Wealthy Secrets: Investment Trends

Ultra-high-net-worth individuals (UHNWIs) are defined as those with net worths of at least $30 million. Their wealth typically consists of shares in private and public companies, real estate, and personal investments such as art, cars, and airplanes. UHNWIs understand the importance of having their money work for them and know how to take calculated risks. They also tend to invest in emerging markets and physical assets such as real estate, land, gold, and artwork.

Wealthy individuals, often called angel investors, are a common source of startup funds for many businesses, including restaurants, film projects, and tech companies. These investors can be found through angel clubs, shared-purpose angels, retired executives, successful entrepreneurs, and incubators.

As for specific investment areas, the ultra-wealthy are currently focusing on building inflation-resistant portfolios, increasing investments in alternative energy, and doubling their crypto investments. They are allocating their money to real estate, public equities, and cryptocurrencies.

Additionally, long-term investments such as high-yield savings accounts, long-term corporate bond funds, dividend stock funds, and rental housing are also popular choices for the wealthy.

Real estate

Rental Properties

Investing in rental properties is a good option if you have DIY skills, patience in managing tenants, and time to dedicate to the property. It requires a substantial amount of cash upfront for maintenance and to cover periods of vacancy or non-payment of rent. However, rental properties can provide regular income and potential appreciation, and expenses are often tax-deductible.

REIGs are ideal for those who want to own rental real estate without the hassle of managing it themselves. REIGs pool money from multiple investors to purchase rental properties, and a company handles the maintenance, advertising, and tenant management. In exchange, the company takes a percentage of the monthly rent. REIGs provide income and appreciation while being more hands-off than owning rentals directly.

REITs are suitable for investors who want exposure to real estate without the complexities of a traditional real estate transaction. REITs are companies that use investors' money to purchase and operate income-producing properties. They are traded on major exchanges like stocks and tend to pay high dividends, making them attractive for those seeking regular income. REITs also provide access to non-residential investments such as malls or office buildings, which may not be feasible for individual investors.

Online Real Estate Platforms

Online real estate investing platforms, also known as real estate crowdfunding, allow investors to join others in funding large commercial or residential deals. These platforms offer diversification into real estate with a relatively modest investment. However, they tend to be illiquid, with lock-up periods, and management fees can reduce profits.

Residential Real Estate

Residential real estate includes single-family homes, condos, and vacation homes. Investors can collect rent from tenants and benefit from the appreciated value of the property over time. This can be as simple as renting out a spare room or as complex as buying and flipping a house.

Commercial Real Estate

Commercial real estate includes spaces rented or leased by businesses, such as office buildings, retail spaces, industrial properties, and restaurants. These properties tend to have longer leases and can command higher rent than residential properties, leading to steadier and potentially higher long-term income. However, they may also require higher down payments and property management expenses.

Cryptocurrencies

Bitcoin is often described as "digital gold" and is theoretically a good hedge against inflation due to its limited supply. As of June 2024, a single bitcoin is valued at around $61,215, a growth of 12,143% since May 2016. Ethereum, the second-largest cryptocurrency by market capitalisation, has also experienced tremendous growth, with a year-over-year return of 79% as of July 2024.

Other popular cryptocurrencies among the wealthy include:

• Binance Coin (BNB)
• Tether (USDT)
• Solana (SOL)
• XRP
• Cardano (ADA)
• Dogecoin (DOGE)

It is important to note that investing in cryptocurrencies carries risks, including high energy usage associated with mining and evolving government regulations. Due diligence is essential before investing in any cryptocurrency.

Alternative energy

The ultra-wealthy are increasingly investing in alternative energy sources, with electric vehicle stocks remaining hot investments. Wealthy individuals are investing more cash into companies like Tesla, Rivian, and Lucid.

There are several top renewable energy stocks that are good investments. Here is a list of some of them:

• NextEra Energy is one of the world's largest producers of wind and solar energy. It has an excellent track record of creating shareholder value by investing in renewable energy, producing a total return of over 225% over the past decade.
• Brookfield Renewable is a global leader in renewable energy and one of the world's largest producers of hydroelectric power. The company has increased its dividend payments at a compound annual rate of 6% since 2001 and grown its funds from operations per share at a rate of 12% since 2016.
• Clearway Energy is one of the largest owners of renewable energy-generating facilities in the US. It sold its thermal business in 2022, generating $1.35 billion in cash to spend on expanding its renewable energy operations.
• First Solar develops and manufactures thin-film solar panels that use their larger size to generate more energy, making them ideal for utility-scale solar energy projects. The company has the financial flexibility to continue expanding to meet the increasing demand for solar panels.
• SolarEdge Technologies develops and manufactures an optimized inverter system that maximizes the power produced by solar panels, helping to lower the cost of energy generated by the system. The company has expanded its offerings by making a series of acquisitions to address several energy market segments, including solar, storage, and electric vehicle (EV) charging.

