How Ultra High Net Worth Individuals Invest Their Money
With over $30 million in liquid assets, Ultra-High Net Worth individuals (UHNWI) tend to invest their enormous wealth globally and across various asset classes to preserve their financial standing, even in a downturn or bear market. With much more to lose than the standard, or even HNW investor, this diversification on multiple fronts is critical to maximizing performance and managing risk.
If you have reached UHNW investor status and want to learn from those who have successfully grown and protected their wealth, take note of the investment strategies we’ve seen from clients with this kind of uncommonly valuable portfolio at Weber Global Management.
Ultra-High Net Worth Investing: the Basics of UHNW Investing
The principles behind the investment strategies of UHNW individuals and families are similar to strategies used by the standard investor, but with so much more at stake, spreading their investments out internationally and in less standard asset classes offers the high-level financial security UHNW investors need.
The foundation of smart UHNW investing is portfolio diversification. While smaller investors may stick with only a few asset classes, UHNW individuals utilize a wide range of potential investment opportunities that may include equities/stocks, real estate, collectible art, businesses, commodities, and precious metals. UHNW investors also think and invest globally, an advantage often afforded to them by their wealth management team.
When UHNW individuals invest in startups, they’re more likely to make multiple venture capital or private market investments in companies across various industries as an additional diversification method to increase their likelihood of turning a profit.
How Do Ultra-High Net Worth People Invest Their Money? Fully Explained
While asset allocation changes over time, we can see just how Ultra-High Net Worth investors (UHNWI) are investing in each class of assets right now with data from the Wealth Report 2020 Attitude Survey by Knight Frank.
Most UHNWI don’t leave their money to sit around in mutual funds, CDs, or money market accounts. They expect their money to make money, so they allocate it where they believe it will be the most profitable.
At the end of 2019, the largest allocation of assets was in investment property, with 27% of funds going toward it. Stocks are a close second at 23%. Bonds and fixed income make up 17% of assets while cash and other currencies make up 11%. This doesn’t include cryptocurrencies, which made an appearance with 1% of asset allocation.
Finally, private equity makes up 8% of assets while collectibles make up 5% and precious metals make up the final 3%.
The exact allocation will likely shift to reflect changing markets and attitudes over time, but the investing principles of UHNWI remain the same. They invest in ways that support the luxury lifestyle they’re accustomed to, including travel, collectibles, and charitable giving in addition to the asset classes previously mentioned.
Habits of the Rich to Maintain Wealth
On top of these investment strategies, UHNWI rely on various financial habits to preserve the wealth they’ve built. Here are five habits the rich incorporate into their financial lives:
- They develop passive income streams. They don’t want to work for their money, they want their money to work for them, so they find other ways to earn passively, such as rental properties.
- They live within their means and budget. UHNW individuals tend to use a budgeting plan to know exactly where their money is going and live within their means while enjoying the luxuries that fit into the budget.
- They get guidance from the best. The rich don’t try to reinvent the wheel or assume they know best. They bring their wealth to experienced firms like Weber Global Management to take advantage of our specialized knowledge managing UHNW portfolios and financial acumen.
- They make the most of tax deductions. The wealthy try to minimize taxes through plans and programs that have multiple benefits, like charitable giving and gifting.
- They start estate planning early. Because their estates are so exceptionally valuable, UHNW investors seek wealth managers early on that specialize in their class of wealth and can provide the resources they need to protect their estate.
Most Common Mistakes Made by UHNW Investors
UHNWI face a unique set of opportunities and challenges compared to the average investor, making it critical for UHNWI to work closely with a vetted wealth management team. When left to their own devices, these investors often make the following mistakes:
1. Following the crowd
It can be easy for UHNWI to think that following in their wealthiest peers’ investment footsteps will put them on a similar path to success. However, they don’t always know the details of their financial picture and may be missing the nuances of their strategies. While exhaustively researching and analyzing investments is an intimidating task, it’s critical to have a rational, reasoned approach to an UHNW investment strategy that doesn’t hinge on emotion or what other investors are doing. It’s also not a job an UHNW investor should feel obligated to do themselves and, instead, a reason to work with an experienced UHNW wealth management firm that can create a watertight financial strategy for this exclusive group of investors.
2. Thinking you can do it better
UHNWI tend to be highly accomplished, intelligent, and influential people and should be proud of the extraordinary wealth they’ve accrued. However, this can make it difficult for them to entrust the management of their wealth and financial decision-making to someone else. Weber Global Management founders Chris Weber and Briton Hill have spent their entire careers exhaustively researching and analyzing the markets, accumulating massive wealth for their clients in the process. For wealthy and accomplished professionals, putting all of their assets into their reasoned and rational hands can bring the reassurance that their wealth will continue to accrue and be preserved for generations to come.
3. Assuming markets are rational
Markets will always be irrational because they’re driven by irrational people. UHNW individuals should never think otherwise. False confidence in the markets can lead to poor investment decisions. A UHNW wealth manager understands the inherent volatility of the markets and can provide a reasoned approach to an inconsistent market that factors in the required resilience to handle downturns and even black swan events.
In addition to these three primary mistakes, UHNWI also tend to ignore tax planning and be unrealistic about their income, especially in years where earning potential narrows. All of these oversights can be avoided with a financial strategy designed by an Ultra-High Net Worth wealth manager.
Additional Resources for Ultra High Net Worth Investing
In addition to a seasoned wealth management firm, there are additional resources available to UHNWI to manage your financials. A family office, for example, can help balance external and internal advisors while keeping you out of matters that aren’t of high importance. While it’s not a necessity for everyone, it can have compelling benefits.
If you’re an investor in the UHNW classification, you’ve accomplished an incredible amount in your lifetime. In entrusting a UHNW wealth management team as an extension of your legal and accounting professionals, you’ll gain an experienced voice in the room to help guide you and to ensure your wealth and legacy remain intact. At Weber Global Management, we are honored to serve as trusted experts and advisors to UHNW investors and their families. We’ll create a global, diversified portfolio with your goals in mind, designed to weather market volatility, ward off potential threats, and preserve your wealth for many lifetimes. If you’re ready to work with a true partner and fiduciary that specializes in the reasoned guidance and services UHNW investors need, reach out to us.