Wealth Accumulation Has Never Been Easier!

Apparently — so say Oxfam — the wealthiest 1% of the world’s population will soon own more of the world’s wealth than the other 99%.
Predictably, it’s a statistic that has prompted much debate about global inequality. But far less evident was to me a much more interesting topic: how to actually become one of the world’s wealthiest 1%.
Yes, I’m self-centred, I know.
Yet there’s a very serious point to be made. Because statistically, you may already be in that 1%. For, according to the BBC, all it takes to join the 1% magic circle is net assets of around half a million pounds.

So if you and your partner live in a mortgage-free house worth £1 million, with savings or investments on top, then welcome to the club. Or, if you’re on your own, and you’ve got savings plus a mortgage-free house or apartment totalling £500,000, then — yet again — welcome to the club.

Real wealth isn’t housing wealth

All of which goes to prove Oxfam’s point, I guess: the world’s wealth is unequally distributed.
Because you probably don’t feel especially wealthy. What’s more — and I’m making a wild guess here — you’d probably like to be rather wealthier.
As we all know, while a mortgage-free house or apartment technically counts as wealth, you can’t spend it if you lose your job or become unwell. Nor — without the hassle of taking in lodgers — will a house pay the bills when you retire.
In other words, even if you’re in Oxfam’s 1%, there’s a lot of sense in building up a decent portfolio of non-housing wealth.
Financial wealth, in short. Wealth that you can use to pay the bills when times are hard, or you retire.

Times have changed

In which case, I’ve some pleasant news for you. Building this wealth has never been easier.
That’s right: for the typical retail investor — that’s you — it’s never been easier to potentially accumulate wealth.

So if you’re not yet in the magic 1%, your chances of doing so are better than ever. Likewise, if you are in the 1% but would like to climb a little higher up the rankings, then yet again, fortune is smiling on you.
How come? Let’s take a look.

Cheap trades

I’ve been investing in the stock market since I was 19 — in other words, for over 40 years. And over that time, I’ve seen enormous changes. Changes that work in favour of retail investors.
Take the rise of the ‘execution only’ stockbroker, for instance. If you’re relatively new to investing, you’ve probably never dealt with any other sort of broker. But imagine staid, wood-panelled offices, paper-intensive systems — and charges to match.
As I type these words, for instance, I have in front of me an old contract note from 1992, for the purchase of 300 shares in Marks and Spencer, worth £975. The commission? A whopping £31 — which back then was worth rather more in terms of purchasing power than it is today.
These days, you can do the same trade for around a tenner — or even £2.50 or so, if you take advantage of your broker’s ‘bulk buy’ consolidated purchase days.

Lower charges

And that’s just one example. There are plenty more.

Think about fund supermarkets — businesses such as Hargreaves Lansdown, for instance. Before the arrival of fund supermarkets, investors had to pay an upfront commission of 4-5% when buying into investment funds.
So invest £1,000, say, and immediately you’d be £50 down, with an investment worth £950. No longer, as fund supermarkets rebate either all, or nearly all, the upfront commission that you would otherwise have to pay. Invest £1,000, in short, and you’d still have your full £1,000 working for you.
Index trackers are another example. Twenty years ago, when they first arrived in the UK, annual tracker charges of 1% were common. While some trackers stayed at that level, the most competitive tracker products gradually drifted down to 0.30% to 0.5%.
But now, you can pay as little as 0.09% — or less than one-tenth of the 1% charge that investors used to think represented good value.
And so on, and so on.

Compound returns

What to make of all this? Simply that in today’s investing world, retail investors have more options available to them, pay lower charges and get to keep more of their own money.
Put another way, with less being raked off by intermediaries, the process of wealth accumulation steps up a gear.
Every year your net gains are higher, with more of your wealth working for you, not your broker or investment fund manager. It’s compound growth, but at a higher growth rate.

And if that won’t help you join the 1%, I don’t know what will.

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Malcolm owns shares in Marks and Spencer. The Motley Fool has recommended shares in Hargreaves Lansdown.