When investing, it often hurts to think of what might be possible if only you started with even more money. Those already wealthy have far more opportunities to use investment to make themselves wealthier. They can afford to take more risk, they can tie up money in more illiquid products, they can afford the high minimum investments for alternative asset classes and they can even afford to pay for the best advisers.
It is wholly to be expected, therefore, that the very wealthy will ram home their advantage when they invest. In this light, it is not clear whether it is alarming, amusing, or reassuring that the latest exhaustive research shows they are prone to almost exactly the same mistakes as everyone else. Indeed, they even handled the crisis of 2008 somewhat worse than the average investor.
That is the message from a study of the portfolios of 115 wealthy US households, with an average net worth of $90m, from 2000 to 2009, carried out by a group of academics including Enrichetta Ravina of Columbia Business School, Luis Viceira of Harvard University and Ingo Walter of New York University's Stern School of Business. The data came from a research file that aggregates and consolidates information from wealthy households. Including data for families who were not in the sample for all the 10 years, the academics could look at 260 households, who between them used 450 different wealth managers and invested in 29,000 different securities.
What did this exercise reveal? It turns out the wealthy manage their money in much the same way as everyone else.
Their typical asset allocation involves illiquid asset classes with high minimum investments, but not that much. The norm is 30 per cent in fixed income and 50 per cent in public equities (not so different from those far less wealthy), with 10 per cent in hedge funds and 10 per cent in private equity and venture capital.
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