It’s easy to see your seemingly rich friend and forget the fact that there are some people in this country whose wealth is considered poor compared to the average doctor or lawyer. Ultra-high net worth investors usually have different motives when it comes to investing than the average investor. They have significantly more money at risk and, therefore, need to go beyond basic portfolio diversification strategies to reduce their risk and avoid concentrating too much money on a particular investment. With that in mind, what is the right ultra-high net worth asset allocation in 2022 and beyond?
Whatever your total value, consider finding a financial advisor to help you grow it.
What is Ultra-High Net Worth Considered?
There are different categories of investors that are categorized by the amount of money available for their investment. These numbers focus on investable assets, therefore, they exclude your home equity.
The average investor usually has less than $ 100,000 and most of it is in their retirement account at work. High net worth investors typically have liquid financial assets of at least 1 million. Extremely high-value clients have at least $ 5 million in liquid assets. To be classified as an ultra-high net worth, you need at least উপলব্ধ 30 million available for investment.
Allocation of ultra-high net worth assets for 2022
With portfolios starting at 30 million, investors in ultra-high assets need a financial plan to manage their assets. Most want to increase their money safely while taking risks with their portfolio portions.
According to a study of personal asset manager data by Kohlberg Kravis Roberts (KKR), asset allocation for investors in ultra-high assets differs dramatically from other types of investors.
Asset Allocation by Asset Status Asset Allocation Ultra High Net Value Pension High Net Value Cash 10% 3% 2% Option 46% 24% 22% Fixed Income 15% 28% 33% International Equity 9% 26% 15% Equity 20% 20 28%
As you can see, investors in ultra-high assets invest almost half of their money in alternative investments, where they invest less than 30% in domestic and international equities. By comparison, the average investor typically invests 50% to 90% of their portfolio in stocks.
How to diversify into an ultra-high net worth portfolio
To achieve a diversified portfolio, the following strategies for allocating ultra-high net worth assets should be included.
Having a diversified portfolio can be a big challenge for investors in ultra-high assets. Even when investing a small percentage of your portfolio, the investment can be millions of dollars. Depending on the investment chosen, this can create a concentration risk problem. A financial advisor can not only help diversify the asset class but also make personal investments to reduce this risk.
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As the study above shows, investing in alternative investments is popular among investors in ultra-high assets. This asset class is quite wide and includes a variety of choices such as real estate, commodities, paintings, classic cars, cryptocurrencies and much more. Many of these assets are volatile with high transaction costs, so they are usually kept for a long time. Assessing current values can also be a challenge as they can be unique assets with low turnover.
Reducing market volatility is important for the money needed in the short term. As the chart above shows, investors in ultra-high assets often have more cash in their portfolios than other investors. The difference between the dollar and the percentage is even more noticeable. Investors with ultra-high assets with 30 million and 10% cash have 3 million in cash, compared to investors with high net assets with a $ 1 million portfolio and 2% cash ($ 20,000). Financial advisors help investors achieve higher yields on these cash allocations without further risk in their portfolios.
As an ultra-high asset investor, it is important to manage your portfolio through all market cycles. Having the right asset allocation allows you to achieve your long-term financial goals as well as maintain your lifestyle. Determining the right ultra-high net worth asset allocation can be a challenge. But, working with a financial planner can help you meet your goals for today and for the future.
Asset Allocation Tips
Having a diversified portfolio reduces volatility without sacrificing growth. No one can predict which sector will perform best, so being a part of each sector enables you to participate in its growth. Our asset allocation calculator helps you build a diversified portfolio while meeting your financial goals.
Investors in ultra-high assets surround themselves with a team of advisors to manage their assets, business and personal life. Finding a qualified financial advisor should not be difficult. SmartAsset’s free tool lets you match up to three financial advisors who provide services in your area and you can interview your advisor at no cost to determine which one is right for you. If you are ready to find a mentor who can help you achieve your financial goals, get started now.
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Post Ultra-High Net Worth Asset Allocation: The 2022 Guide first appeared on the SmartAsset blog.