Tuesday, July 3, 2007

What the Wealthy are Doing with Their Money

So what are all those rich people doing with their money? We're not talking about $1,000 handbags, $2,500 bottles of wine, $400,000 cars, or 500-foot yachts . We're talking about what they are doing with the management and investment of their money. Most wealthy people are discreet when it comes to this topic. But every now and then, you can get a glimpse.

1. The Wall Street Journal (June 30-July 1, 2007, P. B3) reports that the wealthy (i.e., $1,000,000 or more in investible assets) have been pulling back from hedge funds and similar investments. In 2005, the wealthy invested about 20% of their assets in these so-called alternative investments. In 2006, they cut back to 10%. There are debates about whether this cutback is short term or longer term, but it's not a minor change and represents a shift away from some of the riskier investments.

2. Even if the wealthy are becoming more cautious about alternative investments, they aren't shy about taking risks generally. They own about half of all individually-owned stocks, and are often willing to borrow in order to finance investments. (Wall Street Journal, March 2, 2007, P. W2). Some also invest in collectibles--art, wine and so forth. Collectibles can be great, or awful, investments; but they are definitely risky.

3. Do the wealthy prudently save and build their net worth? Some do, but others have the spending gene. The Wall Street Journal (Feb. 23, 2007, P. W2) reported on a survey of Wall Street bankers and traders receiving bonuses of $2,000,000 or more in 2006, which revealed that they save, on average, 16.5% of their bonuses. Much of the rest went to buy residences, art, jewelry and watches, home improvements, horses, flying lessons, golf and "mistresses and other lovers." Apparently they believe that because they work hard, they deserve a lot of rewards.

4. The affluent think for themselves. A survey of mutual fund investors with at least $100,000 in investible assets that was reported in the March 15, 2007 edition of the Wall Street Journal (P. C13) revealed that affluent investors show little loyalty toward mutual fund management firms. Evidently, many investors evaluated the managements of their mutual funds quite critically. Vanguard, however, got more loyalty than other mutual fund management companies.

Does this tell you anything? Maybe you now have a few tidbits for the next cocktail party you attend. But as for your own finances, keep saving regularly and invest in a diversified portfolio. Don't think about the rich. Become one of them. Happy Fourth.

For more thoughts about wealth and wealth creation, please go to http://reachformagnificence.com/reach-for-magnificence-wealth-creation-carnival-2/.

Strange News: throughout America's Northland (Mich., Wis., Minn., etc.), ice carvings are a winter tradition. But, a cheese carving? http://www.wtop.com/?nid=456&sid=1178373

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