High-net worth individuals (HNWIs) have unique investment needs and goals. They require investment options that offer stable returns, diversification, and low risk. In this blog, we’ll explore the investment options, and pitfalls, that HNWIs should consider to achieve these goals. Many consider fixed income to be the safest way to park money and avoid volatility but there is a catch to this. And it’s a BIG one. Let’s explore.
Stable Returns
HNWIs seek stable returns in their investment options. One way to achieve this is by investing in fixed-income securities, such as corporate bonds, government bonds, and other debt instruments. These securities provide regular interest payments and offer relatively predictable returns. However, any asset that is ‘traded’ can, and will, fluctuate in value which can destroy all the benefits of the fixed returns. We saw this recently when most US Treasuries lost 30+% of their value between June of ’22 and March of ’23.
Diversification
Diversification is a crucial factor for HNWIs when investing. By spreading their investment across different types of fixed-income securities, HNWIs can reduce the risk of loss due to the default of a single issuer. Diversification can be achieved in many ways. Investing in mutual funds or exchange-traded funds (ETFs) that focus on fixed-income securities or that use a predetermined built in diversification model. It sounds easy, however, the returns in this vehicle have historically been lackluster at best, and management fees wipe out of the profit they earn anyway. Additionally, a significant portion of a HNWI assets should be placed in something backed by a real tangible asset.
Low Risk
HNWIs are often risk-averse and seek low-risk investment options. Fixed-income securities with high credit ratings offer a lower risk of default than securities with lower ratings, but they rarely earn enough to even match inflation. Assets earning returns below the rate of inflation is the investment equivalent somewhere between burying money in the backyard and death by 1000 paper cuts. HNWIs can also consider investing in insured fixed-income securities, which offer additional protection against default but even lower returns.
Other Investment Options
Aside from fixed-income securities, HNWIs can also consider other investment options such as real estate, private equity, and hedge funds. Real estate can provide stable rental income and the potential for capital appreciation. Private equity and hedge funds offer the potential for higher returns but also come with higher risk, extensive due diligence and usually ongoing personal involvement. The holy grail of investing is to combine a predetermined return that consistently beats inflation, is backed by real assets that cannot go out of business, is completely passive, and exempt from market price volatility.
The Mid Atlantic Secured Income Fund
For HNWIs looking for diversification into an investment option that offers price stability, contractual inflation beating distributions, backed by real assets, and is 100% passive they may want to consider a non-traded real estate focused debt fund. The Mid Atlantic Secured Income Fund is a suitable option.
Conclusion
HNWIs have unique investment needs and goals. Achieving stability, diversification, and low risk in their investment options is crucial. Fixed-income securities, mutual funds, ETFs, and other investment options such as real estate, private equity, and hedge funds can provide HNWIs with the stability, diversification, and low risk they seek. The Mid Atlantic Secured Income Fund is an excellent investment option for HNWIs looking for stable returns, low expenses, and low volatility.