The billionaires lost through time

ACCORDING TO FORBES, THE US WAS HOME TO 735 BILLIONAIRES AT THE START OF 2022, MAKING UP JUST UNDER 28% OF THE TOTAL 2668 BILLIONAIRES IN THE WORLD. THE COMBINED WEALTH OF THESE US BILLIONAIRES ADDS UP TO A SUBSTANTIAL $4.7 TRILLION—OR 3.4% OF THE TOTAL WEALTH OF THE WORLD’S LARGEST ECONOMY.

“where could all the wealth have gone?

owever, even though this

Hnumber is so large that it is difficult to fully appreciate its value, it is small in comparison to the total wealth that could have been concentrated in just a few families if the millionaires of the past had invested their money the correct way.

In the year 1900, there were approximately 4500 individuals in the US with a nett worth of more than a million dollars. At this stage, a million dollars was worth $37.5 million in present value terms. Although these individuals were some of the wealthiest in the world, there exists no clear linkage between the millionaires of 120 years ago and the majority of the billionaires of today. In fact, even the world’s first billionaire, John Rockefeller, was unrelated to the millionaires of his childhood. This raises the question: where could all the wealth have gone?

Consider what could have happened if every millionaire in 1900 invested one million dollars in a broad market index such as the S&P 500. Assuming that the lineage of the initial 4500 millionaires continued to grow at the same rate as the rest of the US population, their offspring today would be 19605 individuals—each with their own equal claim to their family fortune. Due to the growth of equities over this period, the current figure of 735 billionaires in the US would have been dwarfed. The following graph shows the growth of the actual US billionaire population since 1985, versus the population of billionaires that could potentially have existed if they had inherited the entire fortune of the millionaires in 1900.

Each one of the hypothetical 19605 individuals would inherit enough wealth to become a billionaire today and together they would make up 96% of all billionaires in the US. The value of each dollar invested in the broad market index in 1900 would have increased by nearly 77 thousand times up to 2020, assuming all dividends were reinvested. The result of this is that, even though the fortune is now split up among 4.4 times more people than in the past, the power of compound growth has led to each great-great grandchild receiving 17.63 billion dollars. All this wealth was accumulated in spite of two world wars, numerous recessions, and every stock market crash in the last 120 years. Most notably, the period includes the Wall Street Crash of 1929, which lead to the Great Depression and a loss of nearly 90% in the US stock market—even this could not prevent the growth of today’s wealth.

The example given here is purely hypothetical and clearly impractical in the real world. A capitalist society allows those who take risk to be rewarded themselves, thus the reason for the existence of new billionaires and not just those who have inherited from the past. There are many variables to consider when explaining the dissipation in the wealth of the 1900s millionaires, including limitations in liquidity and the use of these funds for expenditure. However, the mistakes of the past and the long run returns of equities give us a clear solution to protect our investments today: the easiest way to maintain and to grow wealth is simply to remain invested with discipline.

BY GARRETT NEL, NEW ROAD CAPITAL