How Ultra High Net Worth Individuals Invest (and You Can Too)
Fine Art and Ferraris are not the only assets Ultra High Net Worth (UHNW) Investors seek out. In fact, a recent joint study by Deloitte and Credit Suisse, found the average UHNW Investor ($30M+) chose to diversify their investment holdings across numerous asset classes. The study found that ultra high net worth investors include collectibles, real estate, gold, among other alternative assets in their portfolio; let’s take a look at these investments and how you can invest in the same way!
This topic begs the initial question; how much exactly is ultra high net worth? Although different sources move the dollar mark around, the consensus is typically any person or couple that has a net worth around $30M-$50M, or more.
Regardless of the definition, we know that these individuals have the means to invest in pretty much any way they choose and most often work with multiple advisors or a family office that provides numerous advisors for them to work with regarding their investments. I say all that to say, these folks have a lot of money and a lot of resources at their disposal, but that doesn’t mean that the average retail investor can’t utilize the same strategies that these individuals and families employ.
What does an Ultra High Net Worth Portfolio Look Like?
Recent happenings in the stock market have brought to light some potential manipulation and other scandals that make the average investor wonder where to invest their money. It turns out that Ultra High Net Worth Individuals have been diversifying their portfolios with alternative assets for years, although this may be a new concept to many average investors.
The in depth study that Deloitte put together goes into detail regarding ultra high net worth investors and how they diversify their portfolio across many asset classes. Although the study focused on the collectibles market, you can see by the pie chart below that they hold much more than that. Their average asset allocation looks something like this; 23% Equities, 27% Investment Properties, 17% Bonds, 11% Cash, 8% Private Equity, 5% Collectibles, 3% Precious Metals, and 6% Other. You can easily see that these successful investors have nowhere near the amount of exposure the average investor has to the stock market.
How You Can Diversify Your Portfolio
When it comes to diversifying your portfolio with alternative investments, like the average ultra high net worth portfolio, you have many options available to you that you might not be aware of. For example, aside from investing in real estate, you have the option to invest in farmland for wealth preservation as well as investment income. Investing in gold and other precious metals has become easier over the years as well, with options to do so through physical assets or physical backed investment funds. You can even place the aforementioned physical assets (Real Estate, Farmland, & Gold) within your retirement account when positioned properly.
The only asset class you may have trouble investing in as an average investor is in the private equity space. In order to invest in private equity, you need to be an accredited investor, which means your income regularly exceeds $200,000 annually (or $300,000 for couples) and your net worth exceeds $1,000,000. If you meet this criteria, the private equity market can yield great returns. If you don’t meet this criteria, there are other alternatives you can consider. For example, you could consider investing in publicly traded small cap sized companies that have opportunity for future growth and income if you do your research and/or work with a qualified advisor (much like you would if investing in private equity). You could also consider investing in a small business that you have a relationship with by using a purchase agreement drafted for a certain number of shares as well as other terms. This again can be held within a self directed retirement account if positioned correctly.
Studies like this coupled with the diversification needs of average investors lead us to create our alternative strategies. Much like Frank Lloyd Wright balancing design and nature in his architecture, we believe a blend of traditional and alternative investment strategies builds a foundation that can weather most any economic storm. Reach out today to learn more!