What is a high-net-worth individual?

Compared to everyone else, how are you doing financially? According to the Federal Reserve, the real median net worth of American families was $192,900 as of 2022, up 37% from 2019.

If your net worth is around that amount, you may feel comfortable financially — but you’re a long way off from the “high-net-worth individual” (HNWI) distinction. Although definitions vary, a HNWI is typically someone with at least $1 million of net worth in liquid assets. In the U.S., 5.3 million people — less than 2% of the total population — qualify as HNWIs.

Here’s what it means to be a HNWI, and how finances work differently for this elite group.

What is a high-net-worth individual (HNWI)?

A high-net-worth individual is someone with $1 million or more of net worth in liquid assets, including bank accounts, stocks, bonds, and cash. Someone can technically be a millionaire and not meet the definition of an HNWI because their money is tied up in illiquid investments, such as real estate.

A high-net-worth individual can come from different fields and locations. However, there are some traits that HNWIs tend to have in common. The cities with the highest number of millionaires are New York, the Bay Area, Los Angeles, Chicago, and Houston, according to the Henley & Partners 2023 USA Wealth Report.

Among the uber-rich, there are even more commonalities. Centi-millionaires — those who have net worths of $100 million or more — tend to attend Ivy League universities. Forty-five percent of the nation’s centi-millionaires attended Harvard University, the Massachusetts Institute of Technology, Stanford University, University of Pennsylvania, Columbia University, or Yale University.

How money management is different for HNWIs

If you meet the criteria for a high-net-worth individual, your approach to finances will likely be different than for those with less liquid assets available. Rather than worrying about goals such as building an emergency fund or saving for a down payment on a house, you may be focused on a family business’ longevity or a long-term charitable bequest.

To accomplish those goals, you may use different strategies and take advantage of other opportunities.

Wealth management vs. financial planning

Typical investors may meet with a financial planner or financial adviser, whereas HNWIs usually have access to wealth managers instead. Because of the amount of investable assets they have, financial institutions and investment firms offer private wealth management services to HNWIs that provide a higher level of personalization and service.

Wealth management can be a more holistic approach to your finances, combining investment strategies with tax optimization and asset protection.

For example, at Morgan Stanley, private wealth management customers get access to holistic services, including cybersecurity technology, concierge services for health and travel, and even special member events.

Investment opportunities

HNWIs can often access different investment opportunities than other individual investors. For example, HNWIs may have the opportunity to invest in private equities and hedge funds or even act as angel investors for startups, allowing them to own shares of promising young companies.

For example, JPMorgan has alternative investment options for private wealth management clients. To diversify their portfolios, clients can invest in hedge funds or real assets such as oil, gold, or real estate.

HNWIs may also qualify for status as accredited investors and can invest in securities that aren’t registered with the U.S. Securities and Exchange Commission (SEC). According to the SEC, accredited investors must have a net worth of $1 million or more (excluding their primary residence) and an individual income of at least $200,000 ($300,000 with a spouse or partner).

Estate planning

Those who fit within the HNWI category often are focused on leaving behind a legacy for their families and building generational wealth. As part of that, they invest for goals besides a child’s education or retirement; they’re looking to generate returns long beyond their life expectancy.

HNWIs will also work with wealth managers to optimize their taxes and streamline the wealth transfer process to future generations. For instance, private wealth management clients with Fidelity can work with a Fidelity adviser for both inheritance and estate planning. The adviser will coordinate with your attorneys and accountants to preserve your estate assets and pass on your wealth to future generations.

Charitable giving

For HNWIs looking to better their communities, charitable giving is a major part of their financial plans. Those with significant assets will likely benefit from a different perspective to philanthropy. Working with a wealth manager can maximize the impact of your donations; instead of a one-time lump sum, the wealth manager may arrange a bequest that makes use of donor-advised funds to continue to generate interest and returns, making your donation last for years.

Reaching the HNWI threshold

If your goal is to qualify as an HNWI, either for the tangible benefits the distinction can give you or because of a mental milestone you set, there are ways to accomplish your goal — even if you aren’t earning six figures:

Invest: To grow your money and hedge against inflation, you have to invest in the stock market. Investing early will allow your money to compound and grow over time. And the earlier you start, the better, particularly if you have a modest amount to invest. For example, let’s say you started investing at 30. Assuming you invested $300 per month and earned an average annual return of 8%, you’d have over $1 million in savings by the time you turned 65. If you increase your monthly investment to $500, you’d have nearly $1.8 million.
Be consistent: Although watching your investment portfolio’s value fluctuate can be scary, don’t panic and take your money out of the market. The stock market naturally ebbs and flows over time and, historically, has produced a positive return over the long term. Taking your money out only locks in your losses.
Diversify: Diversifying your portfolio means investing in a range of companies, industries, and investment types. If one investment performs poorly, the performance of the others can offset your losses, helping to protect your money. You can diversify your portfolio on your own, by using a robo-adviser, or by consulting with an investment professional to create your portfolio.