High Net Worth Individual (HNWI)

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You may have heard the term high net worth individual, or HNWI (not to be confused with a HENRY).

In this article, we will:

Define a high net worth individual
Explain how HNWIs are determined
Give personal finance tips on how to become one

Defining High Net Worth Individual

As the name implies, a high net worth individual is someone who has a minimum level of net worth. Net worth is measured by subtracting all of a person’s liabilities (or debts) from all of his or her assets, or the things owned.

Read More: How to Calculate Your Net Worth

The term HNWI is used mainly in the financial services industry to identify clients who can receive exclusive services and benefits.

The closest thing to a standardized definition of a HNWI comes from the Securities and Exchange Commission (SEC), which defines a HNWI as someone with a net worth of at least $1.5 million or $750,000 in investable or liquid assets.

These assets include cash contained in checking, savings or money market accounts; stocks and bonds; and shares of mutual funds and exchange traded funds (ETFs). They typically don’t include real estate and land, such as a primary residence, since these can’t easily be converted to cash.

Accredited Investors and Levels of HNWIs

Financial advisors must report to the SEC annually how many clients they have who meet the SEC’s HNWI definition. In addition, the SEC has a separate category of HNWIs who are referred to as “accredited investors.” The criteria for this designation is having an annual income of at least $200,000 (or $300,000 for married couples) each of the past two years or a personal net worth of at least $1 million, excluding a primary residence.

In general, an individual must meet the definition of accredited investor to invest in special securities like hedge funds and private equity.

In addition to the HNWI designation, there is the additional designation of a very high-net-worth individual, which requires at least $5 million liquid assets. There is also the designation of ultra high-net-worth individual, which requires at least $30 million in liquid assets.

High Net Worth Individual Statistics

Following are some interesting statistics about high net worth individuals:

The United States is home to the most HNWIs in the world, according to the Capgemini Worth Wealth Report. About 62% of all HNWIs in the world live in the U.S., Japan, Germany and China combined.
A little over 11 million U.S. households met the definition of high net worth individual in 2020, according to Spectrem Group, up 5.5% over 2019.
Almost 2 million U.S. households met the definition of very high net worth individual in 2020, according to Spectrum Group.

The Benefits of Being a HNWI

Similar to airline frequent flyers, there are perks associated with being a high net worth individual. For starters, HNWIs usually receive customized “white glove” service and treatment from financial services providers. This might include access to dedicated wealth managers and special services like trust and estate planning, invitations to special conferences and events, reduced fees on financial services, and special access to services and advisors during evening and weekend hours.

In addition, HNWIs may be allowed to participate in certain investments that aren’t available to ordinary investors — most notably, hedge funds and private equity, as mentioned above. They might also have the opportunity to get in on the ground floor of initial public offerings, or IPOs.

How to Become a High Net Worth Individual

For most people, becoming a HNWI requires financial discipline over a long period of time.

This includes diligent saving, successful investing and responsible use and management of personal debt. One way to start out on the road to becoming a HNWI is to start saving a certain percentage of your income each pay period. As your income rises, you can then increase the percentage and amount of your savings.

The sooner you get started saving and investing, the longer you have to take advantage of compounding returns. With compounding, money is earned not only on the amount of the initial investment, but also on the money that the investment earns. This can go a long way toward growing your net worth over the long term.

Also strive to keep your debt under control — especially high-interest consumer debt like credit cards. Every dollar that goes toward paying down debt is a dollar that isn’t being saved or invested in order to grow your net worth.

Calculate Your Net Worth

Use this free net worth calculator to determine whether you meet the definition of a high net worth individual.

To start tracking your net worth, sign up for Personal Capital’s free and secure online financial tools. More than 3 million U.S. households use this technology to:

See their true net worth, with all of their financial accounts listed in one place
Analyze their investments and uncover hidden fees
Plan for long-term goals, like buying a house or saving for retirement

Let’s Get Started

Personal Capital compensates Don Sadler (“Author”) for providing the content contained in this blog post. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.