What asset do the top 1% put 61% of their money in?

New research from Goldman Sachs reveals a stark difference between how the richest invest, and how most people invest.

The bottom 50% of Americans hold 55% of their net worth in real estate. "Safe as houses", the saying goes.

That's sensible. An owned home is a source of stability and pride, and can be the basis of generational wealth.

The problem is that most people stop there. The bottom 50% hold only 4% of their net worth in shares of companies. Equities appear to be optional to them, or are not even considered.

In total contrast, the richest in society hold only 11% of their worth in real estate... and a massive 61% in equities.

There are good reasons for this. Equities, unlike real estate, are easily sold for cash, they pay a higher yield, and are low maintenance (no difficult tenants). But the more important reason the wealth invest in equities is the sheer rate of return.

In the majority of years, stock markets bring returns significantly higher than inflation. These positive years greatly outweigh the negative years by a factor of 5 to 1.

Stay in the market and keep investing any returns, and compounding starts to have magical effects. Over a 5-year period, the average return is 60%. Over 10 years, its 168%. Over 20 years, and the total compounded return is an astonishing 620%.

That's the equivalent of 57 years of return, in only a 20 year period. Its counterintuitive, but that's how compounding works.

Bottom line: the bottom 50% believe equities are too risky, and so stick with real estate. The top 1% know that, over the long term, equities way outperform. It's great you want to own your own home, but to be rich, do what the rich do.