Places Where Residents Earn the Most From Their Investments – 2019 Edition

In 174 of the 200 most populous metropolitan areas in the U.S., earnings and wages make up 65% or more of reported income. Though this percentage is substantial, it leads to the question: Where does other reported income come from?

It comes from investments such as taxable interest, dividends and capital gain distributions along with unemployment compensation, taxable Social Security benefits, pensions, annuities, cancellation of debt and distributions from a trust. These returns are known as unearned income and vary greatly by place. In some locations, much more than 65% of income is the result of salaries and wages, whereas in others, income from investments almost matches the amount from salaries and wages.

In this study, we examined where residents are earning the most from their investments. We specifically looked at data on four investment types (taxable interest, ordinary dividends, capital gains and qualified dividends) across three metrics (the percentage of returns with the investment type as a percentage of all tax returns with income, average income for tax returns with each type of income and the total amount of income earned in each type of investment as a percentage of all income earned). For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.

Study Definitions

Definitions for the four types of investment income we discuss in this article are below:

• Taxable interest.This comes from the money you lent someone else. For most people, this means savings accounts, checking accounts and certificates of deposit (CDs) - all of which count as loans to a bank or other financial institution.
• Ordinary dividends. This is income earned from ownership of stock in a company.
• Qualified dividends. These are similar to ordinary dividends, except that they have been owned long enough to meet the IRS holding period qualification.
• Capital gains. This is income earned via selling capital assets. This can include your home or your car, but it typically includes stocks and bonds.

Key Findings

• Florida and California populate the top 25. Florida and California claim 11 of the top 25 metro areas where residents are earning the most from their investments (with five and six, respectively). More specifically, three of the top 10 metro areas in our study are in Florida. In all three of those Sunshine State places, investment income is greater than 20% of total income.
• Capital gains. Though taxable interest is the most common form of investment income in most places, capital gains far outpace the three other forms of investment income in terms of amounts. The average income for capital gains and the total amount of income earned from capital gains as a percentage of all income earned is substantially higher than it is for taxable interest, ordinary dividends or qualified dividends in most other metro areas.

1. Naples-Immokalee-Marco Island, FL

In 2016, income earned from investments made up 37.25% of total reported income in Naples- Immokalee-Marco Island, Florida, almost as much as the percentage of income that results from salaries and wages, 39.33%. Broken down, the 37.25% of investment income consisted of 2.44% from taxable interest, 8.78% from ordinary dividends, 7.02% from qualified dividends and 19.01% from capital gains.

Using total income amounts and the number of returns reporting income from those investments, we also calculated the average return for each of the four types. In Naples-Immokalee-Marco Island, the average incomes from taxable interest, ordinary dividends, qualified dividends and capital gains were $8,493, $36,583, $31,371 and $82,886, respectively. Expectedly, average income from capital gains is the greatest, far exceeding the average income generated by any of the other three types of investments.

2. Bridgeport-Stamford-Norwalk, CT

A relatively large percentage of tax returns in Bridgeport-Stamford-Norwalk, Connecticut have ordinary and qualified dividends. According to 2016 IRS data, 31.98% and 30.38% of returns reported income derived from ordinary and qualified dividends, respectively, the second-highest percentage for both metrics relative to all 200 metropolitan areas in our study. Though these percentages slightly outpace the percentage of returns with ordinary and qualified dividends in our No. 1 metro area, Naples-Immokalee-Marco Island (30.69% and 28.65%, respectively), the average income amounts from dividends in the Bridgeport area are lower than they are in the Naples area. In 2016, average ordinary and qualified dividend totals were $23,342 and $19,337, respectively, in Bridgeport-Stamford-Norwalk, more than $10,000 less than average income for both types of dividends in Naples-Immokalee-Marco Island.

3. North Port-Sarasota-Bradenton, FL

In North Port-Sarasota-Bradenton, Florida, 21.69% of reported income there is derived from taxable interest, ordinary dividends, qualified dividends and capital gains, about 15% lower than the 37.25% rate in Naples-Immokalee-Marco Island, the higher ranked Sunshine State representative in our top 10. However, the percentage of North Port-area tax returns in 2016 with income generated from salaries and wages is comparable to that of the Naples area, at 70.82%.

