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Investment Tips | How Do The Wealthy Protect Their Wealth During The Pandemic

Wealthy people who have a massive fortune are not flush with cash.

The average billionaire holds only 1% of their wealth in liquid assets such as cash.

That’s because most billionaires have their wealth tied up in business interests and invested in alternative assets

What is "Wealth"?

Cash Tips & Tricks - Wealth description

How do the wealthy protect their wealth and what are their concerns during the pandemic?

How do the wealthy protect their wealth?

By diversifying with safe haven investments.

These are the assets the wealthy invest in to preserve what they have.

Cash Tips & Tricks - Wealth diversification

1. Business Interests

The wealthy have usually their wealth invested in private businesses, often through direct business ownership or as an angel investor in private equity.

Business interests in companies has long been a mainstay of institutional portfolios. But there is definitely a surge in demand for this asset class from wealthy investors looking to get an exposure in their own portfolios.

2. Mutual Funds

Mutual funds give investors access to professionally managed portfolios of equities, bonds, and other securities.

They invest in a vast number of securities and offer the diversification that the wealthy seek.

3. Stocks

Stock-picking is also a strategy that is used to diversify portfolios.

4. Real Estate

For centuries people have been using real estate to protect and grow wealth. This asset class is one of the better time-tested investments.

Real estate can be in the form of exclusive properties, timberland, farmland, residential housing, mineral, water or fishing rights, commercial or industrial properties.

4.1 Exclusive Real Estate

When people talk about “exclusive real estate“, they mean real estate that doesn’t hit the market often. It’s rarely used to make a big return. 

Instead, it may be some form of historical building. As long as it maintains its value, wealthy investors are happy.

4.2 Timberland

While timberland qualifies as real estate, it has some different characteristics than rental real estate.

Timberland’s historical performance and correlation to other assets, including commercial real estate, is a large part of the attraction of wealthy individuals. Also if it is well managed, it can provide long-lasting wealth protection and growth.

Timberland also has an uncanny ability to outpace inflation, which tends to be a concern for families with multi-generational wealth.

4.3 Farmland

This is another classic asset that wealthy people have invested in over many generations. 

This also falls under the real estate category, and just like timberland, farmland is resistant to inflation, has a low correlation to other assets, historically provides decent performance, and if managed well can last generations.

In a nutshell, what makes real estate such a special asset class is that it has all the markers for a generational wealth asset.

Real estate is a great hedge against inflation, it provides income, it is very suited for generational wealth transfer, it is an asset which will always have a demand for it since people need somewhere to live, favorable income tax treatment, it is resistant to political and economic turmoil, and can be leveraged to suit risk tolerance.

5. Collectibles

Collectibles are items such as art masterpieces, antique furniture, watches, Jewellery, wine, coins, stamps or even cars that either currently have value (wealth preservation) as collectibles or will have greater future value (speculation) as a collectible items.

5.1 Fine Art

Most wealthy investors don’t acquire fine art merely because they’ve fallen in love with the work.

They know it has value. Fine art will always have someone who wants to buy it, and those who want to buy it understand its worth. They are not trying to bargain for every cent, which makes this a good investment.

In a nutshell, collectibles are a favored asset class by wealthy families. The items are typically purchased for some personal enjoyment, but also accomplish the ability to be a hedge against inflation.

5.3 Rare commodities (such as watches, jewelleries, wines, etc.)

The scarcity and exclusivity of many rare masterpieces, antique furniture, watches, jewelleries, wines, coins, stamps or even cars creates an environment for excitement where opportunities to purchase these items may only occur once in a lifetime.

Ultimately, availability becomes more important than price.

This puts an investor with holding power in a very powerful position not only to preserve principal, but also to profit based on the principles of supply and demand.

In a nutshell, most of the collectibles bought by wealthy people are already considered valuable, so it is not necessarily speculation of future value. The goal here is not to grow wealth, but rather to keep it, so preservation of wealth is more important to them than speculation.

6. Usable Precious Metals

Precious metals have been considered money and a storage of wealth for over 2000 years.

6.1 Gold

Gold is desirable because it’s easy to purchase and never goes out of fashion.

While gold and silver have technically become delinked from all paper or fiat currencies over the past few decades, they are still perceived as money by many people regardless of how their respective governments see them.

In a nutshell, regardless of whether gold and silver are actually used as money in day-to-day transactions for goods and services, they are seen to have one of the best characteristics of a store of wealth or money, an asset that retains its purchasing power over long periods of time.

Over centuries gold and silver have been seen as the best forms of money for the following reasons: it is divisible, durable, consistent, convenient, and has a value in of itself.

6.2 Titanium and Platinum

Titanium and platinum, for example, are used in the construction of many electronics, which makes them prized by businesses and governments all over the world.

While not as popular as gold as an investment, these precious metals can be used in a practical capacity.

It’s no surprise to see them becoming popular among wealthy investors.

What are the concerns held by the world elites and business people during the pandemic?

History is full of events that disrupted market. Although such events are not common and successfully hedging against negative events makes a huge difference.

Here are the worries keeping even the world most elite investors up at night.

The return of inflation: Inflation has trended down for decades but the economy has started to show signs of a creeping inflation since 2018.

Record high debt: The global debt continues to reach new highs. How these debts would be impacted by higher interest rates?

Bond market worries: As the Bond market has experienced a thirty five years of Bull Run some billionaires are concerned that the great Bond bull market has ended.

Other unforeseen high impact events: Geopolitical black swans, trade war, international conflicts, pandemics or other unforeseen high impact events could derail markets.

Overzealous central banks: Many world class investors are concerned of the unintended after effects of massive central banks liquidity programs in recent years – and with central banks with having employed all the tools in their kits they are left with limited policy options to address future downturns.

In a nutshell, people who have large amounts of wealth have different challenges than the average person. Financial crisis are increasingly common and all investors, especially elite ones, are right to be cautious.

If you have created or inherited a large amount of wealth, and you are thoughtful enough to want to protect it from the future economic downturns, then you will want to consider investments that will last longer than your lifespan.

Mat

Mat is the founder of cashtipsandtricks and has been working in the financial sector in Luxembourg for the past 10 years and brings his insights as an investor and entrepreneur.

Cash Tips and Tricks 2020 - 2021