Financial Analyst: What This Chart Will Teach You About Wealth Management

The chart above, based on a 2016 Federal Reserve Survey of Consumer Finances, reveals how people with different net worths manage their money.

Most people think saving and retirement accounts are the best ways to build and keep wealth.

The chart shows that as a person's net worth increases, they invest more in "business interests." These are businesses they own.

It could be a online business, a laundromat, a service company, or even a big stake in a Fortune 500 company.

The chart shows that as people get wealthier, they rely less on stocks and retirement savings.

 Instead, they put more money into businesses they own. This is a major shift from the common belief that retirement accounts are the main path to wealth.

For those with a lower net worth, primary residences (their house) and cars make up a big chunk of their assets. But for the rich, these items are just a small part of their overall wealth. 

For those in the 10M+ group, stocks make up no more than about 30% of their net worth, and their personal homes are less than 15%.

Most of their wealth is tied up in their own businesses.

This highlights a key point: the wealthier you are, the more you invest in businesses rather than traditional assets like stocks, retirement savings and real estate.

Owning and growing businesses becomes the main driver of wealth in the higher net worth tiers.

Which is why i constantly say to you,

"at the moment i am not investing into the stock market. I am using the profits my business makes, to reinvest it for further business, growth, development and advancement"

If you ask most people how to get rich through investing, they'd probably say by getting lucky with a stock or crypto.

Whilst that works, the chart shows that real wealth often comes from owning and growing businesses. This is a more reliable and strategic approach compared to hoping for a big break in the stock market or with cryptocurrency.

Rich people understand that owning and growing a business is the real key to building substantial wealth.

While investing into the stock market and real estate can DEFINITELY provide some security, they won’t create the same level of wealth.

If you're aiming for true financial freedom, investing in and developing your own business is the way to go.

This approach offers more control and the potential for higher returns, setting you apart from those who rely solely on traditional investments.

If you are business-minded, this is why I constantly encourage you to focus on reinvesting your early profits back into the business, especially in the first 2-3 years, to grow and develop your business.

Reinvesting helps your business expand, increases your income potential, and ultimately builds substantial wealth.

For those who are not entrepreneurial or business focused, having a good-paying job and consistently investing in the stock market over a 10-year period can provide financial security.

Depending on your earnings and how much you invest, it can even lead to financial freedom if you're willing to live modestly. Steady investing and smart money management can still lead to a very comfortable and secure future.

It's important to keep things in perspective.

A £/$1 million net worth is still a lot more than most people will ever have.

You probably don't even need half of that to retire if you manage your money well and live modestly.

These amounts are certainly attainable for those who prefer the traditional route of diversified index fund investing. (S&P 500)

For most people, aiming for a $/£1 million net worth through smart, diversified investing is a realistic goal.

By consistently investing in index funds, managing expenses, and saving diligently, you can achieve financial security.

You don't need to take huge risks or start a business to retire comfortably.

Sensible, steady investment strategies can provide a solid financial foundation and a comfortable retirement, even if they don't make you ultra-wealthy.

Closing Thoughts

What I’ve gathered from this chart is that to become wealthy, you need to get creative and entrepreneurial.

While I HIGHLY encourage non-entrepreneurial people to keep investing in the stock market (like the S&P 500) or real estate, I also urge you to start thinking beyond this.

Consider allocating some of your income toward experimenting with your own business.

I have made a lot of content on here around the subject of business and will continue to so.

Nowadays the best type of business to build is by doing something on social media.

Maybe there is something about your day-job/ career you can do as an online business?

Example:

Software engineers can make content online then creating courses and doing online tutoring on teaching people who are interested in learning how to use softwares like python, Javascript etc...

Or people working in finance teaching people financial education, how the economy works etc...

Or if someone is really intelligent in maths, english, science.. They can start a part time tutoring business by offering tutoring to the kids of a local primary school near your house. who knows what that could possibly grow to?

If you're young and have few responsibilities, why not take the chance?

Yes, it WILL It will be a tough adjustment if you've never owned a business or taken risks before.

There will be failures and surprises, but this mindset shift can be beneficial and, hopefully, lucrative in the long run.

Even small business ventures can grow over time and add significant value to your financial portfolio.

You might discover a passion or a market niche that leads to substantial profits.

Remember, most wealthy people didn’t get there by playing it safe. They took calculated risks, learned from their mistakes, and kept pushing forward.

Embracing an entrepreneurial mindset can set you on a path to greater financial success and independence.

Sometimes, if you have a good idea in your mind, It’s about stepping out of your comfort zone and being open to new possibilities that traditional investments alone might not offer.

-Till next time