Rich are making big changes to their investments

If you want to make money from your investments, it makes sense to keep a close eye on what successful investors are doing.

That was the whole idea behind Robert Kiyosaki’s seminal 1997 book Rich dad, Poor Dad, which sold an amazing 32 million copies.

There have been many criticisms written of that book – some of them justified – but the idea of investing like the rich do is still basically sound, even if the “Rich Dad” from the book has never actually been identified.

One of the more interesting measures of what the wealthy investors are up to in Australia has been produced by research consultancy Investment Trends, with the changes that the wealthy are making now particularly interesting.

Just before we look at those changes keep in mind that Investment Trends classifies people as “high net worth” if they have more than $1 million excluding the family home but including self-managed superannuation fund assets, “established affluent” if they have between $2.5 million and $10 million and “ultra-high net worth” with more than $10 million outside their house.

Big investors looking for sustainable income

According to the report, the wealthy are quite concerned with the current investment environment, with the main concerns being high inflation, a possible return to the White House by Donald Trump and the poor state of the Chinese economy.

“With increasing inflation and costs of living the proportion of [high net worth] investors looking to primarily target a sustainable income stream has surged in the past year to 38%, up from 33% in both 2022 and 2021,” the report said.

“The mindset shift towards income generation is consistent across all wealth brackets.”

Term deposits preferred to capital growth

Only 8% of ultra-high net worth respondents had ambitions to maximise capital growth compared with 20% two years ago.

Despite that more conservative stance, they still nominated Australian equities as the best asset class for high-yield generation.

“The typical high net worth investor portfolio now has greater exposure to term deposits after four consecutive years of decline,” the report said.

That is a very interesting change and demonstrates that when the rate of safe returns for cash goes up, concerns about returns from other sectors go up as well.

Survey respondents were also worried about Labor’s plan to double tax on individual superannuation assets above $3 million from 15% to 30%, which shows up as a spike in concern about “regulatory change”.

That is not surprising given that 90% of ultra-high net worth Australians have a self-managed superannuation fund.

The federal government has announced the tax increase but it will not begin until 2025, which is after the next federal election.

Given the debate over how super funds are being used by the wealthy as a form of estate planning rather than for retirement income, the report found that self-managed super funds are the “prevailing structures that come to mind for high-net-worth investors considering wealth transfer, with 33% either currently using or intending to use them for this purpose”.

“More [wealthy Australians] than ever have self-managed super funds, and the wealthier they are the greater that percentage.”

Established affluent group adds 45,000 Australians

Interestingly, one of the ranks that underwent the biggest changes was the established affluent one (assets between $2.5 million and $10 million), with an extra 45,000 Australians last year graduating into this group, thanks to strong market returns and property valuations.

“Overall, the number of affluent investors increased over the last year to 635,000 investors and they hold $3 trillion in investible assets,” the 2023 Investment Trends/Praemium High Net Worth Investor Report said.

The growth in the ranks of the established affluent came about because of this group’s concentration of investments in the share and property markets but all of the affluent classifications are very concerned about the outlook for the coming year.

Which just goes to show that no matter where you are on the wealth spectrum, there are always worries, even if by objective measures they are financially far more secure than the majority of other people.