- Billionaire who stay rich tend to all do one important thing with their fortunes according to a new report —diversify it.
- The number of one-time billionaires who dropped out of the three comma club was 10 times higher in 2019 than in 2010.
- Not all classes of assets are equally beneficial to people looking to stabilize their net worths.
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Not only is it increasingly difficult to become ultra-rich in America, but it’s also getting difficult to stay ultra-rich.
Billionaire’s fortunes are now “less stable” than in the past decades, according to a new report by UBS and PwC. More than 70 people who were worth at least $2 billion in 2009 were no longer members of the three comma club by 2020, the report found.
The 2019 drop-outs amounted to 1.7% of the total billionaire population, per UBS and PwC, a significant uptick from 2010’s 0.3% drop off rate. Nearly all of the drop-outs had their entire fortunes tied up in a single company that fell on hard times, subjecting them to “wealth erosion” in the process, where their fortunes would slowly lose their value over time.
UBS and PwC reported that 34 one-time billionaires saw their net worth drop below one billion in 2019, including Juul cofounders Adam Bowen and James Monsees and Forever21 cofounders Jin Sook and Do Won Chang. Nearly all of them held the bulk of their fortunes in one business that struggled, collapsing their net worths.
The two firms also studied the fortunes of the billionaires who stayed rich and found one thing in common — diversification.
"Our analysis shows that diversification across a number of businesses and assets is the key to wealth preservation," wrote the report's authors, UBS Global Wealth Management's Josef Stadler and PwC's Marcel Tschanz. (We should also note that financial planners often recommend a diverse portfolio to defray the risk of putting all your eggs in one financial basket — regardless of how many commas your net worth includes.)
Real estate is one of the assets commonly used to avoid the fate of wealth erosion, as nearly half of billionaires hold between 21% and 40% of their net worth in it, per UBS and PwC. Such investments brought in big profits over the past decade amid high demand and low-interest rates, according to the report.
"Even billionaire innovators must keep on reinventing their businesses, reinvesting their gains into new ventures," they added.