Jun 1, 2021
It is not necessary to have high capital to imitate the lifestyle of the wealthiest; Follow these five tips to take care of and increase your investments while limiting risks.
Just because you cant afford the lifestyle of the super-rich doesnt mean you cant invest like them.
"Money does not guarantee that you are a better investor than someone with less money," says Mindy Rosenthal, president of the Institute for Private Investors, which provides wealth management education for those who have at least $ 30 million in investable assets.
There is a perception that high net worth clients are mostly in private equity funds and hedge funds. Not true, says Scott Keller, director of TruePoint Wealth Counsel.
“The costs associated with those investments are enormous. We dont feel like those are necessary investments, ”says Keller from EssayMap.org. "Traditional asset classes have always rewarded investors in the long term."
So how can normal people invest like the rich? The financial advisers shared the following tips: 1. Know your investment fees. High-net-worth investors focus on broad instrument diversification with the lowest possible costs, Keller said. Actively managed funds tend to carry higher fees, but they dont always outperform the market. Make sure you know the fees and taxes associated with investment options before committing to them, he recommends. "Cost should be the priority in the decision-making process, as they can really consume the returns, which no one wants regardless of their income level."
To ensure greater tax efficiency, Rosenthal said high-net-worth investors look for portfolios that dont have high turnover.
2. Dont waste too much time looking for the next big thing. "The average investor could spend most of their time trying to identify the next Apple or Facebook," says Keller. "Our high net worth clients spend less time on it and instead focus on the desire to own the entire market and use a low-cost index." Weyman Gong, director of the family wealth counseling firm Signature, which works with people with investment assets of at least $ 20 million, advises looking for cheap stocks.
“(Rich clients) are unlikely to buy when the stock is trading at $ 40 because they would have $ 40 at risk and the upside and downside risk are symmetrical. However, when the stock is trading at $ 20, then you have much better upside potential with less capital at risk, ”he says.
3. Know your tolerance for risk. Before making any investment decisions, Rosenthal said wealthy investors know what they will need the money for and how much they can afford to lose. "Establish the number you need to have at the end of the year to help you sleep at night."
Once investors know their end goal, they can choose the right investments. For example, he said that if a wealthy individual had $ 10 million to invest and needed $ 8 million by the end of the year, that person will seek to put 80% in relatively safe investments and 20% in the riskiest investments they generate. increase.
The same principle applies to any level of investment.
“You get more money for taking more risks, thats how it works, but you need to know how much loss you are comfortable with. Its risky to keep all your money in cash or convert the equivalent into cash if you need to earn 8% or 9%, you cant earn that with those options, ”he says.
When it comes to selecting stocks, he advises clients to look for companies with at least a $ 50 billion market capitalization, a dividend yield that is about twice the dividend yield of the S&P 500, and the liquidity of the S&P 500. balance sheet, among other things. He says that the solvency ratio, immediate solvency ratio, and working capital are helpful in assessing the fundamental health of a company.
Some examples of stocks that meet this criterion are found in industries used in everyday life: cars, large pharmaceuticals, and fuel, he said.
5. Never panic. Wealthy investors are more likely to take a long-term focus on their portfolios and ignore the daily gyrations on Wall Street that can trigger outburst investment decisions, Rosenthal says.
“They stayed on the stock market in 2008 and then they paid off heavily just last year when the market went up 30%. One has to be brave ”.