What is a High Net Worth Individual (HNWI)?

Definition of a High Net Worth Individual

A high net worth individual (HNWI) is a person whose liquid assets are valued at no less than one million dollars. Some wealth management companies categorize high net worth individuals into different tiers based on net worth exceeding one million dollars. The value of real estate owned by the individual is not counted when determining if they have high net worth. This applies to their primary residence as well as investment properties.

Definition and Examples of a High Net Worth Individual

A high net worth individual is someone who has liquid assets such as cash, stocks, and bonds totaling at least one million dollars. This is a title used by many wealth management firms to tailor their marketing and services accordingly.

How a High Net Worth Individual Operates

High net worth individuals are a primary target for wealth management firms. This is not only because they have at least one million dollars in liquid assets for the firm to manage but also because they often have more complex financial situations. This allows the firm to provide advice and collect fees more frequently.

Types of High Net Worth Individuals

Some wealth management firms categorize high net worth individuals into different tiers. Here are three common examples according to the technology firm Capgemini:

• High Net Worth Individual (HNWI): A person whose liquid assets range between one million and five million dollars.
• Medium High Net Worth Individual: Generally, a person whose liquid assets range between five million and thirty million dollars.
• Ultra High Net Worth Individual (UHNWI): Generally, a person whose liquid assets amount to thirty million dollars or more.

The subcategories of high net worth individuals may vary from one firm to another, and the qualifications for each category can also differ.

High Net Worth Individuals vs. Affluent Individuals

A high net worth individual is not the only category used by wealth management firms. There is also a group referred to as the affluent class, who have liquid assets valued at no less than $100,000 but less than one million dollars.

• High Net Worth Individual – Liquid assets worth at least one million dollars.
• Affluent Individuals – Liquid assets between $100,000 and one million dollars. They may not receive wealth management services.

Criticisms of High Net Worth Individuals

A significant issue with classifying investors into different groups based on their liquid assets is that those with less than one million dollars in liquid assets will not have access to the same resources that high net worth individuals do. In terms of financial services, they will not receive the same level of advice.

How to Become a High Net Worth Individual

Besides suddenly inheriting a large fortune, becoming a high net worth individual involves the incremental accumulation of assets over a long period of time. You can start by determining the value of your liquid assets currently. Then, you can track how much more you need to reach the one million dollar threshold. Afterward, you can take the necessary steps to increase your liquid assets. This may involve increasing your income, reducing expenses, and investing the difference every month.

Due to their tax advantages, retirement accounts such as Individual Retirement Accounts and 401(k) plans can greatly accelerate your path to becoming a high net worth individual.

Source: https://www.thebalancemoney.com/what-is-a-high-net-worth-individual-5191710