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Money and Wealth

How the wealthy manage their money differently

Jacqui Clarke

Managing money effectively is critical for everyone, but high-net-worth individuals (HNWs) have a few advantages that set them apart. They are usually very successful in managing their wealth and preserving it for the long term through a few savvy money management strategies. Let’s take a closer look at five of the key ways:

  1. They Have Trusted Advisors
    HNWs have a team of trusted advisors who help them manage their money. These advisors specialise in areas such as: taxation planning including ensuring they have the right structure in place to invest; wealth and investment management; estate planning, and risk management. In my experience, having a team that works in a coordinated way on a comprehensive plan delivers the best wealth outcomes aligned with the HNW’s goals, risk tolerance, and tax implications. As an advisor, providing unbiased advice is critical.
  2. They Have a Robust Network
    HNWs have a robust network of contacts that span their industry and beyond. This network includes other successful entrepreneurs, industry leaders, investors, and high-profile individuals. Through this network the wealthy gain valuable insights into investment opportunities, industry trends, and potential business partnerships. They can identify new opportunities and make informed investment decisions to grow their wealth.
  3. They Have Early Access to Opportunities
    HNWs often have early access to investment opportunities that are not available to the general public. These opportunities include private equity, venture capital, real estate investments, and exclusive investment vehicles. HNWs leverage their network and trusted advisors to identify and evaluate these opportunities. By investing in these opportunities early, HNWs may achieve higher returns than they would with traditional investments.
  4. They Have a Greater Appetite for Risk
    HNWs have a greater appetite for risk than the average investor. They understand that risk and reward go hand in hand, and they are willing to take on more risk for the potential of higher returns. However, they do so in a calculated way and usually focus on investments that align with their passion. They are not afraid to invest in emerging markets, new technologies, or high-growth sectors. By taking calculated risks, HNWs can achieve higher returns and grow their wealth more quickly.

    According to a global survey by KKR and the 2021 EY Global Wealth Research Report wealthy investors allocate an average of 25%-30% of their portfolio to alternative investment such as private equity, hedge funds, and real estate. This is significantly higher than the average investor, who typically only allocates 5-10% of their portfolio to alternatives. HNWs also invest more in emerging markets, with an average allocation of 9% compared to the average investor’s allocation of 5%. Additionally, HNWs tend to be more active investors, with an average of 34% of their portfolios in active investments, compared to the average investor’s allocation of 22%.

    Another interesting fact about HNWs is that they tend to hold their investments for the long term. According to an annual study by Fidelity, the Millionaire Outlook HNWs hold their investments for an average of 7 years, while the average investor holds their investments for just 2 years. This long-term perspective allows HNWs to ride out market volatility and benefit from the compounding effect of their investments over time.

  5. HNWs also prioritise wealth
    While HNWs have unique advantages when it comes to managing their money, there are still ways for individuals who aren’t as wealthy to improve their money management skills.

    Here are a few tips:
    a) Seek Professional Advice: Although you may not have a team of advisors like HNWs, seeking professional advice, from your accountant can be a good place to start.
    b) Build Your Network: You can add to your network by attending industry events, joining professional organizations, and connecting with others in your field. A robust network can provide valuable insights into career opportunities, investment options, and industry trends.
    c) Be Open to Opportunities: While you may not have early access to exclusive investment opportunities, there are still plenty of opportunities available to you. Don’t be afraid to take calculated risks and make sure you do your research.

    d) Invest for the Long Term: HNWs prioritize long-term investments, and you can do the same. Avoid making impulsive investment decisions based on short-term market trends. Instead, focus on investing for the long term and benefitting from the compounding effect of your investments over time.

While the wealthy have unique advantages when it comes to managing their money, there are still ways for individuals who aren’t as wealthy to improve their money management skills. By seeking professional advice, building your network, being open to opportunities, and investing for the long term, you can create a strong financial foundation and work towards achieving your financial goals. 

Written by Jacqui Clarke.
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CEOWORLD magazine - Latest - Money and Wealth - How the wealthy manage their money differently
Jacqui Clarke
Jacqui Clarke FCA, FTI, GAICD, JP, author of Stop Worrying About Money (Wiley, $29.95), is a trusted advisor, board member, executor and veteran business executive. As a personal wealth and money management expert and over three decades of experience, 25 years at Deloitte and PWC helping high-net-worth families, individuals and business owners to build, manage and preserve their wealth. Her message is simple: with careful planning and effort, you can manage your money, so it doesn’t manage you.

Jacqui Clarke is an opinion columnist for the CEOWORLD magazine. Connect with her through LinkedIn. For more information, visit the author’s website CLICK HERE.