Examples and Definition of a High-Net-Worth Person
A high net worth individual is a person with liquid assets of at least $1 million, including cash, equities, and bonds. Many wealth management firms utilize this designation to effectively adapt their marketing and services.
Alternative definition: In some circumstances, the SEC defines a person with a high net worth as someone who has at least $750,000 under the management of a financial advisor or has a net worth of more than $1,500,000.
You might be seen as having a high net worth if, for instance, you own bonds or stock in Apple valued at $1 million. However, let’s imagine you had $5 million worth of real estate stock instead of any stocks or bonds. You won’t be regarded as wealthy as long as you possess real estate.
This is because the phrase “high net worth individual” refers to the founding of wealth management firms. These businesses typically handle their clients’ cash, not their real estate portfolios.
How Do High-Net-Worth Individuals Use It?
Wealth management firms frequently target high net worth individuals. Not just because the company can handle at least $1 million in cash, but also because their financial situations are frequently more complicated. This enables the business to offer advise more frequently and to charge a fee for it.
According to a bank estimate, there were 11.6 million wealthy households in 2020 with a net worth of $1 million to $5 million, a 5.5% increase from the year before.
High-Net-Worth Individuals: Types
Some wealth management companies further divide high net worth people into various tiers. According to Capgemini, a provider of information technology, these are three typical examples:
A high-net-worth individual (HNWI) is a person with a net worth of between $1 million and $5 million.
A person having liquid assets between $5 million and $30 million is considered a mid-tier millionaire.
Generally speaking, a person with liquid assets worth $30 million or more is considered to be an ultra-high net worth individual (UHNWI).
Individual high net worth sub-ratings and their standards will vary from company to firm.
For instance, Vanguard, a financial services provider, provides its premium services to high net worth clients, who are defined as clients with between $1 million and $5 million in Vanguard assets. Vanguard, on the other hand, refers to clients who have $5 million or more in investable assets as “ultra-net investors” and offers them Flagship Select options.
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The “ultra-high-net-worth” benchmark is established at $10 million in liquid assets by Goldman Sachs, on the other hand.
Individuals with High Net Worth vs. the Mass Affluent
Wealth management companies do not simply target high-net-worth clients. Another category is the mass affluent. These people have a minimum of $100,000 in liquid assets, but not more than $1 million.
High net worth individuals are regarded as consumers by Goldman Sachs, although they won’t get wealth management services. Instead, clients will receive digital services from the business, not advice from a specific advisor.
High-Net-Worth Individuals are criticized
One of the main issues with classifying investors into different groups according to the amount of their liquid assets is that those who have less than $1 million in liquid assets will not have the same resources as wealthy individuals. In the case of financial services, they won’t get the same advice.
This is problematic since those who have liquid assets under $1 million might really require more financial guidance than those who are wealthy. Wealth managers and advisors could not give them the same attention as high net worth individuals.
How to Develop a High-Net-Worth Persona
Being extremely affluent entails a long period of incremental asset building in addition to receiving unanticipated windfalls.
Finding out how many liquid assets you currently have is a good place to start. Once you begin keeping track, you’ll be able to calculate how much you need to amass in order to cross the $1 million mark. After that, you can take the required actions to improve your cash flow. This can entail raising your monthly income, lowering your savings rate, and investing the difference.
Retirement funds like Individual Retirement Accounts (IRAs) and 401(k) plans can significantly hasten your path to financial success due to their tax advantages.
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