Fess up. How many times a year do you evaluate your portfolio? Annually? If you’re an average investor, you’re checking in at best twice a year. By comparison, people with investible assets of at least $1 million-so-called “high-net-worth individuals” (HNWIs)-assess their portfolios at least quarterly.
It may sound time-consuming, but frequent checks can give you early wind of market directions and allow you to act accordingly. It’s a common tactic of big institutional investors that need to stay ahead of the curve when it comes to investment and market trends, says Petrina Dolby, a vice-president of the Toronto-based Canadian Financial Services Group at Capgemini Group, a business consulting firm. And that’s just one of many institutional-like behaviours being adopted by HNWIs. According to the recently released 2005 World Wealth Report issued by Capgemini Group and investment services firm Merrill Lynch, HNWIs are becoming more disciplined, objective and knowledgeable.
As a result, they’re growing more successful, too. Follow their example and you could do the same. Here are more ways HNWIs get ahead:
Check your emotions: It’s all too easy to let emotion get in the way of sound, objective decisions. The world’s rich make a plan, stay cool and buy or sell when pre-arranged fiscal targets are met. The payoff, says Dolby, is a diversification strategy that never goes off course.
Don’t be a lemming: “HNWIs tend to buy things when they’re out of favour and sell when things become very popular,” says Thane Stenner, head of the Vancouver-based T. Stenner Group, a division of CIBC Wood Gundy that specializes in advising investors with a net worth of at least $10 million. For example, real estate has been hot over the past five years, but last year HNWIs reduced their real estate holdings from 17% to 13% of their portfolios.
Branch out: So what do they buy? “They invest a lot more than the average investor in alternative investments, such as managed futures, hedge funds, private equity and structured products,” says Dolby. According to the report, equities still won 41% of HNWIs’ investment dollars, but there’s a growing interest and reliance on private equity, which generated returns of 23.5% in 2004. Hedge funds, which last year represented 7.5% of Canadian HNWIs’ investment dollars, are becoming increasingly popular in Canada, although they’re now more often seen as a route to portfolio diversification rather than as a heavy-return generator.
© 2005 Susanne Ruder