Since it is my profession to advise wealthy individuals and companies about their investments, this question seems to me somewhat on the body.
I am trying to outline the broad outlines below, so rather the way, then enter into detail about the investments themselves.
What you need to understand first and foremost is that a greater capacity is not only fun, but also a few unique challenges.Both in terms of succession planning (who gets what?) as a lifestyle (if all your friends have a luxury car, it is sometimes difficult to arrive at any party with a dental Ford Focus), or even in the case of things that are more like where you go on holiday (try But once you have to park Bentley in Benidorm, so to speak).
Another set of problems is provided by the scale.Suppose you have a nice apartment in the city and you have some savings, say about €50,000 on the couch. That’s quite a bit of money, but you keep it as a reserve on the savings account. That is, you (due to current interest rates and inflation) you have about 1.5% to 2% loss of value per year. In Euro This means about €750 to €1000 per year. Not nice, but also not dramatic you would think (which is not true, but that’s a topic for another post). Now suppose you have the €1 million savings account? Then this means a loss of about 15,000 to 20,000 EUR per year! That’s quite a smak of money to lose by untrue thing. That’s why wealthy individuals or families and businesses are looking for solutions. Broadly, this means that they will spread their assets In the following ways;
- Dispersion in space (or rather, in type/kind of investments): Wealthy people will not only invest in movable goods (shares, gold, art, cars,…), but also in immovable property (real estate).
This creates a spread of the investment risk: if one type of investment is doing poorly, there will always be others who do better. 2018 was, for example, a bad scholarship year (for most home-garden and kitchen investors anyway), but a good year for oldtimers and art or whisky collectors.
Therefore, we rarely buy or never for a customer 1 position of €500,000 on the stock market, but we spread the investment over time. (How we do this is also a story for another time I fear).
In other words, wealthy people invest their money in a strategic way by spreading in time and subject.That is a very good basic rule that actually applies to everyone. Many people can start an investment plan for €50 per month, start up a retirement savings plan or rent out a garage box. It will be better for your assets, than to put everything into a savings account.
Thanks for the question and to the next!
Many wealthy people let the money manage by a bank that specializes in it.
The bank provides a fee for investing the money, against an agreed risk profile.This results in a certain expected bandwidth of return both in times of crisis and in times of economic growth.
In a moderate offensive investment profile, investments grow on average by around 8% per annum, which brings an acceptable risk + return for many.
Because the bank performs the investment without the customer’s intervention, you do not have to be constantly concerned with all the details that come with the purchase and sale of all sorts of shares, funds, options and bonds.This takes care of the bank itself.
If you want more return than you can invest in startups/scale ups through all sorts of mutual funds and private equity companies, the risk is significantly higher (and the return on success as well).
Many wealthy families have a personal asset manager who works in their own family office.These managers keep spending within limits and try to maintain the family capital as much as possible.
This apparently works nicely according to the research Global Family Office Report 2018 of the SWISS bank UBS.The family office asset managers achieved a yield of no less than 15.5% in 2017 (in 2016 it was 7% and in 2015 only 0.3%).
What does the asset manager do to make the capital grow?7% is available in the form of cash and is intended to live in luxury, 44% is invested in shares, 21% is investment in private companies, 17% is in stone and a relatively small amount is invested in hedge funds. Diversification of investments is therefore an important tool to reduce risks.
A trend is that the younger realms are increasingly investing from a social point of view.Also contributing to charities remain a popular destination for the money of wealthy people.