The ultra wealthy, known as Ultra High Net Worth Individuals (UHNWIs), are wealth holders with a personal net worth of at least one hundred million pounds. Their wealth consists of public and private company shares, real estate investments, and personal investments, such as fine art and jewelry, cars and designer clothing.
These individuals understand the basics of having their money work for them, but have also developed a complex understanding of how to take calculated risks. UHNWIs aren\’t mystics, and they don\’t harbor deep investing secrets. Instead, I believe their success comes largely from knowing what mistakes to avoid. Although many of these mistakes are common knowledge, most regular investors fail to avoid these mistakes, burning through their capital and consequently failing to join the ranks of the UHNWIs.
1. Deciding to Invest Only in the UK, EU and US
While developed countries such as the United Kingdon and those within the European Union are thought to offer the most investment security, this isn\’t necessarily the case. With the recent political turmoil in the EU and US, UHNWIs have looked beyond these countries when making investments.
While many investors would rather stick to investing in the developed countries of the West, UHNWIs have set their sites on frontier and emerging markets. Some of the top countries that the ultra-wealthy are investing in include Brazil, Indonesia and Singapore.
2. Choosing to Invest Only in Intangible Assets
When people think of investing and investing strategies, stocks and bonds usually come to mind. Whether this is due to higher liquidity, or a smaller price for entry, these investments aren\’t necessarily the best available to an investor.
UHNWIs understand the value of physical assets, and they allocate their money accordingly. Ultra-wealthy individuals invest in assets such as private and commercial real estate, land, gold and even artwork. Real estate continues to be a popular asset class in their portfolios to balance the volatility of stocks. While it\’s important to invest in these physical assets, they often scare away smaller investors because of the lack of liquidity and the higher investment price point.
According to the ultra-wealthy, ownership in illiquid assets, especially those that uncorrelated to share markets, is beneficial to any investment portfolio. These assets are less susceptible to wild price swings and can generate fantastic returns over the long-term.
3. Allocating 100% of Investments to the Public Markets
UHNWIs understand that real wealth is generated in the private markets rather than the public or common markets. The ultra-wealthy often gain initial wealth from private businesses, often through direct business ownership, or as an angel investor in private equity..
4. Keeping up With the Joneses
Smaller investors often benchmark themselves against their peers, but not getting caught up in this type of competition is critical to building personal wealth.
The ultra-wealthy know this, and they establish personal investment goals and long-term investment strategies prior to making investment decisions. UHNWIs envision where they want to be in five, ten or twenty years and then work towards those goals.
The ultra-wealthy are also great at staving off the desire to purchase flashy new goods and services just because their neighbors are. Instead, they re-invest the money they have to compound their investment returns. Then, when they\’ve reached their desired level of wealth, they can cash out and buy the toys they want.
5. Omitting a Savings Strategy From a Financial Plan
Investing is the number-one way to become ultra-wealthy, but many people forget about the importance of a savings strategy. UHNWIs, on the other hand, understand that a financial plan is a dual strategy: save wisely and then invest wisely.
This way, the ultra-wealthy focus on increasing their cashflow as well as reducing their cash outflows, increasing their overall wealth. While it might not be common to think of the ultra-wealthy as savers, UHNWIs know that living below their means enables them to achieve their desired level of wealth in a shorter amount of time.