Day: October 9, 2024

Think joining the top 4% of households means you need a vault full of gold or some secret hedge fund? Think again.

According to data from LIMRA reported by Rethinking65, only 4% of all U.S. households have $2 million or more in investable assets. That may not seem huge, but it represents a significant financial milestone that only a small fraction of households ever reach.

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Breaking it down further, the numbers shift depending on age. Among households headed by someone aged 60 or older, the percentage increases to 7%. For those aged 40 to 85, just 6% of households reach that $2 million mark in investable assets. These assets include IRAs, defined contribution plans, and investment accounts, but not home equity or personal property.

Crossing the $2 million threshold puts a household in a rare financial bracket. But what does that mean for their future?

LIMRA’s research shows that having $2 million comes with a strong sense of financial security, especially in retirement. Households with $2 million or more overwhelmingly feel confident they won’t run out of savings by the time they hit 90. Eighty to ninety percent agreed their savings would last, with over half strongly agreeing.

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That confidence starts to slip for households with between $1 million and $2 million. Only 28% of these households strongly agreed their savings would last their lifetime, and the percentage drops further for those with less savings.

Interestingly, many retirees in this group report their household income is sufficient to cover their basic living expenses. But for those planning their retirement, the future feels less certain. Only 44% of future retirees expect their income from sources like Social Security or pensions to fully cover their expenses.

Also Read: I’m 62 Years Old And Have $1.2 Million Saved. Is This Enough to Retire Stress-Free?

So, where do you stand? Being in the top 4% means more than just crossing a financial milestone. It’s about having the peace of mind that comes with knowing your savings will carry you through retirement. For those still working towards it, the journey to that number is just as important as reaching the goal.

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If you aim to join the top 4% of households, traditional tips like cutting expenses and maxing out retirement accounts might not be enough. For a fresh approach to building net worth, here are some strategies you may not have considered:

• Invest in alternative assets: Consider diversifying with assets like real estate crowdfunding, peer-to-peer lending, or private equity investments.

• Leverage tax-advantaged accounts: Beyond 401(k)s, Health Savings Accounts (HSAs) and Roth IRAs provide powerful, tax-free growth.

• Utilize Employee Stock Options: Take advantage of this benefit if your company offers stock options, especially at a discount. It’s an often-overlooked way to build wealth while leveraging your position at work. Ensure you contribute at least as much as your employer will match in your 401(k) plan or similar retirement accounts.

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Keep in mind this analysis of the top 4% comes from just one survey, and it’s worth noting other reports may show different numbers. Each study has its own methodology, so the exact percentages can vary.

Consulting a financial advisor is a smart move if you’re looking to boost your wealth and potentially reach the top households. While there’s no guaranteed formula, a professional can help tailor a plan that aligns with your financial goals. It’s worth considering if you’re serious about building long-term wealth.

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This article Can You Guess What It Takes To Join The Top 4% Of Households? Here’s A Hint – It’s Not As High As You’d Expect originally appeared on Benzinga.com

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

For almost 60 years, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has been on a pedestal. During that time, he’s watched his company grow into a trillion-dollar business, as well as delivered a cumulative return for his company’s Class A shares (BRK.A) that tops 5,600,000%!

One of the reasons the Oracle of Omaha is so widely followed on Wall Street — aside from his company’s outsized returns since the mid-1960s — is his willingness to share the characteristics he looks for when putting Berkshire’s capital to work. Buffett has regularly touted businesses with sustained moats, strong management teams, and exceptional capital-return programs.

But one of the unsung heroes of Buffett’s long-term success has been portfolio concentration. Buffett and longtime right-hand man Charlie Munger, who passed away in November, long believed that their top ideas are deserving of more investment capital.

Despite Berkshire Hathaway holding stakes in 43 stocks and two index funds, a whopping 67% ($210.4 billion) of the $315 billion portfolio Buffett oversees at his company is invested in just five unstoppable stocks.

Apple: $90.7 billion (28.8% of invested assets)

Even though more than 500 million shares of Apple (NASDAQ: AAPL) have been sold by Buffett since the start of October 2023 — potentially for tax purposes — this tech goliath is still the far-and-away largest holding for Berkshire Hathaway.

While Apple is lauded for its ultra-popular physical devices, including the iPhone, which holds a greater than 50% share of the domestic smartphone market, it’s the company’s Services segment that packs the most punch moving forward. A subscription service-driven operating model should steadily lift the company’s operating margin over time, as well as help smooth out the revenue fluctuations that typically occur during iPhone replacement cycles.

