Better wealth distribution sorely needed

kopiandproperty.com has written about this topic over the years and this year, the sad state of unequal wealth distribution has become even worse.

Worse for the poorer half of the world’s population mostly because the richer are getting even richer and at a faster pace too, according to a report published in TheStar.

First of all, there is nothing wrong with the richer getting even richer. However, their wealth as a percentage is growing much higher which means that despite the world population growing, share of wealth is actually on a downtrend.

According to the report, the millionaires and billionaires among us now hold almost half of global personal wealth, up from slightly less than 45% in 2012, says Boston Consulting Group (BCG).

What do they invest in? US$121.6 trillion (60%) of global wealth takes the form of investable assets – mainly equities, investment funds, currency and deposits, and bonds, with the remaining US$80.3 trillion (40%) held in non-investable or low-liquidity assets such as life insurance, pensions funds, and equity in unquoted companies.

Residents of North America held over 40% of global personal wealth, followed by residents of Western Europe, with 22%. The strongest region of growth was Asia, which posted a 19% increase.

Personal wealth bands are generally measured in the following ways:

1. Retail: below US$250,000

2. Affluent: between US$250,000 to US$1mil

3. Lower High Net Worth (HNW): between US$1mil and US$20mil

4. Upper HNW: between US$20mil and US$100mil

5. Ultra HNW: above US$100mil

From the chart above, it is clear most of these individuals are from the US. But look closely at China too. From the perspective of compounded annual growth, it’s by far faster than the US.

Entrepreneurs are seen to be those who invest more by liquidating the equity in their own companies. The largest pool of these entrepreneurs are in the US, France, Italy and Japan.

Meanwhile in Asia, personal wealth is growing by 19%. (If we are growing by the same number, then we are not falling behind).

Residents of China hold 57% of the growth. Asia remains a cash-and-deposit-heavy region, with 44% of personal wealth held in this asset class. Two examples – fixed deposits and debt-free homeowners.

Over the next five years however, regional wealth is expected to grow at a CAGR of 12%. With job increments at 6%, a working professional just has to make sure he can grow another 6% from his existing wealth.

In Malaysia, some heads of GLCs earn high salaries. There are still CEOs whose take home pay is a huge percentage of the company’s profits, leaving shareholders with little or no dividends.

There are also over 60,000 hardcore poor heads of family in Malaysia according to TheStar article. This are not what we should worry about though.

We should keep learning about financial investment and the opportunities it presents because if we did nothing, we will become poorer as the years pass.

Inflation is not the main worry, “inaction” is.

This article first appeared in kopiandproperty.com

Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.