As a high-net-worth individual (HNWI), your investment needs and opportunities are different from the everyday investor’s. With more capital to invest, you’re able to take more risks for investments with greater potential rewards. And you have access to alternative investments, which expands your investment options. But you also have more to lose than the average investor. So protecting your growing portfolio of assets is critically important.
In this article, we’re exploring high-net-worth investing strategies. We’ll be sharing seven strategies that perfectly suit HNWIs, and we’ll explain why each strategy makes sense for you.
Here are our seven investment strategies for high-net-worth investors.
Strategy #1: Diversify and Rebalance Regularly
Maintaining a diverse mix of asset classes in a high-value investment portfolio allows you to maximize growth while minimizing risk.
Investments with higher risks typically offer greater growth potential while low-risk investments are better at protecting your net worth than growing it. Having a mix of high-risk and low-risk investments gives you the best of both worlds. But you need to decide how much of your portfolio to allocate to each risk group.
Generally, the further you are from retirement, the more risk you can take. With time on your side, you’ll be able to bounce back from normal market downturns and from any investments that don’t work out as well as you’d hoped. As you get closer to retirement, you want to move more of your investment capital into low-risk investments to protect the gains you enjoyed from your higher-risk years.
In your 20s, you might have an asset allocation of 80/20 (80% of your assets in growth investments and just 20% in low-risk investments). Then, every 5-10 years, you could slide your asset allocation to the safer side. Your exact asset allocation will depend on your own risk tolerance. It is always a good idea to consult with a financial advisor.
Once you’ve decided on your current asset allocation, you’ll need to rebalance it regularly to maintain a steady allocation percentage. If, for example, your growth investments are performing well, this value growth will skew your asset mix percentage to the riskier side. Moving some of those gains into lower-risk investments will bring your portfolio back into balance.
Strategy #2: Invest as Early as Possible (and Teach Others to Do the Same)
The benefits of investing early include:
- building the habit of investing,
- purchasing assets while prices are low, and
- taking advantage of compound interest.
Compound interest is when you earn interest on the interest your investments have already earned. For example, if you invest $10,000 with an interest rate of 6%, you would make $600 in interest. But then the next period, your interest is based on the full value of $10,600, giving you $636 in interest for that period, and bringing your balance to $11,236. Over time, this exponential growth significantly affects your net worth.
As an HNWI, you have more money available to invest, which allows you to benefit from more compound interest than the average investor.
You’re also in a position to teach this principle to the next generation. Even people with comparatively low incomes can take advantage of compound interest by investing early. So make sure the young people in your life understand the value of compound interest. You might even consider starting an investment account on their behalf to give them a head start.
Strategy #3: Get in on the Ground Floor
Early investors in any project stand to make the largest gains from the project. By getting in at the ground floor, you’re able to invest when values are low and reap the rewards of the value-add phases.
Cryptocurrencies are an example of ground-floor investing. Early Bitcoin adopters could buy a Bitcoin for under $1,000 in 2017. As of 2022, the value of a Bitcoin is over $20,000 (even after the currency “collapse” of the past year).
If you’re looking for a less volatile ground-floor option, consider real estate developments as a high-net-worth investment option. In the crypto vs real estate debate, real estate provides more stable returns over the long term.
If, for example, you’re investing $100k in real estate, you could do very well by investing in a share of a multi-family rental development. Buying into this type of deal before the multi-family structure is built is known as Opportunistic Investing.
Getting in on the ground floor comes with more risk than established investments. This is why everyday investors tend to avoid this type of investment. And this is why the rewards are so much greater for investors willing to accept the risk. Ground-floor investments are a solid high-net-worth investing strategy because HNWIs can generally absorb any potential losses while opening the door for impressive returns.
Strategy #4: Take Advantage of Investments with Tax Benefits
Tax-free municipal bonds are one example of a low-risk investment vehicle that can protect your wealth while helping to manage your tax burden. Unfortunately, the returns on bonds are too low to justify large investments.
Real estate, on the other hand, helps you grow your wealth while reducing your income tax bill. The tax benefits of real estate investing include
- Deductions for property expenses,
- Depreciation, and
- Tax deferment through 1031 exchanges.
And, unlike municipal bonds, real estate offers solid appreciation over time, as well as passive income potential.
Strategy #5: Use Your Wealth to Access Exclusive Investments
As a high-net-worth investor, you have access to exclusive investments that the average investor can’t touch.
Your wealth allows you to invest in projects with high minimum investments, and you have the option to invest in alternative investments that are typically reserved for accredited investors.
Take hedge funds for example. Hedge funds can be extremely lucrative, but they require a significant upfront investment. The same is true of angel investing. Angel investors provide funding for promising start-ups, and naturally, this investment can easily reach hundreds of thousands of dollars. But when these investments pay off, they pay off big for the investors with the resources to take advantage of them.
There are also lower-risk investment opportunities that are exclusive to accredited investors. Real estate syndication, for example, allows accredited investors to pool their funds to purchase a high-value property. By pooling funds, investors have lower minimum investment amounts to buy into each deal. And this means investors can spread their investment capital across multiple developments to instantly build a diverse real estate portfolio.
Strategy #6: Consider Liquidity
Liquidity is an important consideration in all financial planning. While long-term investments generally produce greater returns, you need to maintain enough cash in liquid assets to cover your higher-than-average living expenses in the event that your primary source of income dries up.
Traditional liquid assets include checking and savings accounts, stocks and bonds, and treasury notes. Unfortunately, the returns on these liquid investments are exceptionally low.
For greater returns and increased diversity, consider real estate as a liquid investment. Traditional real estate investments are long-term, but there are short-term real estate investment opportunities including real estate investment trusts (REITs) and house-flipping.
Strategy #7: Capitalize on Modern Investment Models
Modern methods of wealth management are designed to minimize risk, maximize reward, and make the process of placing an investment as seamless as possible.
Technology has played a large role in modernizing the investment process. With a few clicks, you can manage your stock portfolio online or invest in digital assets, like cryptocurrencies and NFTs. It’s even possible to invest in real estate online thanks to digital records and secure payment portals.
Technology has also expanded investment models. Take crowdfunding, for example. The concept isn’t exactly new; investors have been pooling investment funds for centuries. But tech advances have made it possible for investors anywhere in the world to partner safely with other investors around the globe. Furthermore, these crowdfunded deals can be professionally managed and monitored online for easy, secure investing!
High-Net-Worth Investing with Gatsby Investment
As a high-net-worth investor, you need financial partners you can trust. Gatsby Investment has a solid track record of providing HNWIs with exceptional returns through Los Angeles real estate investments.
As a real estate syndication firm, we offer real estate investing for accredited investors. With a wide range of real estate offerings, ranging from short-term house flips to multi-family construction, and even luxury home developments, we have an investment opportunity to meet your unique financial goals. And with our low investment minimums, you can invest in multiple projects at once to create a perfectly diverse real estate portfolio.
As of 2022, over $65 million has been entrusted to Gatsby, and we regularly provide returns of over 20% for our investors (24.22% average annualized returns to investors from 2017-2022).
Schedule your private consultation with one of our knowledgeable investment specialists today.