5 Investing Blunders That Ultra Wealthy People Avoid
Ultra-wealthy people (individuals with a minimum of $30 million in net worth) have most of their assets spread over a diverse portfolio, including shares in public and private companies, personal investments, and real estate investments. These are the UHNWIs, or ultra-high-net-worth individuals.
Many people believe that to become ultra-wealthy, all it takes is a couple of secret investment strategies. But the truth is that most ultra-wealthy investors don’t have any secrets or hidden tips that the general public isn’t aware of; instead, they have a basic set of rules that they follow, and they know all the mistakes to avoid. For example:
1) Investing Everything in Public Markets
While it may be tempting to allocated all of your investment funds in the public markets, UHNWIs never undervalue the importance of private markets. True wealth can be found in private markets, and they make their investments either through direct ownership of private businesses or by acting as angel investors and securing equity.
2) Sticking to Intangible Assets When Investing
The first thing that most people think of when they start their investment careers is which are the best bonds and stocks to secure as investments. But putting your money in these investments isn’t always the best idea.
UHNWIs care about physical assets—land, gold, artwork, and private and commercial real estate. Stocks are too volatile for UHNWIs, who are always thinking about the long-term; smaller investors avoid physical assets because they don’t have the required liquidity for a reasonable investment. But any investment portfolio can be tripled in value immediately by including illiquid assets that aren’t directly tied to the market. They keep you safe from dangerous market swings and the ups and downs of the stock market.
3) Investing Only in the EU and the US
Most people only look towards US and EU companies and stocks when searching for their next investment opportunity, but UHNWIs know that there are so many opportunities to be had around the rest of the world. Singapore, Chile, and Indonesia are just a few of the popular investment destinations for UHNWIs looking for the next best thing.
They can afford to sink the investment in riskier assets such as these, which promise returns that are several times more valuable than companies in developed nations.
4) Not Rebalancing a Portfolio
Not every investor can be expected to have complete financial literacy, but if there is one financial caveat that should be fully understood, it’s the act of rebalancing a portfolio. As your investments rise and fall, it’s important to regularly reevaluate your portfolio and see if your funds are still adequately allocated and diversified. Never let a single asset get too heavy, or else you wind up becoming too reliant on that asset for your portfolio’s growth. Most investors fail to rebalance their portfolio after periods of growth, in the hopes that they can continue to experience gains.
UHNWIs understand the concepts of trading 101 when it comes to rebalancing. On a regular basis—weekly or monthly—UHNWIs step back and view the strengths and weaknesses of their portfolio, and rebalance accordingly.
5) Not Thinking About a Savings Strategy
In most cases, amateur investors get into the game because they want a quick way to get rich. As soon as they start seeing their portfolios grow in value, their next steps are made out of the desire to continue exponentially growing their investments. However, the difference between most investors and UHNWIs is the savings strategy: UHNWIs always prepare their savings strategy, no matter how successful their assets are doing.
This leads to increasing cash inflows while cutting back cash outflows, leading to a net gain in overall wealth. While we wouldn’t think of UHNWIs as frugal people, most of them actually live below their means—money comes first, after all.