High-Net-Worth Individuals Always Invest In Property And Land
High-net worth is a generic term. But for our purposes, we define it as people with more than $1 million in liquid assets.
Interestingly, people who have a lot of money don’t always plow it into stocks. Data suggest that the world’s wealthiest individuals typically invest in property and land.
But why do they do this? Why put so much money into property and land?
When you look at the accounts of very wealthy people, you notice something unusual. They tend to buy assets that few other buyers care about.
People worth more than a million dollars, for instance, often buy land for development. In fact, it is the most popular type of investment for people in this category. After that, comes agricultural land – again, not something people on regular incomes buy.
What Does This Happen?
Partly it comes down to the desire for security. The wealthy know that a parcel of agricultural land is always going to be valuable. It doesn’t matter which political party is in control. People still need to eat.
Land for development is also critical, but for a different reason. The wealthy know that pockets of land outside towns have the highest rates of return. Holding onto them and then selling them to a builder can net significant earnings.
However, Jeffrey Bernard, an insurance expert, points out that these investment strategies are still risky. Super wealthy people like to take advantage of opportunities as they arrive. But at the same time, there are risks.
Investment properties, for instance, can remain vacant for long periods. Furthermore, developers may not want to buy land for development if there is a downturn.
In some countries, the protections for investors are excellent. A high-net-worth individual knows that their property ownership will continue if they buy in the US. For that reason, it makes sense to purchase multiple properties. Political conditions can turn on a dime elsewhere in the world. But wealthy individuals know that their assets are safe in America.
Wealthy investors also have to deal with the fact that currency moves affect the value of their assets. Right now, for instance, the dollar is riding high. But that could soon change if there is an economic recovery in the rest of the world.
Wealthy people like to hold assets in particular countries because it protects against these fluctuations. A wealthy American who owns European stocks, for instance, loses when the value of the dollar rises. He has to sell more shares to earn the same number of dollars in return.
Property and land, however, don’t respect these changes. They remain on the books locally.
Capital controls are also an issue for wealthy investors. Most want to be able to transfer their money from one country to another. But sometimes governments can prevent this. We saw something along these lines in China a few years ago.
Being high-net-worth, therefore, brings a kind of stress of its own. The desire not to lose wealth means diversifying beyond a traditional stock portfolio.