Just imagine for a moment you are worth more than $30 million.
If you were worth $30 million you would be classed as an Ultra High Net Worth Individual (UHNWI). Oh what fun it would be!
But what would you do with your $30 million? Whilst living in Scotland I had the good fortune to mix with a group of very well-off and influential people, including directors of banks, landowners and the owner of one of the largest castles in Scotland. I had a genuine interest in what they did and how they did it. I didn’t try to compete with them, I was just me. They kindly indulged my interest and over 11 years I became good friends with some of them.
A survey of over 500 wealth managers who manage a combined $2.5 trillion of assets for UHNWIs allows us to take a peek at what they do with it. My experience with the wealthy friends I had in Scotland gives some insight into the results of this survey. I can say that the results resonate with the knowledge I gained.
Some things may be predictable and some will be surprising. The question is why are some things predictable and others surprising? Let’s explore.
Castles have a cachet. Yet the news is that castles can make you asset rich but very cash poor. The cost of maintenance, the insurance to cover the right to roam, requirements imposed on the upkeep by Historic Scotland etc, can be financially crippling. Generally, UHNWIs don’t buy castles – more often they are inherited. So surprisingly to the general population, buying a castle is not high on the buying list of the UHNWIs.
Property is usually a big part of their wealth. Typically around 32% of UHNWI wealth is in their main residence and second residences. However, the criteria for buying often includes an assessment of whether the purchase will bring with it an introduction to successful and potentially helpful contacts. Will the neighbours, for example, include chief executives of important companies? Commercial property is also sometimes bought, directly or through investment funds, but the assessment on whether to buy is then based more on the income it can generate.
What is surprising is that a survey of wealth managers shows the UHNWIs invest just 18% of their money in shares and 12% in bonds (Government and Corporate).
Even more surprising perhaps is that gold only makes up 2% of their wealth. The James Bond film Goldfinger, whose villain’s life ambition was to acquire as much gold as possible, is just fiction after all.
Our modern equivalent of a gold rush is buying crypto-currency. It has made millions for a few investors/speculators. Others think they have millions, while holding the coins in their crypto wallet, but they have not. They have not made anything until they sell. Anyway, you might expect UHNWIs to be taking advantage of such a sure-fire money maker. They do not! Only 1% of their total wealth is in crypto assets.
So how and why do UHNWIs allocate their wealth as they do. Whilst they could afford to lose a bit without worrying too much, they are careful how they invest and they invest for the long term.
Here is the “secret” of UHNWI investing:
- Life is bigger than just the money. Money is the enabler, not the be all and end all. But as it is the enabler for the life they and their family lead, they take care of their money. They don’t just “have money”, they look after it.
- They diversify but not just for the sake of having eggs in different baskets. A different type of asset e.g. shares vs gold, has to provide a compelling reason for investment.
- Wealth is considered to be a family asset and the family often works together to grow the wealth (and yes, sometimes they fall out too).
- They may see an article in the paper which sparks their interest but nearly all investments are validated by people with specialist knowledge. The secret to success of UHNWIs is often in the group of people they know, or can be introduced to, who have access to high level information and who have insight into an industry, technology or indeed what needs to be avoided. (Could this be why they only invest 1% in crypto?)
- They act as chief executive of their wealth. They don’t buy and sell investments themselves except for their main residence, where they are often guided by their spouse. They set the strategy for their wealth as a whole, monitor performance and measure results.
- They employ professional advisers to do the day- to-day management for them.
- When employing professional advisers, they ask questions and review the data behind the recommendation. For example, last year’s stellar performance of an investment alone is not a basis for buying it!
So, we have had a peek at the wealth of the ultra-wealthy, now how do we emulate their investment success?
Here’s how to be successful at looking after your money by using the UHNWI framework:
- Life is bigger than just the money. Money is the enabler not the be all and end all. But as it is the enabler for the life they lead, they take care of their money. They don’t just “have money”, they look after it.
This is the same for us, but we should generally put more emphasis on looking after our money. As an example of the lack of care we take with the money we have, even though interest rates have risen to 14 year highs, there is still £258 Billion in bank accounts earning 0% in the UK.
- They diversify but not just for the sake of having eggs in different pots. A choice of asset e.g. shares vs gold has to provide a compelling reason for investment.
We should do the same
- Wealth is considered to be a family asset and the family often works together to grow the wealth.
This one is more complicated. It depends on your family circumstances.
- They may see something in the paper which sparks their interest but nearly all investments are validated by people with specialist knowledge about the industry or asset class. The secret to success of UHNWIs is often in the group of people they know, or can be introduced to, who have access to high level information and who have insight into an industry, or indeed what needs to be avoided.
This does not include some man or lady we met in a pub who has just bought this really great share in an amazing new technology. Or the person who has heard from a mate in the bookies that this horse is guaranteed to win. Nor should we react to an investment that pops up on our screen or even in a newspaper that says “Warren Buffet, Richard Branson, Sweden, the Pope etc have decided that crypto is the next big thing. Verify sources and their credibility.
- They act as chief executive of their wealth. They don’t buy and sell investments themselves except for their main residence where they are often guided by their spouse. They set the strategy for the wealth as a whole, monitor performance and measure against results against achieving their strategy.
This is a really effective way to manage your money.
- They employ professional advisers to do the day-to-day management for them.
This is very important. It gives you someone with experience to bounce ideas off, who can deal with the practical issues, who has the systems in place to make your investments, can monitor the choices made and give advice if improvements can be made.
- When employing professional advisers, they ask questions and review the data behind the recommendation. For example, last year’s stellar performance of an investment alone is not a basis for buying it!
Data is very important and you should have historical data as a guideline to making investment decisions. Use the data as a way of looking forward not backwards (recognising of course that historical returns don’t determine future performance). Company A increased its dividends by 20% last year versus a company that has increased its dividend every year for the last 50 years. Data like this helps you as chief executive to match investments to your strategy, which is what shapes our future.
Barry Davys MBA Dip PFS
For more on the UNHWI approach to investment, arrange a call with the author at a time that is convenient for you
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