Growth in global wealth ground to a halt in 2018 as major equity market corrections lowered the value of many investors' assets, according to a report by Boston Consulting Group. The report’s headline metric indicates that wealth rose a scant 1.6% last year, sharply down from 7.5% a year earlier and dramatically below the average compound growth rate over the past five years.
As gloomy as that picture looks, BCG says the number is actually worse. When the firm adjusted for the rebounding dollar, wealth in 2018 actually declined by 1.6% instead of growing. “For the first time since 2008, we saw wealth growth was negative when you take into account all the factors,” Anna Zakrzewski, global leader of BCG’s wealth-management practice and one of the report’s authors, told Bloomberg in an interview about the study.
What it Means for Investors
The study starkly highlights that global personal wealth has been tied to the direction of global stock markets, many of which have seen massive increases since the financial crisis. The turmoil in 2018 has prompted many investors to closely monitor just how much longer the 10-year bull market, and the lengthy economic expansion along with it, will last.
Global wealth had been on a steady rise up until last year, climbing at an annual compound rate of 6.2% between 2013 and 2017, and rising faster in 2017 alone. Last year’s official growth rate of 1.6% to a total amount of wealth worldwide of $205.9 trillion was the worst growth in the past half-decade.
In 2018, the anemic growth of wealth was affected, in part, by lofty valuation levels, geopolitical risks, and as rates began to return to more normal levels. “With major market indexes plummeting by as much as 20%, 2018 was the worst year for stocks in a decade,” write the reports authors. “The steep decline in equity market performance, most notably in the fourth quarter, had a significant impact on wealth.”
Despite the weak performance in 2018, the rebound in equity markets in the first part of this year could contribute to a huge uptick in wealth growth for all of 2019 if stocks avoid a major pullback. In fact, BCG expects the growth rate global wealth to rebound by an average 5.7% yearly between 2018 and 2023. While not as strong as the past five years, it’s a definite improvement from 2018.