Editor’s note: This article was first published in August 2013. All figures are from mid-2013, including “the current crisis”, markets at all-time highs, the record number of millionaires, and the Facebook and LinkedIn share rises.
In 2009 many millionaires ran into a serious problem. They were rich, but they had a liquidity crisis. In other words, they had a lot of money tied up in illiquid assets. Many realized they were over-indebted and heavily concentrated in a single asset. The ones who had the most trouble were real estate millionaires and business owners without a financial background.
Now many of these millionaires have learned their lesson and give liquid assets and cash the importance they deserve. Their risk profile is undoubtedly lower now. In a recent American Express survey, in which some millionaires were asked what they would have liked to change about the way they acted in the current crisis, most of them, especially real estate millionaires and business owners (without a financial background), answered that they should have done more market research and kept more up to date on personal finance.
See also: The richest 1% now control 39% of global wealth
All of them did, however, mention the importance of keeping debt levels low. According to the study, the savings rate of the rich rose to 37% from a previous 32%.
Bank of America says that 56% of millionaires hold large amounts of cash, and only 16% of them plan to invest it in the coming months. Another 40% might consider investing it once they see the global economic situation more clearly.
The problem is that millionaires’ money isn’t being invested in companies to create jobs, and many of them also have doubts about today’s markets at all-time highs, so they prefer to wait for stock indexes to fall so they can get in at lower prices.
The number of rich people has grown again
Today we learned that the number of millionaires, according to the Boston Consulting Group’s Global Wealth report, is at its highest level in history. The number of people with more than $1 million in investable assets has grown by 9.2%. The region with the largest number of millionaires and the highest growth in millionaires’ wealth was North America, especially the United States.
This new 11% increase isn’t due only to rising share prices on the stock markets, but also to the new profile of the tech millionaire and the employees of these companies. In other words, as Facebook and LinkedIn shares have risen, it’s not only their founders’ fortunes that have grown, but also those of employees who received shares in these companies early on and are now millionaires.
Likewise, every day mobile apps are sold for millions somewhere in the world, and every day an innovative startup makes a fortune for its owner. We are looking at the biggest industry for creating new millionaires in history.
The figures keep confirming that the gap between wealth and poverty continues to grow dangerously wider. While the number of millionaires and the wealth of the richest keep growing, the poor are getting poorer and the middle class’s wealth is at risk of falling into extreme poverty.
Further reading
- Why the poor keep getting poorer and the rich keep getting richer
- 5 steps to getting rich, by Charlie Munger
Featured image: Fixedsun, CC0 1.0, via Wikimedia Commons.
