The percentage of people with no wealth outside their home is sad. Homeownership is a great way to build worth for the average person. However, it is also important to diversify into other investments.
I recently stumbled across a fascinating chart by Deutsche Bank highlighting that more families than ever before have ZERO or NEGATIVE non-home wealth.
In other words, roughly 30% of households have no 401k, no IRA, no after-tax investment account, no private equity investments, no venture debt investments, no nothing beyond the value of their primary residence!
Check out the chart below.
The Percentage Of People With No Wealth Outside Their Home
If you have no investments outside of your primary residence, I'm not sure how you are ever going to be able to retire or reach Budget Financial Independence because Social Security alone is not enough to cover expenses after the age of 62.
I'm not even sure the average Social Security check of ~$1,200 a month is able to cover all your healthcare costs. Let's say you were “fortunate” enough to have worked 40 years and paid maximum FICA tax each year. You'd still only be getting a maximum Social Security check of ~$2,700 a month in today's dollars.
The reason why the 2008-2009 financial crisis was so severe was because the vast majority of Americans had the majority of their net worth locked up in their primary residence, and the chart above excludes the primary residence as part of one's net worth.
When the housing market crashed, so did the fortunes of the ~64% of Americans who owned their homes. Americans didn't have enough cash or defensive bonds or even commodities to protect them from selling at fire sale prices.
The people with no wealth outside their home lost big during the 2008-2009 Global Financial Crisis.
What's Going On With The Lack Of Wealth Outside Of A Home?
With so many asset classes doing well, why do a record number of Americans have no wealth outside their primary residence?
Here are some reasons I can think of as to why some people have no wealth outside their home.
1) Runaway trains.
After the economy started settling down in 2010, the typical American began thanking their lucky stars they were still solvent after the worst financial crisis in modern times. I cannot stress enough how shell shocked people were after experiencing so much wealth destruction in such a short time.
When you're catching your breath, you're not looking to aggressively invest in growth stocks and other assets. But starting in 2012, the stock market and real estate market really began to really take off. Meanwhile, the pace of appreciation for new assets like cryptocurrency rose faster than any asset class in history.
By the time Americans finally felt comfortable taking on more risk, all the investments we wanted to buy started giving us post traumatic stress because they're at the same sky high valuations before the crisis. As a result, we couldn't part with our cash. The trauma was just too recent.
Today, I think the housing market is in for a multi-year bull run as we come out the of the pandemic.
2) Spend before you lose all your money again.
After the financial crisis, a lot of people questioned the wisdom of saving and investing all those years given it was so easy to lose so much money. Distrust in the stock market grew to new heights as people decided to spend their money on things and experiences rather than invest for tomorrow.
Further, more people are spending money on their homes post pandemic. They are turning funny money stock gains into real assets.
Here's a millennial survey done by Goldman Sachs in 2015 about their thoughts on the stock market. GS should have asked millennials whether they trusted GS! I've come across many 35 and under people in my time who are cashed up and all about YOLO.
3) Don't know what to invest in.
Despite TV, podcasts, books, and personal finance blogs, there is still a huge knowledge hole for how and where to invest one's hard-earned savings. As a personal finance blogger, this makes me kind of sad because anybody who got on the “saving until it hurts” and investing train since I started this site in July 2009 would be much wealthier today. But as an online business owner who has two mouths to feed, this knowledge hole makes me extremely bullish about Financial Samurai's future!
Of course, I can see a scenario where people finally gain the confidence and knowledge to invest only to see the stock market and real estate market start declining once again.The key is to at least have index exposure to various risk asset classes based on your risk tolerance.
Related: The Proper Asset Allocation of Stocks And Bonds By Age
4) Real wages haven't kept up.
We can't assign blame for lack of saving and investing solely to fear and ignorance. Despite nominal income increasing over time, real median household income has gone nowhere since the financial crisis. As such, real wages haven't kept up, while everything has gotten more expensive in real terms. Thus, it's much harder to accumulate disposable income for investment.
