7 Asset Categories Wealthy Households Use, Explained: How Each One Works

Intro

In one survey, the wealthiest tenth typically own over $5 million in assets. Seven asset categories wealthy households use, explained: what each one is, how it works, the first step, and its limit. The last one is their biggest typical holding of all seven, for those who have it: about $1.4 million. These numbers come from one central bank's newest survey, in one country, linked below.

Henry only points at what official pages show.

7. Cash kept for spending

Number seven: cash kept for spending, in checking, savings, and similar everyday accounts. What most people miss: an official investor page says interest rates on these accounts are usually not very high. What it is: a bank account, where the institution records every transaction between it and you. The page names two main types: one for day-to-day spending and bills, and one for saving.

In that survey, families in the top 10% by net worth keep a typical $135,000 in everyday accounts. How it works: deposits sit safely, ready to spend, and savings accounts typically pay some interest. Savings accounts usually pay slightly more interest than everyday spending accounts, the page explains. They let you set money aside for emergencies, the page adds, while keeping it readily accessible.

Where deposit insurance applies, money in these accounts is protected against loss, up to set limits. The first step, from that page: decide what type of account you need, for spending or for saving. Then look for the services you will use most, and shop around to compare interest rates and fees. What it takes: no job and no minimum amount, the page says, but you do need identification, and minors need a parent's help.

Its limit: savings accounts offer stability, but their interest may be less than investment returns. Fees can change from year to year. Deposit insurance and account rules differ from place to place. Quick check for number seven: the right type of account, the services you use, and fees compared.

Number six asks for patience: money lent for a set time, with interest in return.

6. Bonds: money lent for a set time

Number six: bonds, money lent to a government or a company for a set period of time. What most people miss: a bond's price can move before it matures. In general, when interest rates rise, bond prices fall. What it is: when you buy a bond, you lend your money to the issuer for a set time, called the term.

In that survey, about eight in a hundred of the wealthiest tenth hold bonds directly, not counting savings bonds, far more than families overall. How it works: in return, the issuer pays you interest, and most bonds have a fixed rate that does not change. On the maturity date, the issuer is supposed to pay back the bond's face value in full. The other way to gain is selling a bond for more than you paid, which can happen when rates fall.

Credit rating agencies rate issuers and their bonds, giving an opinion on their ability to repay. The first step, from a markets regulator's investor page: before you invest, understand the risks. It names four that affect bond prices: interest rates, inflation, the whole bond market, and credit risk. What it takes: a time horizon that fits.

If you might need the money sooner, it suggests a shorter one. Longer-term bonds, the page notes, tend to have higher returns and higher risk than shorter-term bonds. Its limit: if you must sell before maturity while rates are high, you may get less than you paid. If inflation outpaces the interest, the return loses buying power.

Tax rules on interest differ from place to place. Quick check for number six: the issuer's credit rating, the term, and money that can wait until maturity. Number five swaps lending for owning: a share of a company itself.

5. Stocks held directly

Number five: stocks held directly, shares of public companies owned outright, not through a fund or retirement account. What most people miss: if you cannot explain how a business makes money, its risk is hard to judge. What it is: a stock is an investment that gives you part ownership, or a share, in a company. In that survey, owning stocks directly is far more common among the wealthiest tenth than among families overall.

Shareholders do not run the company day to day, but shares often come with voting rights. How it works: if you sell a stock for more than you paid, the page calls that a capital gain. The other way is dividends: payments to shareholders that come from the company's profits. But dividends are never promised, the page says, and neither is their amount.

Prices move with a company's size, profits, and financial stability, and with factors like interest rates. The first step, from the regulator's page: start with the company's disclosure documents, like its annual financial statements. Find out whether the company is making money or losing money, and why, before you invest. What it takes: comfort with risk.

The page says to decide whether these are risks you are comfortable taking. It also says to figure out how a stock fits with the rest of your investments and goals. Its limit: returns are not certain, and stock prices can change often, for many reasons. Owning companies in different industries can reduce the ups and downs.

Tax rules on gains and dividends differ by place. Quick check for number five: how the company makes money, its disclosure documents, and your comfort with risk. Number four lets a professional pick the investments: a pooled fund.

4. Pooled investment funds

Number four: pooled investment funds, one purchase that holds many investments at once. What most people miss: fund fees are charged regardless of how the fund performs, even with negative returns. What it is: a collection of investments, such as stocks, bonds, or other funds, that is professionally managed. In that survey, almost half of the wealthiest tenth hold pooled funds, far more often than families overall.

How it works: your money joins money from other investors, buying part of a pool. A portfolio manager decides where the fund invests, and when to buy and sell. The price usually depends on the fund's net asset value, generally calculated once every business day. Holding a variety of investments may help offset poor performers.

The page calls this diversification. The first step, from the regulator's page: five questions before you buy, from the fund's goal to who manages it. The fund's plain-language summary covers performance, risk, and costs. What it takes: a fund whose goal fits yours, with a risk level you can tolerate.

