Monday, March 05, 2007

Super Rich: what they invest in

This from the Lex Column of last weekend's Financial Times. "As for investing, the simplest way is to imitate those who have already been there and done it -- the super rich. They have had a rip-roaring time of it in recent years. . . What is their secret? The answer appears to be surprisingly mundane -- saving pennies and diversifying exposure. A recent survey in the US found that they held almost nine-tenths of their investable assets in such things as cash, equities, bonds, managed accounts, and retirement plans. On average, this group saves almost a quarter of its gross income.

"Risk aversion makes some sense for the super-rich. If you are sitting pretty, why gamble? Some 43 percent of those surveyed said they preferred a guaranteed rate of return on their investments, up from 29 percent in 2003. The proportion of investable assets in alternative investments such as hedge funds has dropped steadily since 2003, from 9 percent to just 5 percent."

Here's how the rich are invested in 2007. They have 22% in alternative investments, 15% in real estate, 11% in cash, 21% in fixed income (bonds), and 31% in equities. In other words, they are quite diversified.

Currency valuations, stocks are not priced to provide attractive long-term returns. At current prices, I would just as soon own T-bills as stocks. Thus, I have recommended T-bills or T-notes for steady income, and gold and silver as protection against inflation. There are no bargains today, only the hope of success through speculation. Personally, I'll take the path of guaranteed return, which means bills and notes. I also like AAA-rated municipal bonds.

Sooner or later the bargains in stocks will appear. I'm in no hurry, I'll wait.


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