Related: The Median Net Worth Of Households Has Gone Nowhere
5) The median age homebuyer is getting older.
The median age for a homebuyer in America is 32. But as home prices outpace wage growth and more education is required to get the same paying job, it's easy to see the median homebuyer age increase. Once you've put down a large downpayment, it's hard to have anything left over, especially if you bought in an expensive coastal city.
There's An Even Worse Scenario To Consider
Yes, it stinks if your entire net worth is made up of your primary residence. But can you imagine not only not owning any investments outside your primary residence, but also renting all these years? What a disaster! Renting is equivalent to shorting the housing market.
For some reason people find shorting the housing market more palatable than shorting the stock market. But the end result is quite similar – negative returns.
If the U.S. housing market gets as strong as the Canadian housing market, expect U.S. real estate prices to go up another 35% – 70%!
By now, there should be no debate between owning versus renting. If you know where you plan to live for the long term, it's best to stay neutral inflation by owning your primary residence. People who invest in stocks and rent realize this. However, those against homeownership just don't want to acknowledge the truth that like with stocks, the long term trend for real estate is also up and to the right.
For some reason, stock only investors trick themselves into believing they can't simultaneously invest in both asset classes for the long term. It's the weirdest thing! But this thinking just goes to prove point #3 above – there's a lot more financial education that needs spreading.
Don't be like most people with no wealth outside their home. Diversity your investments!
Loading ...Invest Beyond Your Primary Residence
Instead of having all your wealth tied up in your home, look to actually invest in real estate by buying rental properties, REITs, and investing in real estate crowdfunding opportunities. You're not really long real estate until you own more than one piece of property.
Take a look at my two favorite real estate crowdfunding platforms. They are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eREITs. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the best way to go.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot of capital, you can build your own select fund with CrowdStreet.
I've personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
Invest In Private Growth Companies
In addition, consider investing in private growth companies through a fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
One of the most interesting funds I'm allocating new capital toward is the Innovation Fund. The Innovation fund invests in:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Manage Your Wealth Carefully
Sign up for Empower, the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing.
I’ve been using Empower since 2012 and have seen my net worth skyrocket during this time thanks to better money management. Don't be one of those people with no wealth outside their home. Diversify!
Question for Mr.financial samurai but anyone can give me their opinion. Why should I (single man, no kids, under 35) be contributing to a 401k? I plan to retire around 45-50 if income stays the same or slightly increases before then. If I add a ton of money into a Roth or IRA I will not be able to touch it (if laws don’t change and in order to avoid getting tax penalty) until I’m in my 60’s! I will need my money before then for life events I’m sure. Why should I contribute to a IRA/401k if I am planning to retire before normal American retirement age? I see more risks/negatives such as not being able to use it when needed as well as other life events. Sure creditor protection is great but I also have other methods that can offset creditor issues if any arise. I am under 35, have roughly 300k in highly liquid assets(cash/tbills/crypto/stocks in taxable account) and maybe another 20k in not high liquid assets but it’s attainable. I make roughly 7 to 9k/month. I currently rent as it’s much cheaper than a mortgage but I plan to buy eventually. . Best..
I am disabled and receive SSDI. Because I am high functioning I also maintain a part-time job within allowable limits. The job provides me a 401K match but working 20 hours a week at near minimum wages a 401K match does not add up to very much. All of my health care is provided by Medicaid and Medicare. Thanks to asset limits I am allowed to own my own home but no property exists that I can afford in any decent neighborhood in my city. So I am forced to rent a cramped apartment. I am only allowed $2000 in savings, so saving for my retirement is out of the question. If I rent as my primary residence which is near where I work and on which all of my health care and medical support is based I can not purchase additional property that I might be able to afford as an investment an hour outside of the city. Second residences not allowed if I want health care therefore investment in property for me is forbidden. The rules are set up so that I can not pursue life, liberty, and happiness or enjoy participating in any talents I might have. I am to waste those, rot intellectually and artistically and only have extreme poverty to look forward to in the future. If I could work full time and break out of this trap, I would. Every time I have tried to do it has proven a disaster. You would think that the disabled especially would benefit from investments or having a business tailored to their limitations. But the advocates of asset limits have made this impossible. Many disabled faced disaster during the COVID pandemic because they are allowed to have no savings and therefore had no savings when they lost their part-time jobs. The rules force people into one property; small wonder that is all they have if they are that lucky.
