The mega rich don’t have magical investing powers, but there are some lessons we can learn from how the super wealthy invest that can improve our investment outcomes.
In this episode you’ll learn:
- How many billionaires are there.
- What are family offices?
- How do billionaires allocate their assets.
- How poorly have hedge funds performed.
- Attributes for how the super wealthy invest that we can apply to our own portfolios.
Show Notes
The number of billionaires – Forbes
The Ultra High Net Worth Investor: Coming of Age – KKR
Reputation of hedge funds is hacked back hard – Financial Times
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Episode Summary
A new listener of Money For the Rest of Us inspired the question for this episode: how do the mega rich invest? Forbes reports that there are 585 billionaires in the US and most of them utilize a family office/professional management structure. But do they have some magical, secret way of making more money than the general population? Do they become exponentially richer by allocating their money in certain ways? These questions and more are explored on this episode, and it’s one not to be missed.
What are the major differences in how the mega-rich invest?
While the mega-rich, also known as ultra-high net worth individuals, don’t have any secret ways of making exponentially more money than the rest of us, they do invest in different ways. The biggest difference in investment strategies falls within the area of alternative investments such as venture capital, private real estate, energy investments, hedge funds, etc. Ultra-high net worth individuals invest as much as 46% of their portfolios in these areas, which is significantly more than many other investors. The mega-rich also hold more cash, combatting the illiquidity of their alternative investment strategies. These strategies are available to all investors but are more easily accessible to people with more funds at their disposal.
Don’t be fooled, mega-rich investors DO make mistakes
Even though the mega-rich invest in slightly different ways than typical investors, they are liable to make the same mistakes as everyone else. Many ultra high net worth individuals have fallen under the allure of hedge funds, but have generally been disappointed with performance. For example, a study CEM Benchmarking found hedge funds overall have been underperforming customized benchmarks with similar volatility at a rate of 1.3% annually, and they have been since 2000. Returns have also been especially disappointing in the long-short equity space.
Do mega rich investors achieve the same rate of return as typical investors?
Ultra-high net worth investors DO receive the same rate of return as other investors, however, they benefit from compounding. It’s simple math. If you’re able to put more money into a certain type of account that compounds in a beneficial way, you’ll come out on top faster than those who cannot invest as much.
