Richest 1% Controlling 34% of Global Wealth Review Their Investment Strategy

The wealth of the world’s affluent is surging to unprecedented levels, driven primarily by gains in North America, according to Capgemini’s 28th annual World Wealth Report. The report highlights a 4.7% increase in the wealth of high-net-worth individuals (HNWIs) worldwide, totaling $86.8 trillion in 2023, and a 5.1% rise in their population, now approaching 23 million.

This group includes the ultra-wealthy “1%” who control 34% of global wealth, mid-tier millionaires with assets between $5 million and $30 million, and “millionaires next door” with fortunes ranging from $1 million to $5 million.

North America’s affluent experienced the largest gains, with their wealth growing by 7.2% and their numbers by 7.1%. The United States was a significant contributor, benefiting from the robust performance of major tech stocks and a relatively strong economy. The S&P 500 saw an impressive 24% rise in 2023, with an 11% increase in the fourth quarter alone.

Canadian HNWIs also saw their fortunes grow, with a 3.8% increase in wealth and a 3.6% rise in their population. The Toronto Stock Exchange (TSX) rebounded with an 8% return in 2023, driven by a nearly 57% surge in the tech sector, though cyclical industries like materials lagged behind.

The research indicates a significant shift in investment attitudes among the wealthy. While 2022 saw a cautious approach, 2023 marked a return to growth-focused strategies. Risk aversion has declined, and cash holdings have normalized to 25%, down from a multi-decade high.

However, despite a strong stock market, HNWIs have reduced their equity allocations to 21%, a 2% decrease. Instead, they are turning to high-return alternative investments such as commodities, currencies, private equity, hedge funds, and digital assets. These investments now constitute 15% of their portfolios, up from 13% in 2022. Cryptocurrencies have seen a notable increase in interest, with half of the surveyed wealth managers reporting a rise in client demand.

Real estate has also become a favored asset class, with HNWIs increasing their allocations by 4% to nearly 20%. Despite rising mortgage rates, the luxury real estate market boomed towards the end of 2023. Dubai doubled its sales of ultra-luxury homes, and London’s market grew by 25%.

Fixed-income investments have become more attractive as inflation cools, leading to a 5% increase in allocations, now at 20%. The next significant challenge for the wealthy is managing the transfer of their assets, with over $80 trillion expected to be passed down to the next generation over the next two decades.

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