New year – new expectations
Jan 7, 2024
For many years, we have been hearing that the rich are getting richer with North America leading the way globally, and that includes Canadians, according to an article in the Financial Post online last June. The story says that globally, the wealth of high-net-worth individuals grew 4.7 per cent in 2023 to reach $86.8 trillion and their numbers grew 5.1 per cent to almost 23 million, according to consulting firm Capgemini’s 28th annual World Wealth Report. We have not seen comparable data for 2024 yet, but we suspect that those numbers will rise even more. It was a very good year for the wealthy in 2024.
But will that wave of prosperity benefit the boat business in Canada in 2025 and 2026?
For additional background, those 23 million wealthy individuals include “the 1%” — the small group of people who hold 34 per cent of the world’s wealth. But it also takes in mid-tier millionaires with assets worth $5 to $30 million and “millionaires next door” whose fortunes range from just $1 million to $5 million.
The Financial Post story stated that North America’s rich saw the biggest gains, with their wealth growing 7.2 per cent, and the population of the wealthy growing 7.1 per cent.
The United States accounted for most of that, thanks in part to the extraordinary performance of the so-called Magnificent Seven tech stocks. The S&P 500 posted gains of more than 24 per cent in 2023, up 11 per cent in the fourth quarter alone, said the report.
But Canadians’ fortunes grew as well, with high-net-worth individuals gaining 3.8 per cent more wealth and the population of wealthy individuals growing by 3.6 per cent.
Another article in the Financial Post in early December reported that the global wealth turnaround has led to a “significant shift” in attitudes. While the wealthy were content to just hang on to their money in 2022, the wealthy are now looking to grow it.
Now, high-net-worth individuals have reduced their equity holdings to 21 per cent, a two percentage decline, despite the overall solid stock market performance.
The very rich looking for very big growth are turning to high-return alternative investments such as commodities, currencies, private equity, hedge funds and digital assets. Allocations in these have risen to 15 per cent from 13 per cent in 2022.
Cryptocurrencies are popular, with half of the wealth managers Capgemini surveyed reporting a surge in client interest.
Real estate is another area of note. The wealthy increased their real estate holdings by four percentage points to almost 20 per cent allocation. Despite higher mortgage rates, the global market for luxury real estate surged towards the end of 2023, as the rich invested in secondary homes, said the report.
That trend would reflect the continuing interest in Georgian Bay Islands, Muskoka and both coastal and inland vacation properties in British Columbia, especially high-end properties.
We in the boat business care the most about those grand boating areas across Canada and especially the waterfront vacation homes where so many boat buyers spend their summers. But much of that real estate wealth is in the hands of baby-boom age parents and grandparents. The challenge is figuring how to pass all that money on.
Over the next 20 years, aging generations are expected to transfer more than US$80 trillion to their heirs, but can the heirs to those luxury vacation properties afford the many costs of ownership?
It might also turn out that millennials and generation Z may not inherit as much as they think.
Again, the Financial Post reported on a survey by Vanguard Canada that found “a sizeable generational gap in expectations” around the wealth transfer that was expected to pass trillions of dollars from baby boomers to their children.
About $1 trillion has been predicted to move from Canadians to their heirs over the next few years, according to Chartered Professional Accountants Canada. This “seismic quantity of wealth” is expected to be the largest generational transfer in Canadian history.
While half of the older Canadians surveyed acknowledged that an inheritance was essential for their children’s financial future, a third either didn’t expect to, or were uncertain about leaving any inheritance at all, Vanguard found.
“Canadians of both generations, from boomers to millennials, are feeling the pressure of inflation and the rising cost of living, and this impacts the transfer of wealth,” said Mario Cianfarani, of Vanguard Investment Canada Inc.
“This is a difficult conversation for many people and expectations may not match reality.”
The survey found that Canadians over 55 are also facing pressures that could complicate the wealth transfer. Thirty-five per cent were concerned that they would need their assets later in life for unexpected healthcare costs, the needs of a prolonged retirement or to manage the rising cost of living.
To briefly summarize – the research makes it clear that the rich have been getting richer and that inheritance will likely pass a lot of wealth on to younger generations, but longer lives and the reality of dividing assets among several heirs my break up big property holdings and challenge families who want to keep their “generational” vacation homes.
What can we in the boat business do about this? Suggestions I would offer are to focus on service and relationship-building with your customers. Keep the old boats running while promoting the benefit of buying a new one and in every way you can, help them to stay in love with the lake and with their boats.
Andy Adams – Editor
