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THERE’S A GROUP of high-income earners who sit just below the billionaire business founders, the C-level suite set and the heiress crowd. Matthew Stewart, in his new book The 9.9 Percent, labels them the “new aristocracy.” Author Richard V. Reeves famously called them “dream hoarders” in his book of the same name.
By all objective criteria, this high-income crowd should be thrilled with their financial gains over the past three years. But instead, it seems they’re nervous about everything from an extremely tight labor market to rising inflation, both of which are contributing to rising business costs. How nervous? A recent American Association of Individual Investors’ survey of investor confidence found that sentiment was the most bearish it’s been since 2013.
I know, I know, you’re reading this and thinking, “Poor little rich girl—or boy.” But we need to monitor this group’s economic temperature. A downturn in confidence among the top decile of wealth in the U.S. could cause damaging economic ripples.
Let me first explain who I’m talking about. The new aristocracy is made up of corporate management, physicians, small business owners, partners at professional firms, tech developers, digital media mavens, dentists, police and fire veterans, architects, contractors (I see you, plumbers) and engineers. Full disclosure: I belong to this tribe. I suspect many—and perhaps most—HumbleDollar readers do, too.
Household gross income for this top decile begins at approximately $130,000, based on the Census Bureau’s ASEC survey, as compiled by the site DQYDJ. The value of their assets has exploded. According to Federal Reserve data, the top 10% of American households now own 89% of all stocks, the highest share on record.
Credit Suisse releases a global wealth report every year. According to the report, “The contrast is most evident in the wealth share of the top 10% of wealth holders, which has risen substantially in the United States since 2007—from 71.6% to 75.7%.” Galloping home-price appreciation has contributed to this group’s rising share of total wealth.
Soaring share prices have been another major contributor. The U.S. stock market has been nothing short of a rocket for the past three calendar years, with the S&P 500 clocking gains of 29%, 18% and 31%, including reinvested dividends, before retreating a little in 2022. Since 89% of the stock market is owned by the top 10% of Americans, presumably the upper class are seeing their net worth grow by leaps and bounds.
But has it? While that may be true in aggregate, my sense is that not everybody in the top 10% is feeling fat and happy. For instance, I spoke with a physician who told his broker to dump all of his stocks in February 2020. I haven’t asked him whether he’s gone back into the market. I suspect he hasn’t because he’s deeply skeptical of the stock market—and he isn’t alone. Many other affluent workers have listened to financial quacks on YouTube, or even widely quoted investment strategists like Jeremy Grantham, who say an apocalyptic crash is right around the bend. For the record, Grantham’s investment firm, GMO, has been bearish since 2013.
Even if folks own stocks, there’s a good chance their results don’t look like the S&P 500 because they had substantial money in other market sectors. Most of the affluent I’ve spoken to have financial advisors who’ve done exactly what their clients have asked: put them in conservative, well-diversified portfolios. The result has been relatively paltry gains.
Meanwhile, some have gone in the opposite direction. Perhaps they piled into exchange-traded funds from ARK Invest after the huge run-up in tech, arriving just in time for the decline. Maybe they chased performance in cryptocurrencies, only to suffer hefty losses. As Warren Buffett has noted, emotional steadiness—not intelligence—is a better predictor of an investor’s performance.
On top of that, while we assume that high income correlates with wealth building, it may instead be associated not just with foolish investments, but also with high spending. Fear of missing out and fear of losing it all are emotions that don’t discriminate based on income.
What’s my advice for those who find themselves in the “new aristocracy,” but feel like they aren’t enjoying the prosperity they should? First, take a step back and be grateful. Pew Research shows that the global middle class lives on $10 to $20 a day. We have access to running water, electricity, plenty of food, shelter and sanitation, things my parents never took for granted when they lived in Bangladesh before emigrating to the U.S.
Second, understand that loss aversion is a powerful heuristic that plays tricks on the mind and can leave us feeling miserable in the short term. Don’t fall for it. Embrace your inner Buffett—both Warren and Jimmy—and keep calm. A balanced portfolio won’t sail the fastest in calm waters, but fares well during stormy markets. This year appears to be stormy.
Third, if you’re middle-aged, you may be in the trough of overall happiness. As Scott Galloway notes in his book, The Algebra of Happiness, satisfaction with life bottoms some time in our 50s and then skyrockets up as we approach our 60s and 70s. Happier days may lie ahead.
Tanvir Alam has been practicing corporate law for more than two decades, but you shouldn’t hold that against him. He lives in New York’s Hudson Valley with his patient wife and two skeptical teenagers. Tanvir is interested in personal finance and travel, and is trying desperately to become a runner. Follow him on Twitter @Docket75 and check out his blog at StealthWealthBlog.com. Tanvir’s previous article was Measuring Up.
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I believe the HUMBLE DOLLAR attracts a readership that is far above average. No matter if you are measuring intelligence, good jobs, income, savings . . . . it is all one and the same. If so, then the readers have excess income and they are free to do with it as they wish. And what they do may not be what you or I would do, but there is really no right or wrong. And some years down the road they may run out of resources, and in retrospect wish they had been more conservative.
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On the other hand, the most savings oriented of us could have a few million tucked away and die at age 61. He or she may have wanted to enjoy the money in their fifties but just never did.
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There is no “right” answer on these topics. We all make our choices then live with them. Chose what works for you, and pray that you chose well.
Nice article. Really well written and a comfort to this “new aristocrat”.
Not to contradict anything here, but in my observation, regardless of level of wealth, people tend to compare themselves to the people they see around them, and more nowadays to an extended circle on social media. It’s a true “keeping up with the Joneses” anxiety that, although they may be doing objectively well, and in fact better than the vast majority of others, they might be doing less well than their neighbor down the block, who sold his company for multi-millions. I don’t know who’s quote it is, but I think it’s sage advice to appreciate when you have “enough.”
Great song written by Red Hayes and Jack Rhodes, #1 Country hit by Porter Waggoner in 1955 pretty much says it all:
Porter Wagoner – A Satisfied Mind – YouTube
A surprising number of retirees are in this category. Data show that about 15% of retiree households have an income over $100K, and 5% have an income over $200K. If you look at wealth, about 10% of retiree households have more than $5 million in assets.
As a retiree, I have done very well, nearly doubling my financial assets since I retired 8 years ago. If you have saved and invested all your life, these skills will not desert you when you retire.
I’ve learned a lot from reading Humble Dollar.
Guilty as charged. 3%, but delude myself to 50% it’s hard to think average when everyone you know is pretty much like you. I never had grand investment expectations except to see the balances grow and over the years they have.
Better or worse than they could have? I’ll never know – and at this point I don’t care. Whatever it is, I did it myself. I never engaged an advisor. I’m a decidedly passive investor.
Never stop saving. Just ride the indexes in mutual funds and reinvest gains, interest and dividends – for a really long time.
I’m thinking for the real middle class that’s not a bad strategy.