The page adds: compare all costs, because a low yearly fee could come with very high sales charges. In the page's examples, a young investor may pick an equity fund; one near retirement, a bond fund. Its limit: you could lose money if you sell when the value is lower than when you bought. Funds are not deposits, the page notes, so deposit insurance does not cover them.

Rules differ from place to place. Quick check for number four: the fund's goal, its risk, its costs, and who manages it. We are halfway. One habit helps every item: check the registration of anyone selling an investment.

Number three leaves the markets behind: property beyond the home a family lives in.

3. Property beyond the home

Number three: property beyond the family home, like a second home or a place rented out. What most people miss: an official investor page calls property ownership an expensive and hands-on type of investment. What it is: real estate besides the main home, such as second homes, small rentals, commercial property, or land. In that survey, owning other homes is far more common among the wealthiest tenth than among families overall.

How it works: a tenant pays rent, meant to cover every cost of owning: any mortgage, taxes, utilities, and maintenance. A rental may bring monthly rent, though the page says income or profit is not certain. Commercial property and land, the central bank notes, often carry large mortgages that appear to be paid from their revenues. The first step, from the regulator's rental page: talk to an accountant, lawyer, or other expert about taxes.

Then check that the rent can cover every cost of owning, as the other page describes. What it takes: a down payment, possibly a mortgage, and high monthly expenses to cover. And time: the page says to be prepared to devote a lot of it, from paperwork to repairs. Its limit: real estate is not a liquid investment.

Selling can take time, and real estate and legal fees make it costly. A tenant may not pay, or a unit may sit empty, while the mortgage and taxes still come due. Landlord rules, permits, and property taxes differ from place to place, so check where you live. Quick check for number three: rent that covers every cost, time for repairs, and advice on taxes.

In one breath: cash for spending, money lent, company shares, pooled funds, and property beyond the home. Number two goes one step further: owning all or part of a private business.

2. A private business they own

Number two: a private business they own, all of it or a part, not traded on any stock market. What most people miss: private company stock is not traded publicly, so you may not be able to sell when you want. What it is: the survey counts the owner's net worth in the business, from a sole owner's firm to a partnership. Among the wealthiest tenth in that survey who own one, the typical stake is worth over $1.2 million.

How it works: the owner's share is what the business owns minus what it owes, as a regulator's page explains. Unlike public company shareholders, owners can steer it. The report says it offers greater operational control. The report also calls both public and private business equity high-risk, compared with other kinds of assets.

The first step, from a government business page on buying one: check whether you are business ready. It asks about your skills, the time the business will need, and the capital to invest. Before you commit, it says, determine the business's current value, perhaps with a professional valuation. Then due diligence: licences and permits, contracts and leases, equipment, assets, and inventory.

What it takes: hard work. The page says running a business requires a lot of discipline. It also suggests talking to a business adviser to help you through the process. Its limit: an established business can bring outstanding contracts, or a poor public image from the previous owner.

And private shares, the regulator's page adds, may require a large investment. Business rules differ from place to place. Quick check for number two: business ready, a value checked by a professional, and due diligence done. Last comes the one promised at the start: their biggest typical holding of all seven.

1. Retirement accounts

Number one is their biggest typical holding of all seven, about $1.4 million: retirement accounts. That is the typical balance among families in the wealthiest tenth who hold one, in the central bank's survey. Many families overall hold one too, the same survey shows. What most people miss: in workplace contribution plans, the page says, you are responsible for investing the contributions.

What it is: accounts for retirement savings, opened by individuals or offered through an employer. Usually, the central bank notes, they may be invested in almost any asset: stocks, bonds, funds, or real estate. How it works: usually both you and your employer contribute, and the employer may match some of yours. The amount available later depends on the total contributions and the investment returns the money earns.

In most of these plans, the employer offers a variety of professionally managed funds to choose from. The first step, from the regulator's pension page: choose the fund or mix of funds that suits your situation. That depends on your tolerance for investment risk, and how close you are to retirement. The page also says to designate a beneficiary for your plan.

What it takes: joining a plan at work and deciding how to invest, using its tools or advice. Its limit: the account's value can change, depending on the type of investments it holds. In workplace plans, the central bank notes, choices are sometimes limited to a narrower set of assets. Account types, tax breaks, and withdrawal rules differ from place to place, so check what exists where you live.

Quick check for number one: any employer match, the funds you choose, and a named beneficiary. That is all seven. Here they are again, with each first step.

Recap

Number seven, cash for spending: decide what type of account you need. Number six, bonds: understand the risks first, starting with interest rates. Number five, stocks: start with the company's disclosure documents. Number four, pooled funds: the five questions, starting with the fund's goal.

Number three, property: expert advice on taxes, and rent that covers every cost. Number two, a private business: check whether you are business ready. Number one, retirement accounts: choose your funds, and name a beneficiary. Today, open one official page from the description and check one requirement.

Which one surprised you most? Tell us in the comments. Results vary, rules differ where you live, and this is information only, not financial advice. Next on Wealth Filings, watch five habits millionaires share, linked on screen.

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