High-net-worth investors are those with at least $1 million in investable assets. While hard-and-fast investing rules like keeping tabs on asset allocation, holding a diversified set of assets and focusing on long-term investments apply to everyone regardless of how big their portfolio, some strategies specifically benefit those who already have substantial money to work with. Here are five investment strategies for high-net-worth individuals in 2022.
A financial advisor could help you put a financial plan together for high-net-worth needs and goals.
High-Net-Worth Investment Strategy #1: Hedge Funds
Hedge funds are a type of alternative investment strategy which cater to those with a high-net-worth, often requiring minimum investments of at least $1 million. A hedge fund pools the money of all investors to make complex investments, including investing in various derivatives. Types of hedge funds include long-short funds, market-neutral funds and event-driven funds.
Hedge funds are perfect for high-net worth investors as they have the potential for big earnings. There is also some significant risk attached to these types of complex investments, but high-net-worth investors should have the cash to allow them to take those risks.
High-Net-Worth Investment Strategy #2: Private Investing
Wouldn’t you have loved to be an early investor in any of the companies that now dominate the world? Facebook, Netflix, Twitter and other tech firms all started off as small companies and needed private investing. If you’re a high-net-worth investor, you have the ability to find the next Mark Zuckerberg and get in on the ground floor.
This investment strategy obviously takes a bit of work and more than a bit of luck. You have to put in the time and effort to find an entrepreneur who you believe in and who has a product or service you think can make it big — or be lucky enough to have someone come to you. There’s also significant risk here, as most companies don’t end up becoming worldwide successes. If you hit it big here, though, there’s a chance you’ll be hitting it very, very big.
High-Net-Worth Investment Strategy #3: Tax-Free Municipal Bonds
When you’re a high-net-worth investor, keeping you tax bill under control is almost as important as the investments themselves. That’s why municipal bonds are attractive to high-net-worth individuals even if they aren’t as exciting as some of the other strategies on this page. Municipal bonds earn money and aren’t subject to taxes. They might not have as high of yields as a riskier investment, but municipal bonds provide a high-net-worth investor with steady growth that isn’t subject to Uncle Sam’s hands.
High-Net-Worth Investment Strategy #4: Give to Charity
Giving money to a charity that means something to you can benefit you in multiple ways. First off, it should give you a good feeling for giving some of the money you’ve earned to help other people. Giving to charity is a good investment strategy too, though. Charitable donations are deductible on your taxes each year, so it can help you lower what you owe to the government each year.
There are specific rules for how charity can help you on your taxes, so make sure you understand how it works or get help from a financial advisor.
High-Net-Worth Investment Strategy #5: Traditional Investments
Finally, a reminder that investing in traditional asset classes like stocks and bonds can also be a very important part of a high-net-worth investment strategy. The big difference, though, is that high-net-worth investors can use their money to build a vast, diversified portfolio. Dividend stocks, growth stocks and myriad bond classes can all be part of your strategy.
High-net-wort investors can also mix up their strategies in terms of time-horizons. Certain short-term investments can be flipped quickly if an opportunity is there — but for the most part, long-term investing should likely make up the majority of a high-net-worth portfolio. Buying and holding allows high-net-worth investors to really take advantage of economic growth.
Bottom Line
High-net-worth investors can look to various investment strategies to build on their wealth and make their money work for them. Hedge funds, municipal bonds, charity and traditional investing can all be part of the plan. Building a diversified portfolio is still key, and the extra cash makes it possible to invest across the spectrum.
Investing Tips
- It’s even more crucial for high-net-worth investors to get professional help to protect and build their fortune. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use SmartAsset’s free investment calculator to get a sense of what a particular investment might look like down the road.
Photo credit: ©iStock.com/Petar Chernaev, ©iStock.com/AzmanJaka, ©iStock.com/FlamingoImages