I’ve read that both personal, government and corporate debt levels are at record highs…are we living in a global bubble ready to pop ??
Is home ownership really a good thing esp if you can’t diversify? Better to rent and own REITs or possibly investment property in LCOL area if you’re up for that vs buy $1.5M home that will take up large % or all of net worth. No? Lost opp cost on down payment alone is huge not to mention cost of maintenance and taxes that can no longer be deducted outside of $750k in interest and even that is only above and beyond the $24k standard deduction so at most you’re saving like $5000 a year.
It’s a good question, and one that is pondered and supported through my real estate investment thesis: BURL: Buy Utility, Rent Luxury
I think many folks don’t have steady work that offers a 401k and other benefits. I’ve been a professional services temp since 2012. No job, even though they have been relatively well-paying, has offered me the option. I had to set up my own IRA and many people in my position have not, because they are still, irrationally, hopeful to a return to “standard” employment.
I remember doing research on the characteristics of rich people and how they have such a diverse asset base beyond primary residences. It sure holds true.
@Untemplater what was considered “rich” in your research and what kind of assets did the rich folk have?
Am I rich? 6 houses, three cars, stocks, bonds, annuity, various real estate notes and some old furniture that the boomers would consider quality but millennials would think “firewood”.
Hi. I have always been invested outside of my primary residence except when I used my investments for the down payment on my first house which had a 9.75 percent negative amortization mortgage. I’ve had 6 houses since.
I have always sat through all corrections In the market and kept my eyes on the mountain chart on my wall and my time horizon and continued to invest
I sold my last house a year ago in so CA close to the top of our market and waited for a year before I found a house in Florida about $100,000 over what I made on the sale of my home in So Cal I’m sure the new house would be 1.4 in So cal.
Here is my dilemma: I don’t want to put any money into my primary residence. 2007-2008 soured me on having a lot of equity in my home. I’m not even sure I want to have a mortgage where I need to pay principal.
What would readers do: I can have a 30 year fixed loan for 4.1 percent I’ve never had anything but an arm. Or a 7-1 fully amortizing arm for 3.5 percent.
I could pay a chunk at the end of 7 if I’m still there to keep my payment the same.
Or a 10 year interest only for 4.1. I will put down 30 percent or about $250k still leaving me another $500,000 from my gain to invest.
You can make almost 3.5 percent in Fairly stable net asset value investments. There is no way I’ll ever pay my loan off at my age nor would I want to.
Would anyone want to comment on their view of paying principal into their house or on there mtg philosophy versus cash for other investments.
Thanks
I currently rent the most affordable place I can in Washington DC (so not that affordable) until my wife finishes grad school. At that point we will have a better idea of where we want to settle for an extended period of time. I am not going to buy until I fully intend on staying there for 5+ years, ideally 10+.
I grew up a privileged kid and was fortunate enough to get some money early enough in my life to buy a condo in San Francisco and invest in some conservative stock funds. I’ve always held too much cash and that’s looking particularly foolish right now with stocks and real estate at all time highs. Currently I’m holding 20% of net worth in cash which is about $500k. I feel guilty having all this cash and this net worth and hardly needing it and using it. Maybe someday I’ll decide to start living a more lavish life? I work as a tennis instructor and live in the resort where I teach. They feed us, house us and even pay me $1k per month. I’ve owned bars and restaurants and it’s a lot of stress, even if you make decent money.
Sad indeed. This is what happens when people gorge on debt and don’t bother thinking about the future. In Canada, the debt to income ratio is now at a historic high of 171.1, way beyond the dti ratio of 147 in the United States right before 2008.
