Robert Powell wrote last week in his MarketWatch column how the average investor could emulate the investment habits of the rich. He reported that according to the Capgemini and Merrill Lynch Global Wealth Management 2010 World Wealth Report high net worth individuals had, on average, 29% of their assets in stocks in 2009, 31% in bonds and 17% in cash. They also kept 18% in real estate and 6% in alternative investments such as commodities and venture capital. (If you’re adding the numbers as I am that comes to 101% which may explain why the rich are richer than you and I).
Powell goes on to report that the rich are not risk takers with their money. In 2011 they are expected to invest 35% into stocks, 31% into bonds, 13% in cash, 14% in real estate and 8% in alternative investments. (Which still adds up to 101%).
The uber-wealthy, according to Powell, are more likely to invest a greater percentage of their assets into illiquid investments. Wealthy investors, the report goes on, are allocating more funds to their home regions. Assuming worldwide markets it is currently 45% domestic and 55% international- give or take a point or two.
The wealthy investor is diversified but owns a great amount of less risky more liquid short term assets – namely cash. The riskier assets are earmarked for long-term growth and are illiquid.
Powell’s states that many investments the rich own can be purchased by the average investor through mutual funds and Exchange Traded Funds. Commodities, hedge funds and exotics such as currency all can be bought with these new liquid funds. The average investor can also short the market or sector and also buy options on individual stocks or exchange traded funds.
Outside of access to high minimum hedge funds or specifically designed partnerships most products that are available to the rich are also available in some form or other to the rest of us.
The average investor can also learn some of the basics of the very rich and these come from Warren Buffett probably the most successful investor:
- Be Frugal
- Resist the urge to buy and sell
- Be a contrarian – don’t follow the crowd
- Buy companies cheap
- Stick with what you know
Still even the venerated Warren Buffett was caught in the economic downdraft which only proves no one is immune to sudden global catastrophes. The important lesson there was not to panic and sell but to hold and if possible add stocks as they became attractive.
If you have questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
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