There are many key financial lessons to be learnt from the super-wealthy. So, just who are these super-wealthy people? They belong to the categories called high net-worth individuals (HNIs) and ultra-high net worth individuals (UHNIs). There is no clear definition of the two categories in India; on a global scale, an HNI is someone who has $1 million as an investable surplus, while a UHNI is someone with a surplus that is more than $10 million. In India, roughly, an individual whose investible surplus is over Rs 5 crore is deemed an HNI, while those with over Rs 30 crore is considered a UHNI
A recent Oxfam report notes that the richest one percent in India grew their wealth by 39 percent in 2019. So, what are the super-wealthy doing, and how does one learn to manage money like them? Read on for these five tips:
1. Get your foundation right
Understand your goals, learn more about your risk profile and appetite; chart out where you want to be five or ten years down the line. Discipline and an understanding of investment options, risks and the general economic climate are very important. The super-wealthy got where they are because they did their research and had a respect for wealth. Take a leaf out of their book and see how you can increase your sources of income and then build on that wealth.
2. Develop a mindset where investment reigns supreme
The super-wealthy don’t just allow their earnings to accumulate. They constantly think in terms of where to invest so as to make their wealth work for them. Investing is at the crux of growing wealth. Savings are important but they don’t lead to wealth creation; so while you create a safety nest, you should also have a part of your wealth made available for investments.
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3. Seek wealth management services
Professional wealth management is all about offering the right bouquet of investment options and tax management, apart from advisory on legal and inheritance issues. They also offer retirement planning and any other financial goal-based plans. Professional wealth managers are able to review all your current investments, design an optimal plan to grow your wealth, review the status and make necessary course corrections. You too can seek their services so you have a one-stop solution for all your wealth needs.
4. Be open to a variety of investment options
The UHNIs and HNIs are open to a range of investment options, from private equity and venture capital to alternative investment funds (AIFs). They appreciate the power of compounding and are interested in mutual funds as well. The super-wealthy are unafraid to think out of the box. Even though you may not belong to the category of UHNIs or HNIs yet, and may not be able to avail of a lot of these niche investment products, the lesson you can learn is to show some openness when it comes to your investments.
5. Manage and balance your risks
The ultra-wealthy don’t shy away from taking risks; however, this doesn’t mean they blindly rush in to invest in any new financial product. They appreciate taking risks while also learning to balance them by ensuring a certain amount of control over their areas of investment. To preserve capital, the HNIs and UHNIs choose structured products. These products are basically a combination of asset classes so that a tailor-made investment strategy is evolved. Structured products ensure diversification and capital protection while not affecting returns. To grow alpha, they opt for private equity or venture capital, thus maintaining a fine balance between risk and safety. The lesson here is not to follow the same investment path as the super-wealthy but to understand the principle behind their investments, which is striking a balance between risk-taking and safety.
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In a nutshell
To sum up, the super-wealthy in India and across the world have focused on diversification of assets, and striking a balance between capital protection and wealth generation. They have been unafraid to take risks while also apportioning some wealth in safe financial products. They seek the services of wealth managers who understand their needs and customise solutions to suit their financial situation. You too can follow these principles to get into their club. Just look up Tata Capital for all your wealth management needs. Professional wealth managers will craft solutions that will place you in the super-wealthy club in good time.