The Biggest Wealth Transfer in History

As we mull over the prospect of a recession, which I am still convinced will not happen, it is significant to note there are some financial forces at play over the next several years that will have a huge, and positive, impact on our economy. As I have said in prior columns and to state and national association presentations for a year now, when interest rates moderate, inflation abates, and the financial landscape returns to normal, be ready for one of the longest periods of economic expansion in memory.

Why? Among many other factors are a strong labor market, the coming tsunami of artificial intelligence and the giant leap forward it will represent for productivity, and prosperous and fluid financial markets. But more so, we are witnessing the largest wealth transfer in the history of man, and it has already begun.

As has been reported in the popular business press for years now, the intergenerational transfer of wealth is in motion in America, and it will dwarf any of the past. The driver behind this is my generation: the baby boomers, which account for 73 million of our nation’s population of 335-plus million. The youngest of this cohort are turning 60, with the oldest boomers nearing 80. Born in the mid-century as U.S. birthrates surged in tandem with an enormous leap in prosperity after the Great Depression and World War II, boomers are now beginning to die in larger numbers.

To be sure, many are not wealthy, and will leave behind thousands of dollars, a home, or not much at all. But others are leaving their heirs hundreds of thousands, or millions, or billions of dollars in various assets. In 1989, total family wealth in the United States was about $38 trillion, adjusted for inflation. By 2022, that wealth had more than tripled, reaching $140 trillion. Of the $84 trillion projected to be passed down from older Americans to millennial and Gen X heirs through 2045, $16 trillion will be transferred within the next decade. Today, baby boomers hold half of the nation’s $140 trillion in wealth.

Heirs increasingly don’t need to wait for the passing of elders to directly benefit from family money, a result of the bursting popularity of giving away money during their lifetimes, including property purchases, repeated tax-free cash transfers of estate money, and other tax strategies, providing millions a head start.

Interesting Subset. The concentration of this wealth – the wealthiest 10% of households – will be giving and receiving a majority of the riches. Within that range, the top 1%, which holds about as much wealth as the bottom 90%, will dictate the broadest share of the money flow. The more diverse bottom 50% of households will account for only 8% of the transfers.

A key reason there are such large soon-to-be-inherited sums is the way boomers superbly benefited from price growth in the financial and housing markets. The average price of a U.S. house has risen about 500% since 1983, when most baby boomers were in their 20s and 30s, prime years for household formation. 

As U.S. corporations have grown into global behemoths, those deeply invested in the stock market have found even bigger returns. The stock market, as measured by the benchmark S&P 500 index, is up by more than 2,800% since the beginning of 1983, around the time index funds took off as a mainstream investment for corporate employees and many other middle-class professionals. 

Note those figures do not include dividends and are not adjusted for inflation, which they have far outstripped, as consumer prices have risen about 200% over those 40 years.

The importance of that wealth transfer to our industry cannot be diminished. Many boomers will leave construction-materials businesses, small and large, to the next generation of heirs, while others will sell to effect a liquidity event that will likewise benefit their children and grandchildren with cash instead of hard assets. The impact of those wealth transfers will allow privately held business to prosper, and for liquidity events to fund new opportunities for the generations in our industry that follow.

AVP Pulse Index. The AVP Pulse Index for May ticked up by a strong 1.0%, moving the Index up 1.4% year-over-year. My position hasn’t changed; this is effectively a continuation of the flattening of the curve I have predicted until interest rates come down, and the bank lending environment calms down after the scare of the SVB and Signature bank failures. I expect that the Index will remain in this flattened state for the foreseeable future. Of particular note, though, is the impact the stock prices of publicly traded construction-materials companies had on the Index this month, as they increased 11.8% month-over-month, with many hitting all-time highs. This clearly had an impact on our proprietary weighting algorithm – remember, the stock markets are extremely efficient, and these higher prices reflect optimism on the part of institutional investors. This bodes well for the next couple of years and reflects a continuation of a financially healthy construction-materials industry.

Pierre Villere

Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers and acquisitions. He has a career spanning almost five decades, and volunteers his time to educate the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter @allenvillere.

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