If you’re looking to build wealth, it’s wise to study how high net worth individuals manage their investments, particularly their asset allocation. High net worth individuals often have a significant portion of their wealth tied up in business ownership. This can be a double-edged sword; while owning a business can dramatically increase your wealth, it also comes with high risks, as many businesses fail within the first ten years.
For those with a net worth of over $100 million, business investments can account for about half of their total assets. Although reaching this level of wealth may seem out of reach, starting a business could be a pathway to significant financial growth.
In terms of public investments, a high net worth individual—defined here as someone with at least $3 million in investable assets excluding their primary residence—tends to diversify across stocks, bonds, and other assets. For the ultra-wealthy, those with $30 million or more, their investment strategies are even more expansive.
A survey by U.S. Trust, Bank of America’s private wealth management arm, provides some insights. It included responses from 892 high net worth individuals across the U.S. The average asset allocation for those surveyed with over $3 million in investable assets was 55% in stocks, 21% in bonds, 15% in cash, 6% in alternatives, and 3% in other investments.
Interestingly, the allocation varies by age and gender. Millennials, for instance, have been increasing their stock investments and reducing their cash holdings, despite high inflation eroding the value of cash savings. On the other hand, the Silent Generation, those aged 73 and above, have the highest proportion of stocks in their portfolios, showing a preference for long-term investment strategies despite potential short-term risks.
One notable finding is that even at ages 73 and older, many high net worth individuals maintain a significant portion of their assets in stocks, around 61%. This aggressive approach is contrary to the more conservative strategies often recommended for retirees. These individuals likely have other income sources that buffer them against market volatility, allowing them to pursue higher returns without compromising their financial security.
The persistence of these seasoned investors in maintaining substantial stock holdings reflects a confidence in long-term market performance. This suggests a level of financial security that allows them to overlook short-term fluctuations in pursuit of greater long-term gains.
For those seeking to manage their own wealth, the strategies of high net worth individuals can offer valuable lessons. While not everyone will reach the level of having $30 million in investable assets, understanding the principles of asset allocation and risk management practiced by the wealthy can inform better investment decisions for individuals at any level of wealth.
