How do millionaires invest their money? High net worth individuals (HNWI) invest in different asset classes such as equity and Real Estate. Here are some details of how HNWI distribute their money over the different asset classes and how it has evolved over time.
Asset Allocation is different during COVID-19 Crisis
Investors typically reduce equity allocation and switch to safer asset classes during crises, but the COVID-19 crisis was an exception. During the 2002 tech bubble and the 2008 financial crisis, HNWI did indeed switch to safer asset classes (e.g. fixed income and cash products). Even those who invested in equity during the crisis preferred value stocks over growth stocks. (see also dividend aristocrats recession performance)
However, during the COVID-19 crisis (March 2020) HNWIs did not dramatically change asset allocations. In 2002 and 2008, the equity allocation was reduced to 20% and 25%, while in 2020-2021 there is no change in the equity allocation or fixed income & cash.
On a global scale, the alternative investments asset class allocation grew over the last 20 years.
Asset Allocation – regional differences
Depending on the region, HNWIs do allocate differently. In North America, the equities asset class formed a major portion of the HNWIs’ investment, about 37.7% of their portfolio. The remaining portfolio was allocated to cash and cash equivalents (21.2%), fixed income (19.7%), real estate (10.6%), and alternative investments (10.8%).
European HNWIs invested the largest share of their portfolio in equity i.e. 24.4%, significantly lower in comparison to the 37.7% in North America. In Europe, cash and cash equivalents (22.3%) are the second-largest asset class. The rest of their portfolios was allocated to real estate(18.7%), fixed income (17.3%), and alternative investments (17.3%).
In Latin America, the HNWI population sees cash and cash equivalents and alternative investments as the most attractive investment option with 22.2% and 20.5% of their portfolio. The remaining portfolio was allocated to equities (20.4%), real estate (18.8%), and fixed income (18.1%).
Interested in which stocks Warren Buffett is investing, see our Berkshire Hathaway tracker.