A high-net-worth individual (HNWI) is someone whose wealth exceeds a specified threshold established by the financial services sector. Those that fit this profile typically have more than $1,000,000 in liquid assets.

Simply put, liquid assets are any resources that can be quickly and readily changed into cash. This does not include the person's primary residence or valuable but difficult-to-sell items like fine art or antiques.

Ultra-High net-worth individuals have at least $1 million in liquid assets and some other assets that can be converted to liquid money, such as government bonds and certificates of deposit. Stocks and bonds are not typically included in lists of liquid assets since they might lead to losses if you sell them at the wrong time. On the contrary, Wealthy people often have bonds and stock holdings in their investment portfolios.

This group is the typical clientele for financial advisory services. Let's look at some of the investment opportunities available to high-net-worth individuals.

Equity Investments

High net worth individuals (HNWIs) can do well by investing in private equity. Private equity firms have investments in private corporations. They also "go private" or buy troubled public corporations to reorganize them. Financial planning for high net worth individuals includes Private equity investments that provide diversity and higher returns than stock investments.

Private investment firm Cambridge Associates claims that over the 30 years ending December 31, 2019, their U.S. Private Equity Index significantly outperformed the S&P 500 public market equivalent proving to be a beneficial financial plan for high net worth individuals.

Always remember that returns can be better or worse when comparing private equity to public enterprises depending on the period and benchmarks employed. Furthermore, unlike statistics on the performance of publicly traded stocks, information on the success of private equity investments is often kept under wraps.

Private Credit

When a business needs cash but doesn't want to go the bond or bank loan route, it may seek out private credit. It's like getting a loan from a friend rather than a bank; the process is quick, flexible, and protects your privacy.

Private credit typically has higher interest rates than other forms of credit, partly because it is significantly less liquid than other forms of credit. A private loan can't be resold, transferred, or redeemed anytime.

Another drawback (or benefit, depending on your perspective) is that the rate is usually flexible.

Private credit extension is an excellent strategy to diversify and increase passive income. You can do this in various ways, such as through private credit funds or as the sole supplier of a loan to a business. Companies of any size, age, or sector can apply for secured or unsecured loans, with collateral including aircraft, railcars, or receivables.

Real Estate Investment

Apartment complexes, retail plazas, offices, petrol stations, storage facilities, and industrial condos are all examples of real estate. This also involves working with a property management firm to deal with issues like routine upkeep and tenant complaints.

While the potential benefits of cash flow, inflation protection, and deferred capital gains taxes via 1031 exchanges are universal, the dangers associated with individual types of commercial real estate vary widely. In addition, if you're a responsible landlord, your investment may help improve the neighborhoods in which you've placed your properties.

Want more variety in your life, or don't feel like becoming a landlord? Sure, no sweat. Real estate investment trusts and private REITs like Fundrise still allow investors to acquire exposure to this market. Also, choose from a range of ETFs that focus on real estate investment trusts.

Investment-Grade Corporate Bonds Compared to government bonds and muni bonds, corporate bonds offer more considerable return potential while maintaining minimal risk and capital preservation.

You can use them to make interest-bearing loans to businesses that trade on public exchanges. According to SIFMA, a trade group for the U.S. securities industry, $453.9 billion in corporate bonds were issued in Q1 2023, of which 88.2 percent were investment grade.

Corporate bonds are more liquid than real estate or private equity funds, primarily when held in the form of bond funds, and bondholders are repaid before stockholders if a firm runs into financial problems.

The purchasing power of your fixed-income payments may decrease over time due to inflation, and the face value of a bond will rise or fall depending on market interest rates.

FAQs

How much money do you need to start investing in hedge funds?

Individuals can only invest a minimum of $1 million in hedge funds. However, the minimum investment required to participate in a hedge fund may change based on the hedge fund's strategy and the investor's location.

How can ultra-high net worth individuals use private equity investments?

Accredited investors, who must meet specific financial requirements, are often the only people who can purchase private equity investments. Accredited investors meet specific financial requirements, such as $200,000/annual or $1 million net worth.

Is real estate investment risky?

The value of a piece of real estate may rise or fall depending on current market conditions, making it difficult to predict returns. Vacancy rates, maintenance costs, and tenant turnover are all potential headaches for property managers. When investing in real estate, it's crucial to do your research and team up with seasoned pros.