Wealth accumulation is a goal shared by many individuals. For some, it represents a necessity, while others seek long-term financial stability. Among the affluent, it may even resemble a game of amassing greater wealth and influence, where net worth serves as a measurement of success.

Curiosity about how others manage their wealth is common, particularly among Americans.

How Do Americans Utilize Their Wealth? A recent report from the Pew Research Center examined the various assets owned by Americans. The findings revealed:

• Almost everyone has bank accounts.
• Approximately 6 out of 7 people own at least one vehicle.
• About 60% possess a primary residence.
• Roughly 60% have retirement accounts.
• Just over 30% invest in stocks, bonds, and mutual funds outside retirement accounts.
• Less than 15% have equity in a business.
• Around 10% own rental properties or other types of real estate.
• Finally, 25% hold other assets.

Pew also analyzed the value of these assets across different classes:

• The equity in primary residences, which is the difference between a home's value and the mortgage owed, is the most significant asset for many American households, averaging $174,000 in 2021 and making up a large portion of their wealth.
• Retirement accounts follow, with an average value of $76,000.
• Approximately 80% of households own either a home or a retirement account, with over 40% possessing both.
• The typical value of investments in stocks, bonds, and mutual funds stands at $26,400.
• Vehicles contribute an average of $15,200 to wealth for owners.
• Financial accounts average $10,000 in value.
• For those with rental properties, the average worth is $200,000, while other real estate averages $100,000; however, these contribute little to wealth for over 90% of households.
• Other assets collectively average $20,000.

Impact of the COVID-19 Pandemic The COVID-19 pandemic undeniably had tragic consequences, with the World Health Organization estimating nearly 15 million excess deaths related to the pandemic by 2021, including over a million Americans.

However, focusing on its effect on household wealth, the Pew report indicated that while median inflation-adjusted household income declined by 2.5% during the pandemic, government stimulus measures led to a 3.5% rise in inflation-adjusted after-tax income. Additionally, reduced spending during lockdowns contributed to an excess of $2.3 trillion saved from the onset of the pandemic until mid-2021, beyond what would have been saved otherwise.

As a result, the typical American household's wealth increased by 30%, rising from $128,000 in 2019 to nearly $167,000 in 2021.

Several factors contributed to this financial boost:

• The St. Louis Fed reported a remarkable 31% surge in home prices from December 2019 to December 2021, escalating from just over $212,000 to more than $278,000.
• Concurrently, the average 30-year mortgage interest rate fell from 3.74% at the end of 2019 to a low of 2.65% in January 2021 before rising to 3.11% by the end of 2021.
• This scenario allowed someone buying a median home in December 2021 with 20% down to have a monthly principal and interest payment of $785, which could be refinanced to $672 a year later — a 14% decrease.
• The stock market also surged by over 52% from late 2019 to late 2021.

However, this increase in wealth was not uniformly distributed. For instance:

• The wealth of households in the lowest quartile saw minimal change, from a median of $0 in 2019 to $500 by the end of 2021.
• Households in the second quartile experienced a wealth increase of just under $20,000.
• The third quartile saw nearly $58,000 added to their median wealth.
• In contrast, the top quartile enjoyed a median net worth rise of over $172,000.

Wealth Trends Post-2021 After 2021, the government support that helped many during the pandemic began to wane, leading to a decline in after-tax income. The US Census Bureau reported an 8.8% drop in median inflation-adjusted household after-tax income for 2022.

However, pent-up demand resulted in a 9% increase in spending in 2022 compared to 2021, likely fueled by the depletion of pandemic savings.

Home prices continued to rise, albeit at a slower rate of 13.6% from December 2021 to March 2024, equating to an annualized rate of 5.9%. The stock market briefly entered a bear market in 2022 but recovered, finishing about 17% higher than at the end of 2021 (a 6.6% annualized return).

Mortgage rates nearly tripled from their early 2021 lows, peaking at 7.79% in October 2023, which made home purchases increasingly difficult and locked in existing homeowners with lower rates.

Exploring Additional Asset Classes for Investment As individuals amass more assets, broad diversification becomes crucial. This doesn’t just mean avoiding all investments in a single company or sector but rather reassessing asset allocation strategies as net worth increases.

Experts like Jorey Bernstein emphasize the importance of adjusting asset allocation as net worth rises, advocating for a conservative approach focused on capital preservation.

Omar Morillo highlights the need for diversification across multiple asset classes based on individual financial goals and risk tolerance.

Rob Duncan adds that optimal asset allocation should align with clients' life goals rather than solely focus on net worth.

Examples of asset classes for diversification include:

• US Equities: Investing in a variety of companies or through mutual funds and ETFs for instant diversification.
• Foreign Equities: Similar to US equities, with the option to invest via mutual funds and ETFs.
• Bonds: A lower long-term return but useful when interest rates are high and expected to decline.
• Real Estate: Direct investment in rental properties or indirectly through Real Estate Investment Trusts (REITs).
• Cryptocurrency: A growing asset class with significant upside potential but high risk.
• Cash: Useful for upcoming expenses or emergencies.
• Commodities: Includes assets like gold, oil, and agricultural products.
• Alternative Investments: High-risk options like hedge funds, private equity, and venture capital.
• Annuities: Should be approached cautiously due to potential high fees.
• Derivatives: Complex and risky financial instruments requiring thorough knowledge.
• Collectibles: High-risk investments requiring in-depth knowledge.
• Physical Assets: Items such as homes, vehicles, and jewelry, typically used rather than viewed purely as investments.

Understanding Your Diversification Strategy Your diversification strategy will depend on your individual circumstances. For instance, my investment allocation consists of about 75% in conventional financial assets, almost 25% in real estate (excluding home equity), and a small portion in cryptocurrency.

In my current financial strategy, approximately 75% of my conventional assets are in equities through mutual funds and ETFs, with around 20% in bonds and 5% in cash.

While I maintain a higher equity position than traditional recommendations suggest, I am comfortable with my aggressive stance, supported by safety nets.

Ultimately, the allocation of wealth varies significantly among American households, particularly between the lower and upper economic strata.

As Jon McCardle explains, as wealth increases, so does comfort with calculated risks. Advisors must adapt to clients' evolving financial situations and goals, especially during economic fluctuations.

This overview serves as a foundational guide for reflecting on asset allocation strategies moving forward.

Disclaimer This article serves informational purposes only and should not be considered financial, investment, business, tax, or legal advice. Always consult a professional before making major decisions.

About the Author Opher Ganel has successfully launched several small businesses, including a consulting firm that supports NASA and government contractors. To stay updated on future articles, consider subscribing to my publications.