Asset Allocation for the Wealthy
I don’t always recognize good investment opportunities when I see them. But I do know that we should never invest in funerals… because it’s a dying industry. But when I run out of investment ideas I usually turn to the wealthy.
I think it’s extremely important to follow what rich people do. It gives us insight about financial opportunities that we should be aware of. People with extremely high net worths tend to have either a natural knack for managing money, or are at least smart enough to hire the best advisors to invest on their behalf. Of course wealthy people don’t make the best investment decisions all the time, but their historical performance is consistently higher than the average Joe, which is how the rich continues to stay rich. 🙂
One way to track the “smart money” is to follow the quarterly member surveys from Tiger 21, an exclusive network of high net worth investors. To get into this private club all you need is to have a minimum net worth of $10 million. Easy right? 😛 This confidential and anonymous survey asks members about where they have their net worths allocated.
Almost all participants are either self made investors or entrepreneurs with a good eye for business trends. With hundreds of members spread across North America, the results of the survey should represent a fairly accurate cross section of investment opinions from some of the most sophisticated millionaires and billionaires in the world. So what have the wealthy been doing during the last year? For the most part they have decreased their exposure to real estate and increased investments in private businesses. 🙂
Below we can compare the Tiger 21 survey results from the first quarter of last year with the same quarter this year.
Q1 2015 – Member’s Asset Allocation
- Real estate – 29%
- Cash – 10%
- Fixed income – 11%
- Hedge fund – 7%
- Public equities – 23%
- Private equities – 18%
- Other – 2%
Q1 2016 – Member’s Asset Allocation
- Real estate – 25%
- Cash – 10%
- Fixed income – 11%
- Hedge fund – 8%
- Public equities – 22%
- Private equities – 23%
- Other – 1%
As we can see, allocation to real estate has declined from 29% to 25% of holdings. However, it still remains above the historical low of 19% back in 2009. Allocation of public equities, which is basically the stock market, also declined by 1% even though North American stock indices are higher now than last year. This indicates that rich people have collected some profits by taking money out of both the stock market and the real estate market. Then they put most of those proceeds into private businesses.
Not only have these high networth individuals shown us promising places to put money, but through omission they’ve also identified where they think the risks are. By following their lead we can gain useful insight about new opportunities in asset classes that we could then add to our own portfolios. 😀
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Random Useless Fact:
“I think it’s extremely important to follow what rich people do…By following their lead…”
Dead wrong.
I’ve been tracking T21 for the last 10 years or so, merely out of interest, as it’s a unique group (with the intentions of members has changed during the latter years).
However, their investment goals are much different than the average persons, therefore the average investor must have much different allocations. Not only that, but the members of Tiger have access to all kinds of deals that are not available to the average retail investor, thus rendering their allocations moot for almost all of us.
The amateur PF blog gets it wrong, once again. Think before you write, think after you read.
Haha. There I go again, comparing apples to oranges. Yes, it should be noted that rich people and average retail investors should have different goals and ways to get there. 🙂
Are you a tiger?
Not yet. I still need to make $9.5 million to become a tiger. But I like to think of myself as a cub in training for now. *rawr*
It’s interesting that the rich are staying away from the stock market, relatively speaking, given the recent melt up. I think that’s a warning sign.
“The rich” are NOT staying away from the stock market.
Tiger21 members have a particular mindset which dictates their allocations; they have always had a low allocation to public equities. The rich, in general, still own a great deal of the stock market.
Someone smarter than me once said, “most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” 🙂
Follow the herd… If you want to be wealthy, know what your time is worth, live on less than you have coming in and always stay atune to where others are spending their money, not necessarily investing their money. If you follow cash flow and understand your own, wealth will become you 😉 Extra data is always interesting, but where rich people are putting their money… well have a look where they were putting it in 1921, 1932, 1949, 1982, maybe 1999 and 2007… Being rich does not make you immune to herd mentality that makes and breaks the bank – Cheers
Good point. I should find out where rich people held their assets during those years you mentioned, and determine if there’s any pattern. 🙂
More millionaires were created during the Great Depression than any other time in American history (yes, even more than during the Dotcom Bubble). Some, like Joe Kennedy, were astute enough to short the markets and make mad money. But the stock market was just a small piece of the puzzle, really. The rest of the soon-to-be millionaires all did one simple thing: buy depressed assets. With tens of thousands of businesses (both large and small) shutting down, they sold for pennies on the dollar to those with foresight and patience. It was not just businesses, though, real estate, production assets, etc. were all snatched up at rock bottom prices.
A further quantifier for Tiger21 asset allocation would be ‘low prices’ (you don’t become wealthy by over-paying).
Paraphrasing Buffett, “I’d rather buy a good company at a great price than a great company at a good price.”