixed Income||17%||18%||Vanguard Total Bond Market||(BND)||-2.7%||2.3|
|Real Estate||15%||15%||Vanguard Real Estate||(VNQ)||34.8%||3.2|
|Alternatives||13%||14%||IQ Hedge Multi-Strategy Tracker||(QAI)||7.2%||2.0|
Sources: Capgemini, IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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