The wealthy and well-connected have more money-making opportunities fall into their laps than the average punter. And, to be honest, it makes sense. They swan around with the people who build big businesses and dole out great investment opportunities.
However, while you may be sitting outside that circle of privilege, it doesn’t mean you can’t learn a few things from the upper echelon and maybe even grab onto their coattails for a ride.
One of the most common ways to get a leg up from the rich is by comparing their investment strategies against your own, to make sure you’re not in a completely different boat (or yacht).
This week’s 2015 Asia-Pacific Wealth Report, from consultants Capgemini and the Royal Bank of Canada, allows us to do just that, albeit retrospectively, revealing where Australian high net worth individuals (HNWs) have their money invested.
It’s no surprise that real estate is the favourite asset among the local elite, with the Australian dream making up just over 30 per cent of portfolios in the first quarter of 2015. This is well above the average of any other country in the Asia-Pacific region, and the rest of the world’s HNWs too.
Interestingly it’s equities – or shares – that make up the second largest portion of portfolios, which was one of the more surprising findings for Dipak Sahoo, Director of Financial Services at Capgemini Australia.
“Australians have a higher allocation in equities in spite of Australian equity markets having the lowest growth in last 3 years,” Sahoo says. “That said, the weaker Australian dollar might have prompted the decision to prefer equity over cash allocation.”
Perhaps to insure against any sharemarket dive, Australia’s wealthy still hold plenty of cash in reserve, with every fifth dollar they own stashed in the bank.
As to where they’re invested, the research shows Australia’s HNWs have around 70 per cent of their investments in local assets and 30 per cent invested internationally.
This broad spread of investments is a strategy to reduce the risk posed by a potential dive in any single market. This is called diversification, or spreading your risk, and is a proven investment strategy on any wicket.
So what can everyday investors learn from this research?
Sahoo says that everyday investors are impacted by the same macroeconomic trends as the HNWs and has three key messages that every investor should take from the research.
1. They should actively balance their assets based on the need they have around having to maintain the lifestyle after retirement.
2. Have a clear understanding of risk tolerance and investment philosophy reflecting their key priorities.
3. Appreciate the importance of using good professional advice in managing their investments.
“The strategy should be to constantly assess the performance and rebalance the portfolio,” Sahoo advises.