Financial Habits of High-Net-Worth Investors

Financial Habits of High-Net-Worth Investors

July 29, 2020
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Wealthy investors are free to deploy their money any way they want, yet statistics show a consensus on several financial habits. Read on to see how your behavior compares to that of your peers.

A recent survey1 of high- and ultra-high-net-worth (HNW) investors found that their money has brought them significant freedom, yet many felt they fell short of their intentions. The biggest difference is often financial planning.

Alternative investments supplement stocks, bonds, and cash. The average asset allocations reported in a 2018 U.S. Trust survey2 were stocks (55%), bonds (21%), and cash (15%). That left 9% available for alternative investments. The percentages of respondents who invested (or were interested in investing) in alternative investments were: Real assets (48%), private equity (41%), venture capital (34%), hedge funds (32%), and private debt (22%). Contrary to reputation, most wealthy Millennials (88%) rely upon financial professionals to manage their portfolios.

Interest in socially responsible investing is high. HNW investors value environmental, social, and governance (ESG) factors when investing. The survey showed 80% want the companies in which they invest to both make a profit and take responsibility for their societal impact. Moreover, 52% either own or work for companies that integrate ESG policies. Among wealthy investors, 37% regularly review their portfolios for ESG factors and 53% say a company’s ESG trade record is important. In terms of returns, 81% felt they can achieve market-rate profits by investing on the basis of ESG track records.

Spending habits of the average HNW investor. Another survey3 revealed how the wealthy spend their money. Results indicate 25% spent at least $50,000 on home improvements in the previous year, and 91% employ household staff. Over a one-year period, 64% spent money on their children’s college education and 53% spent on prep school tuition. Half of respondents gamble and 27% gambled at least $25,000 in the previous 12 months. About half of those surveyed contributed at least $25,000 to charity in the last year, 25% gave more than $25,000 to political causes, 8% spent at least $100,000 on the arts and entertainment, and 50% spent money on boats.

Wealthy investors are tax-conscious. In a survey4 conducted by U.S. Trust, 55% of HNW investors said it’s more important to minimize taxes when making investments than it is to maximize returns. Clearly, most respondents subscribed to the adage that it’s not what you make, it’s what you keep. They understand poor tax management can cut gains over the long term.

Wealthy investors have high standards. Survey results5 reveal what you look for in financial professionals. Trustworthiness is required by 87% of respondents, as are high ethical standards (80%), acting in your best interests (80%), maintaining confidentiality (78%), and exhibiting knowledgeability (77%). Contact me today to schedule a review of your wealth plans to ensure they closely reflect your unique requirements – you should demand no less!

Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Environmental, social and governance (ESG) investments are subject to the risk of underperforming the broader equity market or other investments that do not utilize ESG criteria.

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Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Please note—investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

1 newsroom.bankofamerica.com/system/files/2018_US_Trust_Insights_on_Wealth_and_Worth_Overview.pdf [6/2018]

2financialsamurai.com/how-high-net-worth-individuals-invest-asset-allocation-breakdown/ [9/2018]

3349ab54c3b58919c6638-ff70f51d4942f2bbd11ba0e41cfec577.r51.cf2.rackcdn.com/ Spending%20Habits%20of%20the%20Wealthiest%20Americans.pdf [2016]

4pva-advisory.com/wp-content/uploads/2017/10/2017-US-Trust-Insights-on-Wealth-andWorth.pdf [2017]

5investmentsandwealth.org/getmedia/0c5af95a-5bbb-4d85-8eee-0cce6332a056/HNWreport2019-FINAL.pdf [2019]

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