Americans Losing In The Wealth Race
ForbesLuisa Kroll, 06.11.03, 5:47 PM ET
NEW YORK - North America's wealthiest individuals saw their accumulated wealth fall 2.1% in 2002 to $7.4 trillion, its first decline in seven years. And the number of high-net-worth individuals (defined as people with financial assets of more than $1 million) slipped slightly as well. In the U.S., the number of high-net-worth individuals fell by 100,000 to 2 million. Those are some of the conclusions of the 2003 World Wealth Report, published today by Merrill Lynch and Cap Gemini Ernst & Young.
While Forbes is the definitive source for the 400 richest Americans and for tracking the world's billionaires, Merrill Lynch (nyse: MER - news - people ) and Cap Gemini Ernst & Young have made their marks tracking the matters of mere millionaires for the past seven years. And while news from North America was rather glum, elsewhere things were looking up for the world's wealthy. All other regions saw an increase in financial wealth and all except Latin America saw the number of individuals grow, despite the tough economic environment. The ranks of the world's wealthy grew 2.1% to 7.3 million individuals while the worth of their financial assets grew 3.6% to $27.2 trillion.
This growth is a far cry from the numbers posted in 1999, when wealth expanded by 18% and is in fact the lowest growth in seven years. But it is impressive when compared with the performance of the major stock exchanges around the world, which were down 16.9% last year.
The wealthy racked up these gains in such tough economic times largely by diversifying and shifting their financial strategy to wealth preservation from accumulation. "The more affluent the investor, the more immune they turned out to be," says James P. Gorman, president of Merrill Lynch's Global Private Client group, "Clearly you are seeing the benefits of diversification."
According to the report, these individuals stashed 25% of their assets in cash/deposits, another 30% in fixed income and only 20% in equities. The 58,000 ultrahigh-net-worth individuals (defined as folks with more than $30 million in assets) are even more likely to concentrate their assets out of the equity markets.
Some other areas where these individuals increased their investments included real estate, both in direct ownership and through real estate trust funds and luxury collectibles. Auction houses such as Christie's saw increased sales in art and wine collections. A wine index, compiled by Fine Wine management, outperformed equities by 97% from 2000 through 2002.
So why did North American lag? In part, because people in the U.S. had greater faith in equity markets than their non-U.S. counterparts, retaining a larger portion of their financial assets in equities. This group also was hurt by the poor dollar. Still their portfolios did much better than the 22% drop in value of the Standard & Poor 500 index over 2002, "indicating that high-net-worth investors had strategies in place for wealth preservation," says Gorman.
Of the major regions, Asia-Pacific enjoyed the biggest gains in wealth, up 10.7% to $5.7 trillion, due to relatively high savings rates, local currency appreciation and relative strength of regional stock markets. This pace is unlikely to be repeated in 2003 as the region suffers the impact of SARS.
Interestingly, political and economic upheaval in certain countries such as Israel or Venezuela doesn't necessarily affect that country's richest individuals. There doesn't appear to be a correlation between a country's problems and this group's performance, because they move much of their money offshore and invest in many countries.
These millionaires aren't afraid to get help with their finances. Indeed, 55% use financial advisers, up from 45% last year, according to Merrill Lynch, who has the world's greatest number of financial advisers (14,000 in 2002). And it's putting more emphasis on this group; it recently invested $1 billion to improve the technology of the financial advisers' workstations. Since 2001, it has been expanding into new areas targeting wealthy niche groups including Indians, Asian-Americans and Hispanic-Americans. It faces stiff competition from other financial services giants such as Citigroup (nyse: C - news - people ) and UBS (nyse: UBS - news - people ).