Warren Buffett is ranked as the third-richest person in the U.S. as of May 2019, with a net worth over $85 billion. But that number doesn’t tell the whole story. Here’s a rundown of where Buffett’s net worth comes from and how it keeps going up despite giving billions of dollars to charity each year.
Warren Buffett’s net worth
Here’s the short answer: As of May 14, 2019, Warren Buffett’s net worth is estimated to be $85.2 billion.
It’s also worth noting that almost all of Buffett’s wealth (over 99%) is in the form of Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) stock. Buffett first took control of Berkshire in 1964 and over the following 55 years has built it into a massive conglomerate with more than 60 subsidiary companies, including household names such as GEICO, Fruit of the Loom, Duracell, and Dairy Queen, just to name a few.
You may have heard about “Buffett stocks,” but he doesn’t own too many stocks directly. The phrase generally refers to Berkshire’s stock portfolio, which is worth over $200 billion and contains the common stocks of more than 40 companies.
Buffett gives away billions each year
Based on how much of Berkshire Hathaway stock Buffett acquired back in the 1960s, his net worth should be far higher than it is.
The reason for this is Buffett’s charitable giving. In 2006, he pledged to give most of his wealth to charity.
Here’s how this works: Buffett gives away 4% of his Berkshire Hathaway stock each year, and the gift is allocated to five different charitable foundations, with the Bill & Melinda Gates Foundation getting the largest allocation. In 2018, Buffett donated about 17.7 million Class B shares of Berkshire, worth about $3.4 billion at the time.
He will continue to donate 4% of his shares for the rest of his life and wants all of his Berkshire shares to be distributed within 10 years after his estate settles. Buffett doesn’t dictate how the money is to be used, other than to say that he wants the money spent on current needs, not to fund endowments or anything like that.
Since 2006, Buffett has given away about 43% of the shares he originally owned. The value of his original stake in Berkshire Hathaway would be worth a staggering $149.5 billion today.
How does his net worth keep going up?
Buffett is giving away about 4% of his wealth every year, so you might think this would mean his net worth should be going down over time. The opposite is true. In fact, since September 2014, it has increased by more than $18 billion.
The reason is that Berkshire’s stock price continues to rise. In fact, Buffett’s 4% giving rate is far less than the roughly 20% annualized return Berkshire’s stock has produced since Buffett took control of the company. And while Buffett himself has cautioned investors not to expect such spectacular returns in the future, he has said that Berkshire should still be able to beat the overall stock market, which has historically produced annualized average returns in the 10% range.
In short, Buffett is giving his wealth away by the billions, but it’s still at a slower pace than his expected return from his Berkshire stock. As long as Berkshire’s stock price rises by more than 4% annually, Buffett’s net worth should continue to rise, even with his massive charitable donations.
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