What is wealth? Here are a few definitions:
- A measure of how much a person has in savings, investments, real estate and cash, less any debts.
- A measure of net worth at a particular moment in time.
- The accumulation of all one’s assets, both physical and financial investments, which could be turned into money if sold.
What types of assets do rich people have? The following breakdown of asset types steers us in the direction of an answer:
While a median net worth of $500,000 and over includes the merely affluent, the above data does provide clues as to how the truly rich invest their money. For instance, if the mean value of an asset type is a lot higher than its median value, big money households are more likely to own that asset. Interestingly, the mean value for home equity isn't all that much higher - 24% - than the median value, an indication that the rich aren't pouring their money into super-homes (ditto fancy cars). Compare to where the mean-median difference in asset type is over 100%, such as in stocks/mutual funds, equity in business/profession, annuities/trusts, and "other assets" (which includes things like jewelry and art). What that tells me is that rich people often own businesses or are self-employed professionals, and many grow their money in the stock market, either directly invested or through mutual funds, annuities, and trusts.*
Bottom line: the fortunes of the wealthiest Americans tend to track the movements of the stock market. In 2017, the Dow Jones went up 25%. That means the rich just got a whole lot richer. It’s doesn't seem fair. Should we tax their wealth?
Next: Redistributing the wealth of the wealthy?
* The rich also put lots of money into retirement accounts, which depend on the stock market to meet their future obligations.
Note: I am not a wealthy person.