The ultra-wealthy, also known as ultra-high-net-worth individuals (UHNWIs), are a group of persons with at least $30 million in net worth.
These persons’ net worth is comprised of shares in private and public corporations, real estate, and personal investments including art, airplanes, and automobiles.
Many individuals with lower net worth feel that a secret investment plan is a key to becoming uber-wealthy after observing these UHNWIs. Typically, this is not the case. Instead, UHNWIs understand the fundamentals of putting their wealth to work and how to take measured risks.
According to Warren Buffett, the first rule of investing is to avoid losing money. UHNWIs are not mystics, nor do they hold esoteric investment secrets. Instead, they are aware of the most common investing mistakes to avoid. Even investors who are not exceptionally rich are aware of a number of these errors. Here is a list of the most common investing mistakes to avoid.
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1. Only Investing in the U.S. and the EU
While wealthy nations such as the United States and those inside the European Union are believed to offer the greatest investment security, UHNWIs go to the frontier and emerging economies for investment opportunities. Indonesia, Chile, and Singapore are among the top countries where ultra-wealthy individuals invest. Individual investors should investigate emerging markets and determine if they are suitable for their investment portfolios and overall investment objectives.
2. Investing Only in Intangible Assets
Typically, when people consider investing and investment plans, stocks, and bonds spring to mind. Whether this is because of greater liquidity or a lower cost of entry, it does not mean that these assets are necessarily the best.
Instead, UHNWIs recognize the worth of physical assets and distribute funds accordingly. Individuals with immense wealth invest in private and commercial real estate, land, gold, and even works of art. Real estate remains a prominent asset type in their portfolios as a hedge against stock market volatility. While it is crucial to invest in these physical assets, the lack of liquidity and greater investment price often discourage smaller investors.
However, according to the ultra-wealthy, illiquid assets, particularly those uncorrelated with the market, are advantageous for any investment portfolio. These investments are less sensitive to market fluctuations and have long-term returns. For instance, Yale’s endowment fund developed a strategy that includes uncorrelated physical assets, and it returned an average of 10.9% annually from June 2010 to June 2020.
3. Allocating 100% of Investments to the Public Markets
The UHNWIs are aware that genuine wealth is earned on private markets, not public or communal ones. The ultra-wealthy may obtain a significant portion of their early riches via private firms, either as business founders or angel investors in private equity. In addition, prestigious endowments, such as those at Yale and Stanford, utilize private equity investments to achieve high returns and diversify their money.
4. Keeping up With the Joneses
Many smaller investors are always comparing their investment techniques to those of their larger counterparts. However, avoiding this form of rivalry is essential for accumulating personal wealth.
Before making investment decisions, the ultra-wealthy create personal investment objectives and long-term investment strategies. The ultra-wealthy consider where they wish to be in 10 years, 20 years, and beyond. And they adhere to an investment strategy that will help them achieve their objectives. Instead of chasing the competition or being frightened of the impending economic slump, they maintain their current route.
In addition, the ultra-wealthy are adept at not comparing their fortune to that of others. This is a trap into which many poor people fall. UHNWIs resist the urge to buy a Lexus simply because their neighbors are purchasing one. Instead, they invest their available capital to increase their investment returns. Then, upon reaching their desired amount of money, they can cash out and purchase the desired toys.
5. Failing to Rebalance a Personal Portfolio
In the United States, financial literacy is a major issue, yet everyone should grasp the process of rebalancing their portfolios. Investors can ensure their portfolios are sufficiently diversified and proportionally allocated through periodic rebalancing. Even if some investors have stated allocation objectives, they frequently neglect to rebalance, leading their portfolios to swing too much in one direction.
6. Omitting a Savings Strategy From a Financial Plan
The key to getting extremely wealthy is investing, yet many people overlook the significance of a savings plan. On the other hand, UHNWIs recognize that a financial plan is a dual strategy: They invest and save properly.
Therefore, the ultra-wealthy can concentrate on growing their cash inflows and decreasing their cash withdrawals, thereby boosting their overall wealth. While it may not be customary to think of ultra-wealthy individuals as savers, UHNWIs understand that living below their means will help them to acquire their desired level of wealth in a shorter period of time.
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