This will not end well.
So does this mean that when the mass of Boomers retire, there will be a national glut of housing (and a corresponding drop in prices) but not a stock market crash? This could get interesting…
Is that 30% of all households, or 30% of households which own their primary residence?
I’m absolutely shocked that we’re at record proportions of nil non-household wealth. Especially with the abundance of high-quality, easily understandable financial information out there these days through popular blogs and websites. I would have bet much money on the opposite being the case – especially with the recent run in the stock market.
Perhaps its a younger generation thing, valuing current experiences and travel greater than future wealth? Not sure how the Australian stats would compare, but the younger generation in Australia seem to have all but given up hope on ever entering this insane property market, and perhaps they’re just living it up while they can!
For those who have equity in their homes however, our ongoing property boom has provided access to even more potential wealth to invest elsewhere (my preference being Fully-Franked shares!) although the obsession with property still seems to dominate here…
Who would trust the stock market ? WS is a disaster ! I really wouldn’t put my money in stocks after what happened in 2008. The next one is just around the corner…bonds aren’t safe….what’s best? Keep piling your money under the mattress…and saving more to compensate for inflation…the only safe way yet not 100%
In Orange County, many people have a million dollar net worth, but only because their primary residence has gained so much value in the last 20-30 years. I have family members who bought properties currently valued at $1.6 million to $1.8 million for $90,000 back in the early 80s. However, they can’t pull any of that money out unless they sell. They would have to downgrade house and location if they want to see any cash from selling the house. They have saved and invested responsibly, so they are financial solid outside their home, but this is the situation for many people in Orange County. They have a laudable net worth, but the cash flow doesn’t match up. You could say that the “real feel” net worth is closer to the 400-500s rather than 1-2million.
At 22 years old, I have around 80,000 in investments, but balk at dumping that sum or more into a property within the next five to ten years. I know that buying a primary residence would stop me from losing on rent every single month, but the growth upside barely keeps with inflation. In the exceptional example above, my family members barely beat inflation adjusted SP Index (90k at 7.8% for 35 years=1.25million) not including property taxes, maintenance or any of the remodeling they did. The owner, my uncle, who owns another million dollar property down the street from his house (purchase price 40k), admits that basic indexing would have put him out ahead after all the ownership costs. He says he wouldn’t change it though, saying that psychological benefits of physical ownership of the property outweighed lost gains.
What about BURL? Doesn’t it make sense to only rent a house (as opposed to buy it) when you don’t have the money and/or financial savviness to invest in other asset classes, especially if you live in a HCOL city?
People are financially literate & even know how to invests & where to invests. But they are not able to invests in differnt assets classess only because they do not have enough money/income/salary coming evevry month. Lack of capital, not lack of kowledge is the reason according to me.
Some coworkers (in Silicon Valley) have no asset other than their home. How can this happen? Because they took out a giant mortgage when buying their primary home, then they sold all their stocks/options as soon as vested to pay off the mortgage, which will take them another 20-30 years. That’s why they have no assets outside of their home!
Sad? Yes.
Is the YOLO mindset too much? Perhaps, but there is some merit as long as it is in moderation.
Moderation is key in everything. Don’t YOLO too much, be sure to save for your future self.
From a philosophical argument, for your future self, would you rather have something when you are older and can’t work? Or just live it up now thinking you might not make it to an old age, then live off only SS and just scrape by when you do get old? I’d prefer to think positive that I will live a long life, and I would want to be comfortable when I can’t (or don’t want to) work.
If you live it up now and don’t save, at least you could be the old person telling the young’uns stories “when I was your age…” haha
Given that most people who read this consider their finances a hobby or even part time job, its easy to see why we can all be amazed that Americans just don’t save money. However, I do have some compassion for most of these people and we shouldn’t be so quick to judge.
