Globally, both the population and wealth of high net worth individuals (HNWIs) grew in 2020, about 6.3% and 7.6% respectively, according to the 2021 Capgemini World Wealth Report, which queried more than 2,900 HNWIs globally.
In the U.S., high net worth individuals’ wealth grew 12.3% in 2020, despite the pandemic, the report says.
This was largely driven by “unprecedented stock market gains.” The report cites both the passing of the $2 trillion stimulus package and the Federal Reserve’s announcement of unlimited quantitative easing, where the central bank bought up treasury bonds and mortgage-backed securities to inject money into the economy and support the market during the Covid-19 crisis, as reasons for this growth.
Along with the stock market, HNWIs in the U.S. primarily earn income in a few specific industries. Technology accounted for 29% of HNWIs’ wealth earned in 2020, followed by finance and investments (20%). Real estate (5%) and energy (3%) accounted for the least amount of wealth earned.
When it comes to investing, HNWIs also explored sustainable investments, like environmental, social and governance (ESG) funds, and alternative investments, like cryptocurrency.
HNWIs under 40 were likely to request ESG scores for products offered before investing, the report says. It also found that 72% of HNWIs have invested in cryptocurrencies and 74% have invested in other digital assets like web domain names.
Additionally, the report found that non-fungible tokens, or NFTs, started to gain credibility among this cohort. Special purpose acquisition companies (SPACs) rose in popularity as well.
Though these alternative investments became of interest to HNWIs over the past year, experts warn potential investors to conduct thorough research before spending money on them. Cryptocurrencies, in particular, are deemed risky, volatile investments by experts.
That’s why experts warn to only invest what you can afford to lose.
Even HNWIs are somewhat careful. The report found that they aim to learn from the past, including the 2008 recession, by managing their risk and doing their homework before investing.