Ultra-high-net-worth individuals (UHNWIs) are a group of people with a net worth of at least $30 million.
Shares in private and public companies, real estate, and personal investments like art, airplanes, and cars make up these people’s net worth.
When people with lower net worths look at these UHNWIs, many of them think that the key to becoming ultra wealthy is some secret investment strategy. But this doesn’t happen very often. Instead, UHNWIs know how to make their money work for them and how to take risks in a smart way.
Key Findings
- People with a lot of money usually know how important it is to save, how to invest, and how to take calculated risks.
- Having only investments from the U.S. and the EU in a portfolio is one way to miss out on opportunities in other places, like the emerging markets.
- UHNWIs don’t try to keep up with their neighbors or compare themselves to others. Instead, they focus on getting what they want out of life.
- When trying to get the right mix of stocks and bonds over time, portfolios need to be rebalanced from time to time.
UNHWPs often find good deals in private markets that investors who only look at public markets miss.
Warren Buffett said that the most important rule of investing is not to lose money. UHNWIs are not mystics, and they don’t know deep secrets about investing.
Instead, they know how to avoid making simple mistakes with their money. Many of these mistakes are well-known, even among investors who aren’t very rich. Here is a list of the biggest mistakes that UHNWIs try to avoid when they invest.
1. Only putting money into the U.S. and EU
Even though developed countries like the United States and those in the European Union are thought to be the safest places to invest, UHNWIs look to frontier and emerging markets outside of their own countries. Indonesia, Chile, and Singapore are some of the best places for very wealthy people to invest. Individual investors should, of course, learn more about emerging markets and decide if they fit into their portfolios and overall investment strategies.
2. Investing only in things you can’t touch
When most people think of investing and ways to invest, they think of stocks and bonds. Whether this is because they are more liquid or because they cost less to get into, it doesn’t mean that they are always the best investments.
Instead, they know how much their physical assets are worth and spend their money accordingly. People with a lot of money invest in things like private and business real estate, land, gold, and even art. Real estate is still a popular way for people to balance out the risk of stocks in their portfolios. Even though it’s important to invest in these physical assets, smaller investors often shy away from them because they’re hard to sell and cost more.
But the ultra-rich say that it’s good for any investment portfolio to own illiquid assets, especially ones that don’t move with the market. These assets don’t move around as much in the market, and they pay off in the long run. For example, Yale’s endowment fund uses a strategy that includes physical assets that are not related to each other. This strategy has given an average return of 10.9% per year from June 2010 to June 2020.
3. Investing all money in the public markets
UHNWIs know that private markets, not public or common markets, are where real wealth is made. A lot of the ultra-rich may have gotten their money in the beginning from private businesses. This is often done by owning a business or investing as an angel in private equity. Top endowments, like those at Yale and Stanford, also use private equity investments to get high returns and spread out their funds.
4. Trying to keep up with everyone else
Many smaller investors are always looking at what their peers are doing and trying to match or beat their investment strategies. But if you want to build your own wealth, it’s important not to get caught up in this kind of competition.
The very wealthy know this, so before they make any investment decisions, they set personal investment goals and long-term investment strategies. UHNWIs think about where they want to be in 10, 20, and more years. And they stick to a plan for investing that will help them get there. They don’t try to keep up with their competitors or worry about the inevitable economic downturn. Instead, they stay the course.
Also, people who are very rich are very good at not comparing their wealth to that of other people. This is a trap that many people who don’t have a lot of money fall into. Just because their neighbors bought a Lexus doesn’t make UHNWIs want to buy one too. Instead, they invest the money they have to get more money out of it. Then, when they have enough money to buy the toys they want, they can cash out and get their money.
5. Not rebalancing one’s own portfolio
America has a big problem with people not knowing how to handle their money, but everyone should know how to rebalance their portfolios. Investors can make sure their portfolios are well-balanced and well-diversified by rebalancing them regularly. But even if some investors have specific allocation goals, they often don’t keep up with rebalancing, letting their portfolios go too far in one direction or the other.
Depending on a person’s age and risk tolerance, a balanced portfolio usually has the right amount of cash, stocks, and bonds.
Rebalancing is a must for the very wealthy. They can do this rebalancing once a month, once a week, or even once a day, but all UHNWIs do it on a regular basis. Asset prices can be used to set rebalancing parameters with investment firms for people who don’t have the time to do it themselves or the money to pay someone else to do it.
6. Leaving out a plan for saving money from a financial plan
To become extremely wealthy, you need to invest, but many people forget how important it is to save. UHNWIs, on the other hand, know that a financial plan is both an investment strategy and a savings strategy.
Because of this, the ultra-rich can focus on both bringing in more cash and spending less, which increases their overall wealth. People don’t usually think of the ultra-rich as savers, but UHNWIs know that living below their means will help them get to their goal level of wealth faster.
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