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- Mar 24, 2009
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How to stay Richer
I`ll let you in on a little secret: Wealthy investors do not have any more insight into where the market is going than the typical Main Street investor.
Consider last year`s calamitous market plunge -- very few wealthy investors saw it coming. To the contrary, according to a survey of millionaires by Northern Trust in the fall of 2007, the overwhelming majority expected positive returns from stocks in 2008, while 13% were outright bulls, anticipating returns of greater than 10%. Further, the richer the investor, the more optimistic they were. The U.S. market`s 38% drop must have been a shocker.
So it isn`t prognostication skills that make the wealthy savvy with their money. Instead, in my experience, it is their tendency to focus on three critical aspects of successful investing.
First, they diversify across a wider range of asset classes and investment strategies. According to the Capgemini Merrill Lynch 2008 World Wealth Report, millionaires globally invested in a varied mix that not only included the traditional asset classes of cash, fixed income and equities, but also allocations to real estate and alternative investments.
Robust asset class diversification can improve a portfolio`s returns without a corresponding increase in risk. Or, as the saying goes, "diversification is the only free lunch available in investing." As a case in point, certain alternative investments such as gold, managed futures and low directional equity long/short hedge funds were superb buffers in the stormy markets of 2008. Wise investors avidly pursue the free lunch of optimal diversification at the asset class level.
Read the full article here.
I`ll let you in on a little secret: Wealthy investors do not have any more insight into where the market is going than the typical Main Street investor.
Consider last year`s calamitous market plunge -- very few wealthy investors saw it coming. To the contrary, according to a survey of millionaires by Northern Trust in the fall of 2007, the overwhelming majority expected positive returns from stocks in 2008, while 13% were outright bulls, anticipating returns of greater than 10%. Further, the richer the investor, the more optimistic they were. The U.S. market`s 38% drop must have been a shocker.
So it isn`t prognostication skills that make the wealthy savvy with their money. Instead, in my experience, it is their tendency to focus on three critical aspects of successful investing.
First, they diversify across a wider range of asset classes and investment strategies. According to the Capgemini Merrill Lynch 2008 World Wealth Report, millionaires globally invested in a varied mix that not only included the traditional asset classes of cash, fixed income and equities, but also allocations to real estate and alternative investments.
Robust asset class diversification can improve a portfolio`s returns without a corresponding increase in risk. Or, as the saying goes, "diversification is the only free lunch available in investing." As a case in point, certain alternative investments such as gold, managed futures and low directional equity long/short hedge funds were superb buffers in the stormy markets of 2008. Wise investors avidly pursue the free lunch of optimal diversification at the asset class level.
Read the full article here.