Cash in the bank or invest? Look to the 1% for inspiration
The phrase “the rich just keep getting richer” wasn’t coined as a result of over-generous tax breaks, courtesy of global governments keen to keep their country as attractive as possible for the super-wealthy. It is actually the investment trends and decisions made by the exclusive “1%” that is the main contributor to their growth in wealth.
According to a report by the Congressional Budget Office (CBO), the top-earning 1% in the US have seen their wealth grow by 275% in the last 30 years. Globally, the figure is likely to be far more substantial, with entrants from the Middle East, Russia, China and India all seeing their wealth continue to grow.
The reason for the increasing gap
There are a number of reasons for this level of increase, with one of the key aspects being that the super-wealthy hold very little in cash. When personal wealth is calculated, for example in the numerous Forbes rich lists, it is predominantly assets that make up the overall level of wealth. For UNHWI’s, money in the bank is seen as stagnant and of little use. They like to see their money work for them.
It helps that historically those in the 1% bracket have always had a plethora of special investment opportunities afforded to them because of the accredited investor status they hold. These are exclusive funds created for the super-wealthy that normal investors don’t have access to.
But the tide is changing, and a number of investment opportunities are now being made available to the mainstream, meaning that the trends which have helped the rich get richer, can be replicated by everyone.
New “1%”-style strategies have emerged to become increasingly popular in finance, with replicate hedge funds and exchange-traded funds being snapped up to help the 99% invest in the same manner as the wealthy.
The key for UNHWI’s is that they have a level of diversity not often considered by the average investor. The habitual tendency is for an average investor to invest in a specific company or assets – Facebook and Apple are prime examples. But this leads to concentration risks and exposure to the potential for huge losses if something doesn’t go quite right.
UNHWI’s prefer to invest in diverse assets and stocks to essentially secure their wealth, rather than the common approach, which is effectively to “get rich quick”. It’s a different mentality, but one that is proving extremely beneficial to investors with varying levels of wealth and experience.
While having enough cash to meet costs is obviously a prerequisite, the preferred route is now to place the majority of available funds in quick-release investment funds, which cater for those that may need access to money in the case of exceptional or emergency circumstances.
The finance industry has made great strides in trying to make products and solutions available to every client, not just the wealthy, and as a result, the wealth gap may not necessarily be bridged anytime soon, but the widening should naturally slow down.
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