27 Jan 2021

How the rich get richer, but will their children too?

A recent study in Norway has ascertained that people with higher levels of wealth receive a higher return on their money then the less wealthy.

Statistics show that if people in the 75th percentile of wealth distribution (so hold 75% of the overall wealth) had invested $1 in 2004, that would have grown to $1.50 by the end of 2015. Being a 50% increase in value. Whereas people in the top 0.1 percent, on the same $1 would have returned $2.40, being a 140% return.

The study has confirmed that those with more money are likely to have taken more investment risk, and of course over the long term risk and return are related, but also, that even if taking the same level of conservative risk, those which are wealthier still get a higher return. This differential has been put down to a number of factors, including that wealthier people may have access to exclusive investments and better financial advice. As well as more financial sophistication, information, and some entrepreneurial talent.

When capital goes down the generations, it is shown that those who inherit do also benefit from higher returns, but not as exceptional as their forebears, indicating that that some of the factors which enabled their parents and grandparents to make the highest returns have not also been passed on