Assets
There are two sides to the American wealth ledger. Labor pays today. Assets pay forever. This page is about the second side: what the wealthy actually own, what each asset class has returned over the long run, and which assets are gated by how much you already have.
What each wealth tier actually owns
The bottom 50% hold most of their net worth in one home and one or two cars. The top 1% holds 58% in corporate equities and private business equity, assets that compound on their own. Same country, two different balance sheets.
Source: Federal Reserve Distributional Financial Accounts (DFA), Q3 2024. Figures rounded. The Top 1% row understates concentration somewhat because the Top 0.1% within it skews much further toward private business and equities.
The same starting amount, compounded
At long-run real returns, the gap between safe and high-return assets isn't a few percent. Over decades it's one or two orders of magnitude. The same dollar in cash versus in a private business isn't the same dollar.
What the range means. $10K in cash becomes $11.6K after 30 years. The same amount in a successful private business becomes $174.5K. Both are real, inflation-adjusted. The only variable is which asset class the money sat in.
Return assumptions and sources
- Cash / T-bills (0.5% real): 90-day T-bills, real return, 1928-2024 (Damodaran).
- Gold (1.0% real): London AM fix, real return, 1971-2024.
- Primary home (1.0% real): Case-Shiller US National, real return 1890-2024, price only.
- Long-term US bonds (2.5% real): 10-yr Treasury total return, real, 1928-2024 (Damodaran).
- 60/40 portfolio (5.0% real): 60% S&P + 40% 10-yr Treasury, real, rebalanced annually.
- US stocks (S&P 500) (6.8% real): S&P 500 total return, real, 1928-2024 (Damodaran).
- Rental real estate (8.0% real): NCREIF-proxy with 25% down + rent, net of maintenance.
- Private equity (fund) (9.0% real): Cambridge Associates US PE index, net of fees, 2000-2024.
- Private business (owner) (10.0% real): Survivor-biased. Closed private businesses not included.
The asset ladder
The chart above assumes you can buy any asset class. Legally, you can't. Each rung unlocks new assets and requires more wealth than the one below it. The bar under each rung is the share of US households that actually reach it.
- Rung 1
Anyone
$0100% reachSavings accounts, CDsIndex funds / ETFs (S&P 500)401(k), IRA, Roth IRA - Rung 2
Homeowners
$25K65% reachPrimary home equity - Rung 3
Upper middle
$100K30% reachIndividual rental propertyConcentrated single-stock betsPrivate REITs - Rung 4
Accredited investors
$1M15% reachReal-estate syndicationsAngel / early-stage startupsPrivate-credit fundsHedge funds (many) - Rung 5
Qualified purchasers
$5M1% reachRestricted hedge funds (3c-7)Institutional PE / VC fundsPrivate placements with lower disclosure - Rung 6
Family office
$25M0.1% reachDirect PE / VC co-investmentPre-IPO secondariesPrivate-bank bespoke structuresArt / collectibles at institutional scale
Accredited Investor: $1M net worth excl. primary residence, or $200K income ($300K joint). Qualified Purchaser: $5M in investments. Both thresholds are from SEC rules (Reg D, §2(a)(51)), unchanged for inflation since ~1982.
Same income, different tax
The same pre-tax dollar earns a different after-tax dollar depending on whether it came from labor or capital. Wage income is hit with federal income tax plus payroll tax (FICA). Long-term capital gains are taxed at their own lower brackets and escape payroll tax entirely. Move the slider.
The gap: on $200.0K of gross income, the wage earner pays $30.1K more in tax than the capital-gains earner, a 15.1 point spread in effective rate. Over a 40-year career, that compounds into a fundamentally different net worth, even before return differences are counted.
Assumptions: 2024 single-filer brackets, $14,600 standard deduction, Social Security wage base $168,600, 0.9% Additional Medicare over $200K, NIIT 3.8% over $200K, no state tax. State income tax would widen the gap further since wage income is typically taxed at ordinary rates in all states, while many states tax capital gains the same (or lower). Assumes capital gains are long-term; short-term gains are taxed as ordinary income.
Or skip tax entirely: buy, borrow, die
The tax calculator above assumes the capital earner sells and realizes gains. The wealthy don't. They buy appreciating assets, borrow against them at low rates to fund any lifestyle (no sale = no gain realized), then die. At death, the cost basis steps up to market value and every embedded gain disappears untaxed. Three legal steps that drop lifetime effective tax rates toward zero.
Hold appreciating assets
Founders and long-term holders keep stock, real estate, and private equity. Wealth grows through paper appreciation ("unrealized gains"), which the IRS does not tax until you sell. A $100B fortune can exist on a tax return as almost zero income.
Borrow against them
Banks offer securities-backed lines of credit (SBLOCs, pledged-asset loans) at low rates against a portfolio. Cash flows out to fund any lifestyle; no sale means no capital gains tax. Interest is cheap, sometimes deductible, and debt is not income.
Reset the basis on death
At death, inherited assets get a "step-up in basis": the cost basis resets to the market value on the date of death. Every embedded gain, decades of appreciation, evaporates untaxed forever. Heirs can sell the next day with zero capital gains owed.
Step 1 in action. Federal income tax tops out at 37% and carries a second layer of payroll tax. Billionaires don't take salaries, they take equity. Their actual 10-Ks reveal the pattern.
In 2021 ProPublica obtained 15 years of IRS returns for the richest Americans. From 2014 to 2018, the top 25 billionaires saw their wealth grow by $401B and paid $13.6B in federal income tax, a "true tax rate" of 3.4%.
Step-up in basis is the keystone. Remove it and Buy-Borrow-Die collapses: heirs would owe capital gains on the decades of appreciation, and the loan has to be repaid from something. Closing that one loophole was estimated by the Congressional Budget Office to raise $124B over a decade and was briefly part of Biden's 2021 "American Families Plan" before dying in negotiation. It is the single most consequential line of the tax code when it comes to dynastic wealth.
Why this compounds inequality. Three forces stack on top of each other. One, the highest- returning asset classes (businesses, equities, rental real estate) are concentrated at the top. Two, access to many of them is gated by already-existing wealth. Three, wage income is taxed at higher marginal rates than capital gains, so after-tax compounding is faster at the top. Over a career, a wage earner and an asset owner with identical pre-tax incomes end up with wildly different balance sheets, not because one worked harder but because the two sides of the ledger play by different rules.
What ordinary people can actually do. Accumulate equities through low-cost index funds inside tax-advantaged accounts (401(k), IRA, Roth IRA, HSA). Buy a home you can afford if staying long. Avoid concentrated single-stock bets disguised as employer-match benefits. None of these close the gap; they just get you onto the capital side of the ledger at all, which is better than only being on the labor side.