How do rich Aussies manage their investments?

Why are rich Australians rich? Did their investments make them rich?

They certainly may have helped.

Even if most of their wealth wasn’t acquired through investments, high net wealth individuals (HNWIs) tend to attract the most savvy investment advisors to manage their money. Thus, it can be useful for us to know about the investment habits of Australia’s HNWIs in the hope that we can learn how the best do it.

The Capgemini/RBC 2015 Asia-Pacific Wealth Report looked at HNWIs and their investment habits across the region in 2014 to reveal some interesting insights.

Let’s look at what the report found.

 

Firstly, how rich are HNWIs? How many of them are there?

According to Capgemini, HNWIs are defined as those having investable assets of US$1 million or more. But this excludes primary residence, collectibles, consumables and consumer durables. So we’re talking proper rich people here.

According to the report, Australia’s population of HNWIs grew to reach 226,400 in 2014 – a growth of 3.5%. Compare this to five years ago in 2009 when there were only 173,600 HNWIs. Since then, there has been consistent growth every year except between 2010 and 2011, when the global financial crisis caught up with some of our HNWIs to reduce the population from 192,900 (2010) to 179,500 (2011). The GFC didn’t kill them, by the way, it just lost them so much money that it took away their status as HNWIs (just in case you misinterpreted).

Last year (2014) was a good year for HNWIs, with the Capgemini/RBC report finding that the combined wealth of Australia’s HNWIs grew to $707 billion – an increase of 4.9%.

 

 

Asset Allocation

So how do rich Aussies allocate their riches? Well in typical Australian fashion, Aussie HNWIs adhere to the ‘Great Australian Dream’ of owning property by allocating most of their assets in real estate. In fact, Aussie HNWIs favoured real estate more than any other country in the Asia-Pacific – allocating 30.8 percent of their portfolios to property. The average allocation for real estate in the Asia-Pacific was only 21.4 percent. Boy, do Aussies love property!

Here’s the full allocation of assets for Aussie HNWIs, according to the report:

  • Real estate: 30.8%
  • Equity (shares): 26.5%
  • Cash: 21.6%
  • Alternative investments: 11.6%
  • Fixed income: 9.5%

 

 

Investments of passion

When they’re not focused on making returns, where do rich people put their money?

Money allocations that don’t represent the sole purpose of making returns are here referred to as ‘investments of passion’. These usually include luxury goods such as sports cars, expensive jewellery and artwork. When it came to ‘investments of passion’, this is where rich Aussies allocated their money:

  • Jewellery, gems, watches: 27.3%
  • Luxury goods and collectibles (e.g. cars, boats, jets): 24.4%
  • Other collectibles: 21.9%
  • Art: 14.8%
  • Sports investments: 11.6%

Notably, HNWIs in Australia greatly reduced their allocations to art in 2014, falling from 20.8 percent to now being less than the Asia-pacific average of 15.3%.

 

Trust and confidence

It seems that Aussie HNWI have a lot of trust and confidence in not just their own investment abilities, but also the abilities of those around them. Their confidence in their ability to generate wealth over the next 12 months was at 78.3%, while 75.4% had trust and confidence in the individual who acts as their main wealth advisor and 75.4% had trust and confidence in their main wealth management firm.

So while they may seem like a cocky bunch, Aussie HNWIs still rely on investment advice – placing a lot of trust in professionals with their money. A lesson we can take away from that is that you should always seek advice when making investments – no matter how confident you are in your own ability.

 

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