Every quarter, Tiger 21 surveys its approximately 200 U.S. and Canadian members about the composition of their portfolios. It’s a small sample, but the data can give you a good idea of where high-net-worth investors are putting their money. (Tiger 21 is an exclusive peer-to-peer investing and wealth management network for individuals with investment capital of at least $10 million. The aggregate net worth of its membership is about $18 billion.)
The wealthy don’t have perfect timing when it comes to investing – nobody does. But they tend to be ahead of the curve when it comes to identifying investment trends and opportunities. By looking closely at what the wealthy are doing with their portfolios (and just as importantly, what they’re not doing), you can get a “sneak peak” as to where they might be seeing opportunity – and danger – in the market.
Looking at the data, I can see three interesting trends. They’re worth keeping in mind as you make your own allocation decisions over the next several months.
Slow, steady confidence in equities
The wealthy have gradually built back their exposure to equities. It hasn’t happened all in a rush. They remain cautious – “picking their spots” as it were. This is likely to be the way the market progresses from here on in: slowly, cautiously, without the big run-up or surge that we typically see coming out of other recessions.
Perhaps even more intriguing is the allocation to “private equity.” While the term covers a variety of investments – speculative plays, startups, angel investments, etc. – generally speaking there’s more risk here than with publicly traded equities. The fact that the allocation to this asset class is at an all-time high is a sign of confidence in the nascent economic recovery.
Now is not the time for fixed income
The wealthy believe that this is not the time to go “all in” on fixed income. The current allocation is 15%, close to the all-time low back in 2007. The move is likely in anticipation of interest rates playing havoc with bonds. But it’s also driven by historically low bond yields forcing some investors to seek out the dividends offered by blue-chip equities as an alternative. This is a trend that’s been going on for several months now among all segments of the investing public, not just the wealthy.
Real estate: the wealthy still believe
Real estate has long been a favourite asset class of the wealthy. And the latest data suggests that the belief in real estate hasn’t changed much over the past several years, despite one of the most challenging real estate markets (particularly in the U.S.) in history: current allocation stands at 24%, just 2% lower than its high back in 2008. If anything, the data suggests that the wealthy have viewed the great real estate shakedown of the past several years as a buying opportunity rather than a reason to sell everything and stuff the cash under the mattress.
Wealthy investors have built and protected their wealth by allocating capital well. They’ve been patient, and they’ve gotten their asset allocation decisions mostly right over the longer term. I think it makes a lot of sense for investors to consider these trends. •