The Oracle of Omaha is also a big-time fan of Apple’s market-leading share repurchase program. Since the start of 2013, Apple has bought back $700.6 billion worth of its common stock, which would be enough to buy all but nine of the 499 other S&P 500 components. These buybacks have reduced Apple’s outstanding share count by more than 42% and boosted its earnings per share.

American Express: $41.8 billion (13.3% of invested assets)

The second-largest holding in the $315 billion portfolio Warren Buffett oversees at Berkshire Hathaway is credit-services provider American Express (NYSE: AXP). AmEx is the second-longest continuous holding for Berkshire Hathaway (since 1991).

What’s made American Express such a phenomenal stock to own for decades has been its ability to “double dip.” On one hand, AmEx is the No. 3 payment processor by credit card network purchase volume in the U.S. This is to say that it’s generating highly predictable processing fees from merchants. On the other hand, it’s also a lender and is able to bring in annual fees and net interest income from its cardholders. During lengthy periods of economic growth, AmEx’s ability to double dip is undeniably beneficial.

Furthermore, American Express has a knack for attracting affluent clientele. High-earning individuals are less likely to alter their spending habits than the average-earning cardholder. In theory, this should help AmEx navigate economic turbulence better than most lenders.

Bank of America: $31.9 billion (10.1% of invested assets)

Another top holding that Warren Buffett has been selling with regularity of late is Bank of America (NYSE: BAC). Between July 17 and Oct. 2, the Oracle of Omaha has green-lit the sale of roughly 240 million shares of BofA, equating to around $9.8 billion. Nevertheless, it’s still Berkshire Hathaway’s third-largest holding.

The beautiful thing about bank stocks is their strong cyclical ties. Even though recessions are a normal and inevitable part of the economic cycle, they’re historically short-lived. Only three of the 12 U.S. recessions since the end of World War II have stuck around for 12 months, and none of the remaining three surpassed 18 months in length. By comparison, most economic expansions endure for multiple years. These lengthy periods of growth allow bank stocks like BofA to prudently grow their loan portfolios.

Bank of America has also been able to fully take advantage of the most-aggressive rate-hiking cycle in four decades. The 525-basis-point increase in the federal funds rate between March 2022 and July 2023 has added billions of dollars in net interest income to Bank of America’s bottom line each quarter

Coca-Cola: $28.1 billion (8.9% of invested assets)

The fourth-largest holding in Berkshire’s portfolio, and the true definition of an unstoppable stock, is consumer staples juggernaut Coca-Cola (NYSE: KO). Coca-Cola, which has been a continuous holding for Berkshire since 1988, is providing Buffett’s company with a whopping 60% dividend yield, relative to its cost basis.

Coca-Cola’s ongoing success is a reflection of its geographically diverse operations. With the exception of North Korea, Cuba, and Russia, it’s operating in every other country and has more than two dozen brands generating over $1 billion in annual sales. This level of geographic breadth allows Coca-Cola to generate predictable cash flow in developed markets, while moving the organic growth needle in faster-growing emerging markets.

Coca-Cola’s marketing is also top-notch. According to the annually released “Brand Footprint” report from Kantar, Coca-Cola has been the most-chosen brand by consumers for 12 consecutive years. Being able to lean on more than a century of history, as well as connect with a younger audience via digital media platforms, has made Coca-Cola one of the strongest and most easily recognized brands in the world.

Chevron: $17.9 billion (5.7% of invested assets)

The fifth unstoppable stock that, along with Apple, American Express, Bank of America, and Coca-Cola, cumulatively accounts for two-thirds of Berkshire Hathaway’s $315 billion of invested assets, is integrated energy behemoth Chevron (NYSE: CVX).

Warren Buffett doesn’t have nearly $18 billion invested in this global oil and gas giant on a whim. A wager this large signifies an expectation that the spot price of crude oil will remain elevated or perhaps head even higher.

Multiple years of reduced capital investment by energy majors (including Chevron) during the COVID-19 pandemic, coupled with Russia’s invasion of Ukraine, strongly suggests the supply of crude oil will remain tight for the foreseeable future. When the supply of an in-demand energy commodity is constrained, it’s not uncommon for its spot price to benefit.

Additionally, the Oracle of Omaha likely appreciates the “integrated” aspect of Chevron’s operations. Though it generates its juiciest margins from its upstream drilling segment, Chevron also owns transmission pipelines and downstream chemical plants and refineries. These segments generate predictable cash flow and can operate as a hedge in the event that the spot price of crude oil declines. In short, they’re playing a key role in supporting Chevron’s meaningful capital-return program.

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Bank of America and American Express are advertising partners of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Chevron. The Motley Fool has a disclosure policy.

67% of Warren Buffett’s $315 Billion Portfolio Is Invested in These 5 Unstoppable Stocks was originally published by The Motley Fool