High Net Worth Investors
A commentary on recent events by National Gold Group’s Chris Poindexter – June 28, 2011
Yesterday I started a series on where High Net Worth Individuals (HNWIs) keep their money.
As we discussed, they do have 20-35 percent of their money in the stock market, but it’s not the same way you and I invest in the markets. Instead of “buy and hold”, many wealthy investors have risk management companies that execute programmed trades on their behalf in their personal investment accounts. Risk management seems to be taking business away from hedge funds which are opaque investments and, once your money is in one, you can’t get it back for a fixed period of time, no matter what the market does.
It’s not in real estate, either. That actually declined from 19 percent to less than 15 percent of their average holdings. That despite bargain basement prices in many areas and a glut of investment quality properties on the market right now.
So where do they keep the biggest chunk of their money? Cash. On average, almost 43 percent in cash or low-risk investments like money market funds, bonds, and other securities that are easily convertible to cash.
Hold on, I thought rich people were supposed to invest their money back in the economy? Isn’t that the idea behind lowering the capital gains tax? It’s not happening. Even adding the category of “alternate investments” to stock market holdings accounts for less than a third in most portfolios.
What becomes apparent is that the wealthy are keenly aware of the math of loss and feel that the predictable loss to inflation from cash, bonds and money market funds, which don’t earn interest anywhere near the rate of inflation, is more acceptable than potential losses in any other investment category. They use gold and silver holdings the same way a ship uses ballast, as a counter-weight to currency fluctuations and a hedge against inflation; selling gold and silver to cover losses to inflation in money market funds. Gold is just another type of currency for them.
They avoid the rigged game we call the stock market and, when they do play, they make sure they have the same kind of programmed trading and complex option chains that insiders on Wall Street enjoy.
When you study wealthy people long enough, you realize many of them got rich, not by sophisticated investing, but by learning to preserve the wealth they do accumulate. By understanding the math of loss and making sure they’re on the right side of a down market. It’s a lesson worth remembering for all of us.
The above commentary is for informational purposes only and is not a solicitation by National Gold Group or Chris Poindexter. It is the commentator’s opinion only and not intended for investment recommendations, and does not necessarily reflect the views of National Gold Group. Any references to outside sources are believed accurate. Past performance is not a guarantee of future results. All commodities involve risk. Investors should consult their financial advisor before making any investment decisions.