Habits of the super-rich
Published: March 2 2007 13:31 | Last updated: March 2 2007 20:01
There are myriad strategies for making money. Mainstream investors keep their eye on valuation measures and the earnings outlook. Others look for patterns in the peaks and troughs of charts. Some mavericks have even been known to time trades around the months when oysters are in season.
Surely, however, the simplest way is to imitate those who have already been there and done it: the super-rich. They have had a rip-roaring time of it in recent years. The number of households in the US with assets of more than $5m – excluding their main residence – jumped by 26 per cent in 2005 to a record 933,000. Their ranks certainly swelled again last year.
What is their secret? The answer appears to be surprisingly mundane: saving pennies and diversifying exposure. A recent survey in the US by Spectrem Group, a consultancy that keeps tabs on the super-rich, found that they held almost nine-tenths of their investable assets in such things as cash, equities, bonds, managed accounts and retirement plans. On average, this group saves almost a quarter of its gross income.
Risk aversion makes some sense for the super-rich: if you are sitting pretty, why gamble? If anything, though, the rich are becoming even more careful. Some 43 per cent of those surveyed said they preferred a guaranteed rate of return on their investments, up from 29 per cent in 2003. The proportion of investable assets in alternative investments such as hedge funds has dropped steadily since 2003, from 9 per cent to just 5 per cent.
Hedge fund managers perhaps need not fear that statistic too much – institutions are their main clients these days. Still, lacklustre performance has clearly exacted a toll. In addition, almost three-quarters of survey respondents identified hedge funds as high-risk. In spite of its sales pitch of uncorrelated, low-volatility returns, the industry has some work to do to convince these clients.
Copyright The Financial Times Limited 2007
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