I think there are two factors that contribute to this phenomena. First of all, Simply living is expensive: food, shelter, clothes, car, healthcare, rent/morgage, ect. ect. ect….. Then come the children with their own costs: more food, more shelter, **College is too expensive**!. The pressure of real wages against living costs is enormous for the average American. For most people, there isn’t much left after living expenses. Second, most people are incredibly busy. They don’t have time to determine where costs can be cut. Working long hours, taking care of a family, a home, its exhausting! I think most people have the desire to save, but are always blocked by living expenses and time. There is a reason why the #1 advice regarding savings on the Internet is to simply set $100 dollars aside each month. Its quick and fits most people’s budget.
As a single 22 year old, Its easy for me to hound over my expenses and investments. Its easy for me to decide whats worth spending “fun money on” (a nice truck btw), and where to cut costs to still invest >50% of my income. I have both the time and money. As such, my #1 goal right now is to set myself up for a time when I may not have either of these luxuries while maintaining longterm steady investment growth.
Hmm – too busy – why is TV and streaming internet TV so popular? On the contrary, life is actually very easy today compared to man’s history. Hell only about 50% of working age population actually works.
Even if one is “busy,” it may not be real contribution to one’s improvement. Spending the weekend digging a big hole in backyard on Saturday and then filling it back up on Sunday is hard work. It would not contribute on iota to value though. Many people, need to step back and actually think more about what they are busy at. They might be surprised what they see.
It is definitely a struggle to generate additional assets beyond primary residence. I do have some investments, but I also carry a mortgage. At this point my investments are not sufficient to pay off my mortgage. I am hoping SS in some form would be around.I don’t want it to cover all my expenses, even if it covers a portion I am happy.
Interesting post, but not very surprised I must add. I’ve seen these numbers working on both ends first-hand with my parents (each 63yrs old now). My mother, who is retired, strictly because she was, practically, forced to create a retirement acct as a state employee. My father on the other hand, was self employed for about half his working life and now employed, only seriously put towards retirement around age 50ish. They almost own the home the home they live in, built by my father.
I have an additional question/comment. I’d like to layout my personal financial scenario and have the community comb it over, since there seems to be some respectable gurus here : )
Is this frowned upon, discouraged?
Cheers
This isn’t a forum. I’d visit a financial subreddit for that kind of take from a similarly savvy community. Depending upon your goals you could visit Financial Independence, or Personal Finance.
We fit the “make money in one place, then move to another place” mold. We are still in the place where we can make good money. We have lived in a great school district for the past 13 years. Have a 5 bedroom, 2.5 bathroom house, 2500 sq ft. We will be downsizing in 5 or 6 years and moving south. At this point, it appears that owning was a very good move for us since we should make a ton of money on the house. However, I am not sold on owning my next home. A nice apartment would be fine by me. I don’t want the hassle of dealing with issues.
It certainly was not a mistake to live where I lived and in the home I am living in. Anything but a mistake.
The combination of renting and analysis paralysis about what to invest in is a deadly combination. I’m equally shocked about the % of non-home wealth. Where does the money go? This made me think about you post detailing the family making $500,000, yet are barely scraping by. Sad indeed!
I am a home owner but haven’t built up much in other investments yet because I thought we were supposed to pay off expensive school debt first ? I mean if a doctor or some other advanced degree holder has 100- 150k in student loan debt theoretically he or she wouldn’t have much in other investments for quite a few years after graduation right?
It depends on the interest rate, the risk-free rate of return, and the current economic environment. I’m a proponent of paying down debt and investing. See Investing Review Of A Surreal 2017 for details. Also, I recommend following the FS-DAIR framework to pay down debt and invest over time.
If you’re on the younger side (<35), I wouldn't sweat not having that much money outside your primary home. Everything just takes time. At least you own your primary residence and know where you want to be. Lots of folks are lost.
Yes sir I seem to fit in this category as I am under 35 (I turn 33 next month). This year I’m putting the FS-DAIR to use so that way at least I am moving in the right direction and over time it will just keep snowballing. To not invest anything at all is a bit disheartening and feels like I’m treading water even if I’m paying debt off.