How exactly have the rich made their millions? Popular stereotypes of the wealthy imply that they’ve amassed their wealth through a combination of shrewd business decisions, taking on greater investing risks, and of course, benefiting from cushy upbringings. But as is the case with most stereotypes, these are gross exaggerations: a new study shows that a vast majority of high net worth investors come from humble beginnings and built their wealth using some of the most basic tenets of money management.
Insights on Wealth and Worth is an annual survey of 684 high-net-worth individuals — people who have $3 million or more in investable assets. Among the study’s most striking conclusions: much of the 1%’s road to wealth was paved not with gold but remarkably average upbringings and investment strategies.
“Perceptions of the wealthy in history and popular culture have been painted with a broad brush that doesn’t reflect the majority of financially successful people in society,” Keith Banks, president of U.S. Trust, said in a statement accompanying the study’s findings. “Their advantage in life is not rare financial privilege but rather basic values, discipline and sense of potential shaped by family from an early age, which equipped them to make the most of every opportunity.”
In fact, some of the strategies of the high-net-worth are so basic that members of the 99% could replicate their tactics. Here’s a look at the six most important lessons that can be gleaned from the study’s insights on the 1% and their journey to life as a high-net-worth investor:
You don’t need a running start. A large majority – 77%, in fact – of the high-net-worth investors surveyed grew up middle class or lower. Within that majority, nearly two in five (19%) grew up poor. This means that a very small portion of the high-net-worth community actually inherited their wealth. And to confirm this conclusion, the survey asked investors where their wealth came from. Fifty-two percent of respondents said their net worth was driven by their earned income, while another 32% said the source was investment returns. Just 16% pointed to inheritance or “other.”
But good parents do make a difference. The survey asked respondents to divulge the three most important values stressed in their families when they grew up. The top three answers? Academic achievement, financial discipline, and work participation. Moreover, eight in 10 of those surveyed said their parents were firm disciplinarians but also “encouraged them to pursue their own talents and interests.” Three-quarters of respondents said they had parents who were present in their lives both physically and emotionally.
Save early and… you know the rest. On average, the study says, the wealthy began saving money by the age of 14 and were earning money for work (outside of an allowance or for household chores) by age 15. By age 25, they had begun investing in the stock market.
Keep your eyes on the road ahead. An impressive 81% of wealthy investors say they are prioritizing future goals over their current needs. ”The wealthy keep their focus on funding long-term goals including their financial security and lifestyle expectations in retirement, legacy plans, and next-generation wealth transfer,” the survey says.
81% of high-net-worth investors are prioritizing future goals over current needs. Source: US Trust
It’s okay — good, even — to have a vanilla investment plan. Forget those stories you’ve heard about being one of the few investors who saw the promise of a startup long before it achieved unicorn status. The survey found that the vast majority of high-net-worth investors — 89%, in fact — have made the bulk of their investment gains through plain old stocks and bonds. Another 83% of investors said that they have benefited from long-term buy-and-hold strategies. In other words, they’ve built their wealth using two of the most fundamental tenets of money management.
“Despite perceptions that the greatest gains come from taking great personal risks, the majority of high-net-worth investors have grown their investments over time through a series of many smaller wins in the market versus taking big chances,” the study says. Offering further proof that the rich are not inherently more prone to risk than the rest of us: 6 in 10 investors surveyed said that it is more important to reduce their risk, even if it means lower returns.
Be mindful of taxes. High-net-worth investors are “keenly aware” of taxes, which while not surprising is nonetheless a state of mind worth emulating. More than half (55%) told the surveyors that it’s “more important to minimize the impact of taxes when making investment decisions than it is to pursue the highest possible returns regardless of the tax consequences.”