Don’t tell anyone, but if you want to be rich you have to think rich. Private bankers and financial advisers share the secrets of their richest clients with YMM for you to follow.
Follow these top 10 wealth-building tips from Australia’s richest families and you will be joining the ranks of Frank Lowy, Gina Rinehart and Clive Palmer in no time at all.
- Build from the ground up
Most of Australia’s 20 wealthiest names have built their fortunes from property or mining. They then diversify into other investments, but they literally start from the ground up.
The exceptions are, of course, the Packers (media and gaming), Pratt (diversified), Liberman (diversified), Neilson (financial services), Stokes (media) and Besen (retail). So if you don’t like real estate or mining, consider media, packaging or retail as your starting point.
- Stash your cash
The top 100 “family offices” in Australia have masses of cash, potentially over AU$20bn. Fixed income investments are a feature of the portfolios of both the mining and property family empires. Of course, since the GFC high-net-worth individuals have generally adopted more conservative/defensive strategies. Bank deposits are expected to remain one of the most important types of investments for Australia’s wealthiest families.
- Take a well-calculated risk
The GFC has made wealthy Aussies a bit more conservative but overall they have a greater appetite for risk than their Asian counterparts. That may explain why they are keen on equities, despite ongoing market volatility and they are willing to give alternative asset classes a go too.
Our property magnates usually like to diversify into shares, hedge funds, fixed income investments and other alternatives. Mining wealth families seek to diversify their wealth base by investing in real estate, fixed income and alternatives.
Shares remain the highest proportion of high-net-wealth portfolios in Australia. The next most popular category is alternative investments, then fixed income and real estate.
Affluent investors are much more inclined to be interested in hedge funds than Asian high-net-wealth investors. This may be because Australian hedge funds are regulated in the same way as other managed funds. Australia’s largest hedge fund managers have over $20bn in assets, most of which comes from high-net-worth investors.
- Show you care
Australia’s mega-rich are also early adopters of responsible investing, wishing to incorporate environmental social and governance considerations into their investment decision making. They also recognise that this sector often delivers superior returns to more conventional investment management so they’re getting in ahead of the pack.
- Get yourself educated
High-net-worth individuals have superior knowledge about investments and how markets work so if you want to join their ranks you need to get yourself informed. If you are well-educated about financial products and markets you will be more likely to make better choices and not get the wool pulled over your eyes by wealth experts more interested in lining their own pockets than helping you.
- Demand excellence
High-net-worth individuals demand excellent service from their wealth professionals. They also choose carefully and stick with the same team of wealth pros rather than chopping and changing. They are after long-term relationships, loyalty and excellence so you should demand those things too.
They also deal with wealth professionals with strong financial backing, not backyard operators. They expect their advisers to have an in-depth understanding of financial products and markets.
- Keep it simple
Our magnates tend to have a higher exposure to equities and alternative investments but they also like clean and simple strategies and products. They seek simplicity and transparency when making investment choices.
- Keep your friends close and your enemies closer
Gina Rinehart’s recent efforts to keep the details of a family feud away from the media and public offers great insight into how very private our wealthiest families and individuals are about how they manage their affairs. The objective is always to keep your wealth within your family, which means keeping your family close, involved in the business and happy.
- Clean as you go
A strict regime of keeping the family’s affairs in order is very important to the rich and powerful. One example is the popularity of margin lending facilities. They were trendy a couple of years ago but private bankers report some high-net-worth clients that haven’t used their margin loan facility for a few years are deciding to shut them down.
- Plan for the worst, enjoy the best
Not all high-net-worth individuals will go as far as needing kidnap insurance for themselves and their heirs but estate planning and risk protection are very important elements of building and preserving wealth. So don’t forget to have a current will, up-to-date beneficiaries and adequate insurance for your assets and income.