According to Capgemini's 2016 World Wealth Report, North America now boasts 4.8 million "high net worth individuals" (HNWIs), who command a total of $16.6 trillion (up 2.3% from 2015's survey). Typically defined as individuals with a net worth of more than $1 million, these nearly 5 million individuals have a lot to teach about asset allocation and investment.
Where do these HNWIs put their money? What kinds of tools and services do they use to manage it? And, more importantly, what can you learn from them to improve your own financial future?
How the Rich Invest
Interestingly, Capgemini's report also found that millionaires under 40 are likely to be more conservative in the way they manage their investments, holding a larger portion of their assets in cash and alternative asset classes (such as real estate or businesses) than in traditional portfolios.
Survey data from Legg Mason Global Asset Management backs up Capgemini's findings. According to their results, "78% of Millennial investors are more conservative/risk averse than a year ago," compared with 68% of adults age 40+. Their research also finds that younger investors hold more in fixed income investments, real estate and non-traditional asset classes, compared to older investors, who take larger positions in equities and cash holdings.
Investing in Today's Volatile Market
The numbers are mixed on how millionaires and other HNWIs are reacting to our post-recession market. Eric Rosenbaum of CNBC.com, for instance, reports that:
"Since the spring--the last time the CNBC Millionaire Survey was conducted--there has been an increase in stock investing and a decrease in cash and bonds. Affluent investors across all age groups expect to have 49 percent of assets in equities over the next 12 months."
Legg Mason's breakdown of U.S.-specific findings is similarly optimistic:
81% of older survey respondents remain optimistic about the future of the financial markets, with women Millennial investors having more positive outlooks for the domestic stock market than men.
That said, industry experts report signs that are not universally encouraging. Adam Sarhan, writing for Forbes, suggests that:
"The latest survey from the American Association of Individual Investors (AAII) shows us that only 29% of the respondents are bullish and investor pessimism spiked to a two-month high, even though the market is flirting with record highs."
As we're in one of history's longest-running bull markets, it's anyone's guess as to when - if ever - a major correction will occur. In the meantime, though, what lessons can you learn from the way today's HNWIs manage their money?
Tech Plays an Increasingly Large Role in Money Management
New technology threatens the traditional role of money managers, according to Capgemini's data - both because traditional brokerages lack the tech tools savvy clients want, and because millionaires are more open to using automated services than ever before.
On the agency side of things, "81% of wealth managers want better digital tools," while "56% of their net income is at risk due to client attrition from lack of digital. For consumers, the massive growth of FinTechs means that:
Investing like high net worth individuals, therefore, isn't as much about asset classes as it is about the tools and services that are newly available. Wealthfront, for instance, is an automated investment platform that features automated portfolio rebalancing and currently controls more than $5 billion in assets under management.
Crowdfunding has had a similarly major impact on today's investment strategies. Startups like Realty Mogul let investors (millionaires or not) come together to finance commercial property purchases, enabling lower-net worth individuals to get involved in this favored asset class without requiring substantial upfront investments.
Ultimately, every financial blogger under the sun has a recommended asset allocation, based on everything from your age to your desire to make a sociopolitical statement with your investments. Following the investments of millionaires is a great starting point, but it's using the new tools they're taking advantage of that'll help you join this wealthy class of investors.
How do your investments - and your optimism about the markets - stack up against data on HNWIs? Are you using the tech tools mentioned above (or any others)? Share your thoughts with me by leaving a comment below: