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The Engines Driving U.S. Wealth Creation

Feb 4, 2020 The rapid rise of family offices and wealth management professionals is a reflection of the astounding rate of wealth creation in the United States. Despite China’s rise as rival wealth creator, the U.S. still dominates the world with the highest number of billionaires and millionaires, according to Wealth-X’s 2019 Billionaire Census report.

The number of millionaires who reside in the U.S. crossed 18.6 million last year, according to Credit Suisse’s “Global Wealth Report.” That’s quadruple the number of millionaires in China and more than the entire population of the Netherlands.

While a number of factors seem to be driving this pace of wealth creation, here are two key factors that have cemented the U.S.’s position as the world’s leading prosperity engine.

Robust stock market
Driven by the strength in growth and technology companies over the past few years, the country’s flagship stock index, the S&P 500, has delivered a 10.5% annualized return over the past five years, the best performance in the world. In fact, between 2014 and 2018, the index outperformed emerging market and developed market indexes, according to an analysis by Ian Post, CFA, of Fifth Set Investment Advisors.

This unprecedented bull market in U.S. stocks has been a driving force for wealth creation in the country because domestic investors are disproportionately exposed to the local stock market. Roughly 55% of U.S. citizens invest in stocks, according to Survey of Consumer Finance, compared to just 7% in China and less than 2% in India.

In short, a better performing stock market and a higher degree of equity exposure is a key reason for faster wealth creation in the U.S.

Government stimulus
Although a majority of American’s invest in the stock market, the majority of their wealth is actually concentrated in their most leveraged asset – their primary residence.

A whopping 68% of U.S. household wealth is trapped in their primary residence, according to the Federal Reserve Bank of St. Louis. House prices have been steadily climbing across the country since the end of the subprime financial crisis in 2009. It took six years, from March 2011 to October 2017, for U.S. house prices to fully recover, according to a special report from real estate data company CoreLogic.

The Fed’s benchmark interest rate has remained historically low throughout this period, which means cheaper mortgages and gradually relaxing mortgage rules have helped the housing market recover. In short, government stimulus propped up the average American’s most valuable asset, leading to a historic rate of wealth creation in the country.

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