There are 635,000 rich Australians. Are you one of them?

The ABS defines net worth as the value of all the assets owned by a household less its liabilities. In this case, assets include homes, their contents, land, vehicles, businesses, and financial assets such as bank accounts, shares and superannuation account. It found that the principal place of residence accounted for 40 per of total household net worth in 2019-20, followed by super, accounting for 18 per cent.

The average net worth of the wealthiest 20 per cent of households was $3.27 million.

A report by global real estate consultancy Knight Frank sets a net worth of at least $US1 million ($1.5 million) as the bar to being considered a high-net-worth (HNW) Australian. It, too, includes the principal place of residence in its calculation. But to be considered among Australia’s top 1 per cent, Knight Frank says a net worth of $US4.67 million is needed.

Finance research house Investment Trends has also crunched the numbers on what rich looks like in Australia today. It defines a HNW Australian as someone who has more than $1 million in net assets, excluding the family home, the value of their business (if they own one) and their superannuation (but it does include self-managed super fund assets).

Its 2023 High Net Worth Investor Report found that on this measure, there are 635,000 rich Australians, representing about 2.5 per cent of the total population. Net assets of at least $2.5 million puts someone in the top 1.5 per cent, while at least $5 million puts them in the top 0.5 per cent, the company found.

Investment Trends breaks its measure of wealth down further, into three categories of affluence. Those with net assets of $1 million to $2.5 million are classified as the emerging affluent, those with $2.5 million to $10 million the established affluent, and those with wealth above $10 million ultra-high-net- worth (UHNW).

Dr Irene Guiamatsia, head of research at Investment Trends, says the number of Australians classified as rich in 2023 was the same as in 2021, after a small decline of 10,000 in 2022. But the real action took place between 2020 and 2021 when there were 150,000 newly minted HNW individuals, the vast majority of them joining the emerging affluent category. “We pin that down to the sort of bubble of everything that we saw during the pandemic. So equities went through the roof, as did property prices,” she says.

Within the cohort of people classified as HNW, Investment Trends has noted movement between the subgroups, in a case of the rich getting richer. Between 2022 and 2023, an additional 45,000 joined the established affluent, a phenomenon attributed to the strong performance of equities and property, which are assets to which this group is heavily exposed, Guiamatsia says.

Markers of the rich

So what kind of attributes do the rich have in common? The Investment Trends research found that more than half have an SMSF, a figure that increases to 90 per cent among UHNW Australians.

The average age across all HNW Australians is over 60, and it increases as the level of wealth increases. Emerging affluents are an average age of 63, established affluents have an average age of 66 and UHNWs an average age of 70.

They most commonly work as business executives, engineers, doctors, accountants, IT specialists and financial advisers, although among the established affluents and UHNW cohorts, more than half own their own business. As for the sources of their wealth, about three quarters cite their salary as the main source, but this number is much higher on the lower end of the rich scale – more than 80 per cent of emerging affluents rely mainly on their salary for their wealth compared to just 55 per cent of UHNWs.

On average, all have at least two sources of income, and the richer people are, the more sources of income they have. After their salary, HNW people most commonly derive their wealth from investment profits (50 per cent), property investment (41 per cent), business profits (26 per cent) and inheritances (20 per cent). As for how they invest, Guiamatsia says the typical high-net-worth portfolio tends to be “about a third in equities, a third in property, and then the last third is distributed across other assets like cash, term deposits and private equity”.

How to join the club

If you’re not quite there yet, but aspire to join the rich, Ben Smythe, principal adviser and partner at Minchin Moore, says you need to be prepared to play the long game. He says his HNW clients aren’t “looking for a quick fix, or looking for ways to get rich quickly”.

“They build wealth deliberately, slowly and systematically, and haven’t sought shortcuts or get-rich-quick schemes,” he says. “I think that’s where a lot of people get trapped, going down the route of trying to make money quickly.”

He says the rich favour a long-term strategy of retaining quality assets by buying and holding, rather than trading assets, focusing on building a diversified portfolio and managing debt well, differentiating between good and bad debt. “Good debt is related to investment assets and has deductible interest, whereas bad debt is non-deductible personal asset debt. If you overcommit yourself to bad debt, it makes it very difficult to build wealth.”

He says while many rich people may have an SMSF, it’s not a silver bullet. “An SMSF is just an entity, it doesn’t miraculously get double-digit returns for you. What comes before that is a well-educated, constructed plan, whereby there’s a long-term strategy. Successful people have either taken the time to engage an adviser or educated themselves financially.”

As for displays of wealth or conspicuous consumption, Smythe says these tend to be more common among those who have inherited their wealth. “The first generation who have built wealth, particularly from a small business, are incredibly frugal, or just very diligent in terms of knowing where the money goes. The second and third generation potentially have a different mindset.”