The richest Americans did not beat the S&P 500, on average, over the past year.
In fact, according to the just-released Forbes 400 list of the richest Americans, their collective wealth rose 40.6% since last year’s ranking. The S&P 500’s
comparable return was 43.3%.
Moreover, as is clear from the table below, this past year’s experience is consistent with several previous years as well.
Increase from previous year’s list of the combined wealth of those on the Forbes 400 list
Comparable gain of S&P 500 (including dividends)
Forbes 2021 list
Forbes 2020 list
Forbes 2019 list
Forbes 2018 list
Forbes 2017 list
These results shouldn’t be surprising. With few exceptions, my past analyses of the Forbes 400 list has concluded that the wealthiest Americans got onto the Forbes list not because of their investment prowess but because of their entrepreneurial ventures. In large part they turned to the stock market after their fortunes were made, not in hopes of making a killing but of maintaining their long-term purchasing power.
I had reached this conclusion after going through the list of 400 richest Americans and identifying those who I deemed to be self-made. Forbes made my job easy this year, reporting that 282 on their list are self-made — 71%. Forbes classified an additional 57 on their list as partially self-made: they began with a leg up via inherited wealth and subsequently “played an active role in increasing” it. That leaves just 61 — or 15% — who appear on the list primarily or exclusively due to inheritance.
These statistics provide an important reality check for investors who have been sold a bill of goods over the years that you can achieve Forbes 400 wealth through the stock market. This isn’t to deny that the stock market can play a central role in amassing sufficient wealth to support your standard of living in retirement. But that’s far different than becoming one of the richest Americans.
Another reality check is to engage in the thought experiment of what it would take to make it onto this year’s Forbes 400 list — the cutoff for which is $2.9 billion. Let’s imagine that you started right out of college, in your early 20s, investing in the stock market, and that your track record until you retire at age 65 is just as good as Warren Buffett. That’s a very tall order, of course, since he is widely considered to be the most successful long-term investor in the market today. Even so, to achieve such wealth your portfolio would need to already be worth nearly $5 million on the day of your college graduation.
Consider how much you would need to start with if your long-term track record was “merely” as good as the S&P 500. I put merely in quotes because that index outperforms more than 90% of investment professionals. Nevertheless, on this assumption your portfolio would have had to start with more than $30 million when you graduated from college.
These starting values are not in today’s dollars but in those of the late 1970s. In other words, to make it onto the list of 400 richest Americans through investing, you’ll need to start with wealth that probably puts you among the 400 richest college graduates. For the rest of us, the way to make it onto the Forbes 400 list is to create something that the world wants and needs.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at firstname.lastname@example.org