Inside The Minds Of The World's Wealthy

Published in Investing on 25 June 2010

How the world’s wealthy are allocating their assets.

I'm a firm believer in keeping an eye on what the world's wealthiest investors are doing with their money. Not all their strategies will be suitable for a small investor like me, of course. But some will -- and I certainly want to know if anything that I'm doing, or proposing to do, runs counter to the thinking of some of the planet's savviest savers and investors.

That said, let's clarify just who I'm talking about when I say the world's wealthy. Am I interested in the views of a wealthy footballer, rock star, or TV celebrity?

Well, I might be -- once they've built up a record over a quarter century or so of managing that money themselves. But otherwise, I'm frankly not in the least interested in their views.

Why? Because, in short, the money that they've got didn't come to them because of their investment prowess, but because of their ability to kick a ball, sing a song, or smile sweetly into a television camera.

But individuals who have built up wealth over a period of several decades are a different matter. Likewise family dynasties, that have managed to safeguard and build their collective wealth over several generations. Oh yes, indeed: I'm very, very interested in what they have to say!

High net worth

And, once again, they've been saying it to the people who compile the annual Merrill Lynch-Capgemini 'World Wealth Report', on which -- in various forms -- the two firms have collaborated for over 20 years.

Some of the messages in the 2010 report are familiar ones. As we've heard before, for instance, the world's wealthy are taking a more 'hands on' approach to wealth preservation and accumulation.

The world's wealthy are growing in number, too: according to the definition used by the survey ($1 million plus of investable assets), the number of high net worth individuals (HNWIs) grew 17% during 2009, as portfolios rebounded from the crash of 2008.

And for the first time ever, there were as many HNWIs in Asia-Pacific as there were in Europe. In Hong Kong, China, India and elsewhere, stellar stock market gains and strong GDP growth have seen people accumulate -- at least on paper -- significant amounts of wealth. China, for instance, is the world's fourth largest home to HNWIs, with 477,000 of them, up 31.0% on the year.

Asset allocation

But frankly, such statistics are of only passing interest. What I'm keener on finding out is what the world's wealthy are thinking, and doing.

And here, there are some interesting nuggets:

  • While equity holdings have risen, fixed-income investments -- bonds, gilts and preference shares -- have increased proportionately more. In short, investors are favouring stable and predictable cash flows over possible capital gains. Overall, equity holdings were 29% of wealthy investors' portfolios, while fixed-income holdings totalled 31% -- making fixed-income investments that largest single asset class.
  • Wealthy investors are holding less cash than in the crisis, but cash still accounts for 17% of overall wealth.
  • The 'home region' asset repatriation seen during the credit crunch has reversed. The world's wealthy are once again venturing overseas in search of value -- and venturing to emerging markets and Asia‑Pacific in particular, as investments flowed to regions and markets expected to have the most growth in the coming years. European and UK investors, it turns out, typically have 59% of their wealth invested in their 'home region'.
  • The proportion of wealth invested in property -- domestic real estate, commercial property and REITs -- remained roughly constant, although there were regional variations. Overall, wealthy investors have 18% of their wealth tied-up in some form of property investment.
  • Although the amount invested in 'alternative investments' remained constant at 6% of the overall portfolio, the proportion invested in hedge funds increased.

The bottom line

As usual, all of this leaves me with mixed feelings. I've zero interest in joining the buy-to-let brigade -- especially at current property prices -- but in having only my home as my stake in the property market, I'm markedly at variance with the world's wealthy.

And again, as I've written before, I'm drawn to conclude that I should consider shifting more of my holdings into fixed-interest investments. If it's good enough for the world's wealthy, then it's surely good enough for me? Particularly as recent changes make it even easier for individuals to buy and hold bonds.

But what about you? Does your portfolio match the holdings of the world's wealthy? And if not, are you happy with that state of affairs? Comments in the box below, please!

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

F958B 25 Jun 2010 , 7:12pm

My portfolio has a reputation for being very different to most. But, as they say; if you do the same as everyone else, you'll get the same results as everyone else. It is also said that the majority opinion is usually wrong. As for whether that applies to the super-rich???

I'm very happy with my holdings and I have no plans to change anything for at least a couple of years (although the best laid plans must be flexible and prepared to change according to developments).

I have a respectable-sized portfolio, with no asset class out of reach (such as BTL being too expensive for a small investor) so I am free to invest anywhere.

As of today's closing prices, I'm holding roughly:

Cash: 3%
Gold bullion: 34%
Other precious/bullion: 9%
AZN 6%
GSK 7%
IMT 8%
NG. 8%
NWG 3%
SSE 8%
SVT 3%
UU. 3%
VOD 8%

.

Terrapin1 27 Jun 2010 , 11:02am

The wealthy have taken a bigger hit than anyone else as the advice they are given by their so-called experts is usually rubbish!

crinnis 28 Jun 2010 , 2:18pm

I am concerned about another run on the banks (commercial real estate sub prime equivalent?) and dont like to have too much cash as a result. In addition interest rates are making a real term loss for me big time after tax!). I have a wide range of shares and funds and dont want to invest more at this time. So I've joined the buy to let "brigade" as you call it. The prices are low at the moment and by buying quality rather than quantity I hope it will turn out to be a good third leg to the stool.

NigelTMF 30 Jun 2010 , 9:26am

You say...

I'm a firm believer in keeping an eye on what the world's wealthiest investors are doing with their money. Not all their strategies will be suitable for a small investor like me, of course. But some will -- and I certainly want to know if anything that I'm doing, or proposing to do, runs counter to the thinking of some of the planet's savviest savers and investors."

Why?

Have confidence in your own ability and acumen and forget about what others may or may not be doing - make up your own mind and dont follow the crowd.

Nigel

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