HOW THE RICH THINK ABOUT INVESTMENTS

Are They Different From the Rest of Us?

The rich, the super-rich and the merely rich around the globe are getting richer.  A report in The New York Times confirms what we already know, but it also tells us something about how they are thinking.

“The wealthy increased their percentage in equities in 2010 to 33 percent from 29 percent,” according to The World Wealth Report,” and that is expected to increase to 38 percent by 2012.”  At the same time, “they were spreading their investments around the world to reduce the risk from political, economic and financial uncertainty.” (See, “Picking the Brains of the Super-Rich, and Picking Up Tips.”)

The Institute for Private Investors said “the wealthiest people had at least a third of their portfolios outside their home countries. One in five had 50 percent of their money invested internationally.”  According to the World Wealth Report, “wealthy Asians were the only ones confident in investing in their own region.”

That makes sense.  The benefits of growth – and the risks of loss – are unequally distributed around the globe, and Asia is booming now.  Europeans and Americans lack confidence in the potential of their own economies, with South Americans being the most pessimistic of all.

But not only are the wealthy looking far afield for reliable returns, they are demanding more and more from their advisors.  An analysis by PricewaterhouseCoopers found “most investors had less trust and were less loyal to their advisers and were demanding more service than they were a couple of years ago.”

The report went on to make an intriguing and disturbing point:  many people with at least $3 million had not given any real thought to leaving an inheritance to their children. More worryingly, hardly any entrepreneurs said they had a succession plan in place for their businesses.

Why don’t they worry more about the future?  Could it be that they have so much money they don’t care?  But they care enough to keep making more.  Does making money make them indifferent to others?  Are they so preoccupied with making money in the present, they can’t give their attention to the future?  But good investments require attention to future growth and future risk.

Perhaps, though, it isn’t about the money at all.  At their level, the money they have made may be less about the goods and services they can buy with it than it is a measure of their status and success.   Just having the money may be the most important thing.

So they don’t plan for the future because making their money and having it has already bought them what they want.