In addition to these individual companies, there are also renewable energy ETFs (exchange-traded funds) that offer diversified exposure to the sector. The three biggest by assets under management (AUM) in early 2024 were:

• Invesco Solar ETF (NYSEMKT: TAN) with $1.2 billion in AUM
• First Trust NASDAQ Clean Edge Energy Index Fund (NASDAQ: QCLN): $727.8 million
• Invesco WilderHill Clean Energy ETF (NYSEMKT: PBW): $333.3 million

Impact investing

The practice of impact investing is defined by several elements. Firstly, the investor's intention to have a positive social and/or environmental impact through their investments is essential. Impact investments are expected to generate a financial return on capital or, at a minimum, a return of capital. The range of return expectations and asset classes varies, with impact investments targeting financial returns from below market to market rate. A hallmark of impact investing is the commitment of the investor to measure and report the social and/or environmental performance and progress of underlying investments, ensuring transparency and accountability.

According to a 2020 survey by the Global Impact Investing Network (GIIN), the majority of investors who choose impact investing seek market-rate returns. Impact investments can be made in both emerging and developed markets, with investors choosing to put their money into emerging markets or developed economies. Impact investments span several industries, including energy, especially clean and renewable energy, and environmental, social, and governance (ESG). ESG refers to the practices of the company being invested in, and ESG investors look for companies with ethical governance and a commitment to the well-being of workers in their supply chain.

Socially Responsible Investing (SRI) is a similar approach to impact investing, which goes a step further by actively selecting or eliminating investments according to specific ethical guidelines. For example, SRI investors may avoid investing in companies involved in producing or selling alcohol, tobacco, or firearms. Impact investing appeals largely to younger generations, such as millennials and Gen Z, who want to give back to society, and this trend is likely to expand as these investors gain more influence in the market.

Angel investing

Angel investors are high-net-worth individuals who invest in startups, usually during the early stages of a company's development. In return for their investment, they take a small equity position in the startup, meaning they own a certain percentage of the company.

Angel investors are typically looking to invest between $5,000 and $150,000, although some investments can be as high as $1 million. A typical angel investment round might be $100,000 to $250,000, raised from 3-5 people.

Angel investors are often looking to invest in startups valued between $1 million and $4 million. They do so in the hope that the company will be successful and their share of the business will grow in value. This means that when investing, the focus should be on assessing the likelihood of the business growing and succeeding, rather than obsessing over deal terms.

Angel investors usually take up to a 20-25% share of ownership in the companies they invest in. It is important that the company founders retain a large share so that they are incentivized to grow the business.

Angel investors can be individuals with disposable capital, family and friends who want to support the startup, or professionals such as doctors, lawyers, and bankers. They can also be business executives, entrepreneurs, professional angels who make a living from angel investing, angel syndicates (groups of investors who work together), or crowdfunders.

Angel investors can provide a source of capital, act as advisors, networkers, recruiters, or create PR and marketing buzz. They can also be technical experts or board members.

There are several benefits to angel investing, including asset diversification, professional variety, access to an entrepreneurial community, networking opportunities, monetizing expertise, startup education, and the potential for huge returns.

However, there are also downsides and risks involved. Angel investing can be very costly if not done right, with a high chance of losing money. Returns can take a long time, and it can be a journey into the unknown, with decisions based more on judgment than deep analysis.

To become an angel investor, there are several steps to follow:

• Self-accredit your financial status: In the US, an 'accredited investor' is someone with $1 million in assets or an income of over $200,000. In the UK, high-net-worth certification requires an annual income of at least $100,000 or net assets of £250,000 or more.
• Decide on your asset allocation for angel investing: It is recommended to not put more than 10-15% of your net worth into this type of investment.
• Mentally write off the money: Most people do not make money in angel investing, so be prepared to lose the money you have allocated.
• Learn about angel investing: Meet and learn from experienced angel investors.
• Find deal flow: Join a syndicate to piggyback off the lead investor, who will handle terms, legality, and paperwork.
• Make initial investments: Invest smaller amounts in multiple companies to gain experience and see how angel investing works.
• Generate your own deal flow: Once you have made initial investments, you can start creating your own deal flow to access better opportunities.

In summary, angel investing offers high-net-worth individuals the opportunity to invest in and support startups, with the potential for high returns. However, it is a risky venture that requires careful consideration and a long-term commitment.

Frequently asked questions