While gold and stocks have traditionally been the go-to investments, the world's wealthiest are increasingly diversifying their portfolios into alternative assets. This shift reflects a desire for higher returns, lower volatility, and a hedge against inflation and market uncertainty. Here's a glimpse into what the richest are buying now.
Luxury Assets and Collectibles
Luxury assets, spanning from rare timepieces to vintage wines, are gaining traction as investment vehicles. The luxury goods market has demonstrated remarkable resilience, growing an estimated 11% to 13% year-on-year in 2023, despite geopolitical tensions and macroeconomic challenges. Collectible cars, particularly those favored by younger collectors like Lamborghinis and BMWs, continue to attract interest. Fine art, especially contemporary pieces by female artists, street art, and culturally significant works, offers emotional, aesthetic, and financial returns. Other popular luxury investments include designer handbags (particularly those from Hermès and Chanel), yachts, and even high-end fashion.
Real Estate
Real estate remains a robust alternative investment, offering both income and appreciation. High-net-worth individuals often invest in luxury properties, commercial real estate, and development projects, seeking steady cash flows and long-term capital growth. Despite economic uncertainties, real estate remains a preferred asset class, with HNWIs allocating up to 32% of their portfolios to property investments. The luxury real estate market has shown resilience, with prices surging 65% from Q4 2019 to Q4 2023, surpassing the growth in the non-luxury segment. Wellness-oriented properties with green building materials and biophilic designs are also gaining popularity.
Private Equity and Credit
Private equity remains a cornerstone for high-net-worth individuals seeking substantial returns. By investing in private companies, investors can participate in the growth of businesses with high potential. Private credit, involving lending to private companies or participating in private debt funds, has also become more popular as investors seek different ways to generate income. These investments are often chosen as a hedge against inflation and to maximize returns.
Digital and Crypto Assets
Despite volatility, cryptocurrency remains a notable alternative investment. High-net-worth individuals view it as a speculative asset with high return potential, driven by advancements in blockchain technology. Tokenized real estate, digital art, and blockchain-backed assets are reshaping the investment landscape. However, it's important to note that interest in cryptocurrency among high-net-worth individuals has decreased, accounting for a small percentage of their portfolios compared to other alternative investments like art, cars, and wine.
Other Alternative Investments
Commodities, including precious metals like gold, offer a hedge against inflation and currency devaluation. Gold, for example, has historically performed well during periods of geopolitical or financial instability. Investing in cask whiskey and vintage wine is also gaining traction, offering impressive returns and tangible enjoyment. Even citizenship by investment programs are becoming popular, combining ROI with greater freedom of movement.
Key Considerations
The effectiveness of alternative investment strategies depends on market conditions, personal goals, and risk profiles. Alternative investments often require longer holding periods and involve higher risk-reward profiles. Due to their complexities and higher minimum investment requirements, they are generally restricted to accredited investors with substantial investable assets. It's crucial to work with a trusted advisory team to monitor and adjust financial plans regularly. Diversification across asset classes remains a key strategy to reduce exposure to market fluctuations.
