8 ways to diversify your investments like the ultra-rich do

One of the surest paths to financial security and profitable returns is diversifying investments, and the ultra-high-net-worth individuals (UHNWIs) know the art of it.

According to finance professionals, UHNWIs are people or households owning over US$30 million (about RM125.7 million) in liquid assets and sit at the topmost tier in the high-net-worth individuals (HNWIs) category. From luxury handbags to developing economies, the UHNWIs have a very strong investment portfolio, and they certainly don’t follow the herd.

While hundreds of thousands around the world would jump on the cryptocurrency bandwagon, the ultra-rich wouldn’t simply because they can see what ordinary investors cannot. So, here are some tips to diversify your investments like the UHNWIs.

(Main image credit: Jacob Spence/Unsplash)

The UHNWIs invest in handbags and wallets produced by some of the world’s most famous luxury brands like Chanel, Dior and Hermès. This is probably because of the status factor associated with such brands. And, to reach the position where they are today and hold on to it, the ultra-rich believe in spending on commodities with a high resale value. According to The 2020 Clair Report by Rebag, Hermès handbags have maintained an average 80 percent of their value while those by Chanel and Louis Vuitton have maintained a resale value of 63 percent.

This means that luxury handbags and wallets act like physical stocks, making them a perfect investment if you have some extra cash. According to Knight Frank, the prices of some of the most famous handbags produced by these brands have been consistently rising thanks, in part, to influencers. This has turned them into something that collectors want to get their hands on; commanding astronomical prices at auctions. Even during the pandemic, brands such as Chanel raised prices by at least 17 percent, indicating clear confidence in the demand for high-end handbags.

It’s a known fact that land is among the safest and one of the most trusted investment options, and the value of land usually appreciates. This is why people, including the middle class, buy residential plots and properties. The ultra-rich do the same thing. However, their outlook on buying a property and its size vary. Their buys include properties such as a palatial beachfront mansion, a villa in the mountains or a penthouse in the heart of London. UHNWIs invest in premium properties because of their time-tested resilience against market fluctuations and the fact that they will always be in demand., making them most likely to be sold at a higher price.

To the fabulously rich, fine wine can be like jewellery. They invest in fine wines because their prices are expected to rise in the future as they mature and become scarce. The fine wine market has been expanding and data proves that it is steadier than gold and even real estate. According to a report, the wine market is expected to grow by 4.28 percent CAGR (Compound Annual Growth Rate) between 2021 and 2026, and the fastest-growing market will be the Asia-Pacific.

However, it is a risky business, and you must be an expert to invest in the right kind of wine. Moreover, one of the most important concerns is storage, as wines need optimal conditions to mature. Thus, the investor must have a storage facility that meets such requirements or pay a fee to store wines in storing facilities. The other risks involved are breakage, spillage, market fluctuations, government regulations and climate change, among others.

Whisky, depending on its rarity and maturity, is also a commodity worth investing in. A prized whisky collection can be worth tens of millions. According to Forbes, among the most valued bottles of whisky are those that were distilled in now-defunct distilleries. Japanese whisky and Scotch are two of the most in-demand stocks. In 2019, The Macallan Fine & Rare 60 Year Old, which was bottled in 1926, was sold for US$ 1.9 million at a Sotheby’s auction in London.

The market of whisky auction has been growing significantly and collectors are now increasingly looking for insurance for their valuable stock. Asia is the most enthusiastic market for collectors’ whisky. According to the Knight Frank Luxury Investment Index at the end of 2018, growth in auction results of rare Scotch whisky has achieved returns averaging 582 percent over the last decade.

Over a uniform period, some classic cars can be more in value than stocks bought at the same price. The Historic Automobile Group International (HAGI), which is an independent think tank and research house with expertise in rare classic motor cars, has a series of indices centred on the market of vintage cars, ranging from Ferrari and Porsche to Lamborghini and Mercedes-Benz. Similar to the stock exchange, its Top Index tracks the worth of 50 benchmark models from 19 marques, indicating that the value of classic cars has risen significantly over the 10 years till 2019. Even though there was a slump in 2020 due to the COVID-19 pandemic, it witnessed a growth of 6.19 percent by the end of the year. The market capitalisation of McLaren F1, one of the most iconic cars in the company’s history, was up by 8.2 percent — the highest among the cars. Thus, given the history of the market for classic cars, an investment in iconic car models is indeed worth it.

According to a 2020 Knight Frank report, Fancy Color Research Foundation (FCRF) found that the average price of pink, blue and yellow diamonds have risen by 77 percent in the last 10 years. Pink diamonds have seen the highest growth in price at 116 percent, followed by blue diamonds at 81 percent and yellow at 20 percent.

Rarity is one of the reasons why they are such prized possessions — only one out of 10,000 diamonds can be naturally coloured. Besides pink, blue and yellow, diamonds are available in other colours, including brown, orange, green, purple and — the most coveted — red. It is essential to check the clarity of a diamond, its cut, shape and carat before investing in it. Colour is, of course, the most important factor.

It is noteworthy that the diamond market was hit when the COVID-19 pandemic began due to lockdowns or severe restrictions on movement. However, as things return to normal across the world, the diamond market, too, is expected to pick up the pace.

Investments in developing markets are better than those in developed markets. Many UHNWIs know that emerging markets have the highest growth potential. Therefore, an investment in such markets yields good returns. However, it is important to study the policies, politics and overall international economic forecasts of such countries before investing in them.

Though the pandemic has severely hit the economics of many countries, the World Bank estimates that growth in East Asia and the Pacific is likely to accelerate by 7.7 percent and 5.3 percent in 2021 and 2022, respectively, while that of South Asia by 6.8 percent in both years. Among nations that have a more promising outlook are China, India and Indonesia.