4. San Francisco-Oakland-Hayward, CA (Tie)

Many residents in the San Francisco-Oakland-Hayward, California metro area, which ties with Boulder, Colorado, are putting money into savings accounts, checking accounts or CDs. In 2016, 39.14% of tax returns filed there reported taxable interest. In 2016, 81.97% of returns reported income from salaries and wages. As a percentage of reported income, salaries and wages made up 66.55%.

4.. Boulder, CO (Tie)

The Boulder, Colorado metro area ties with the San Francisco-Oakland-Hayward, California metro area for fourth place in our study. Of all reported 2016 income in Boulder, 20.02% was the result of investments. Specifically, 1.21% came from taxable interest (a top-15 rate), 3.61% from ordinary dividends (a top-15 rate), 2.78% from qualified dividends (a top-20 rate) and 12.42% from capital gains (a top-3 rate). The average income amounts from taxable interest, ordinary dividends, qualified dividends and capital gains were $3,188, $10,508, $8,536 and $38,412, respectively.

6. Charlottesville, VA
 

Charlottesville, Virginia, the No. 6 metro area on our list, ranks well in terms of income resulting from ordinary dividends, qualified dividends and capital gains. Relative to the other 200 metro areas we studied, it ranks seventh, seventh and ninth for the metrics of percentages of returns reporting income from ordinary dividends, qualified dividends and capital gains, respectively. Additionally, average income from ordinary dividends, qualified dividends and capital gains is high - the Charlottesville metro area ranks within the top 16 for each of these metrics.

Interestingly, a lower percentage of residents in Charlottesville seem to be putting their money into more traditional savings accounts. Only 32.67% of residents reported income from taxable interest. This rate is higher than that of only one other metro area in our top 10, Cape Coral-Fort Myers, Florida.

7. Seattle-Tacoma-Bellevue, WA

Seattle-Tacoma-Bellevue, Washington performs relatively well in the fourth investment category we analyzed, capital gains. Of all tax returns in the area that reported total income, 21.90% reported income from capital gains. Capital gains made up 10.21% of the total income reported in those returns. Additionally, the average income generated from capital gains was $44,861, the eighth-highest amount of any metropolitan area in our study.

8. Cape Coral-Fort Myers, FL

Cape Coral-Fort Myers is the third Florida metropolitan area in our top 10 and takes the No. 8 spot overall. It ranks sixth, fourth and fourth for the metrics of percentages of returns reporting income from taxable interest, ordinary dividends and qualified dividends, respectively. Its amounts for average taxable interest, average ordinary dividends and average qualified dividends - $3,540, $16,293 and $14,068, respectively - also all rank within the top 10 of the study overall.

9. Boston-Cambridge-Newton, MA-NH

Part of both Massachusetts and New Hampshire, the Boston-Cambridge-Newton metro area comes in ninth on our list and ranks in the top 20 of all metro areas we studied for percentage of returns with each type of investment. Specifically, 37.36%, 25.50%, 24.00% and 21.88% of returns reported income from taxable interest, ordinary dividends, qualified dividends and capital gains, respectively. Almost 15% of all 2016 reported income in the Boston-Cambridge-Newton, Massachusetts-New Hampshire area constituted income earned from investments.

10. San Jose-Sunnyvale-Santa Clara, CA

The second of two California places on our list, San Jose-Sunnyvale-Santa Clara stands out in terms of the average income generated from capital gains. In 2016, the average income from capital gains for residents who reported income from that investment type was $89,118, the highest of any metropolitan area we considered. This metro area also ranked within the top 11% of all 200 places in our study for the average income amounts for each of the other three investment types we considered.

To find the metro areas where residents earned the most from their investments, we looked at data for 200 of the largest metro areas in the U.S. by population. Specifically, we compared them across the following four investment types: taxable interest, ordinary dividends, qualified dividends and capital gains. In each of these investment types, we compared data for three metrics: number of returns with the investment type as a percentage of all tax returns reporting income, the average income for tax returns reporting each type of income and the total amount of income earned from each type of investment as a percentage of all income earned in the metro area. Data for all metrics comes from the IRS and is for 2016.

We then found each metro area’s ranking in each of the metrics. Next, we found the average ranking for each metro and gave equal weight to each metric. We assigned a score based on this average ranking. The metro with the best average ranking received a 100, while the metro area with the worst average ranking received a 0.

Tips for Maximizing your Investments

• Invest early. A great way to get the most out of your investments is by planning. By planning and saving early, you can take advantage of compound interest.
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Questions about our study? Contact us at press@smartasset.com