On How The Rich Invest

On How The Rich Invest, Robert Frank, « The Wealth Report », Wall Street Journal, 16 juin 07
The rich are different – especially in the way they invest.
According to a recent study by Prince & Associates, the wealthy are much more likely than the broader population to put their money into hedge funds, private equity and start-up companies – investments out of reach of most everyday investors. The rich avoid the investments favored by the masses, like exchange-traded funds, or ETFs, and mutual funds.
Just as interesting are differences among the affluent, rich and super-rich. More than two-thirds of respondents with a net worth of $500,000 to $1 million invest in exchange-traded funds, and more than half invest in mutual funds. Only 1% of respondents with a net worth of $5 million to $10 million invest in mutual funds, only 17% in ETFs. Among those with a net worth of $20 million or more, none invest in mutual funds and less than 1% invest in ETFs.
More than a third of those with a net worth of $20 million or more invest in start-up companies, compared with 6% of those in the $1 million-to-$5 million category. They also like to put their money into hedge funds and private equity, with 76% of the $20 million-and-up crowd investing in hedge funds.
That isn’t to say that hedge-fund and private-equity returns are necessarily better than mutual funds and ETFs. With returns for « private money » under pressure, with fees going up and with investments becoming more and more correlated, it could be argued that the rich have more exclusive investments but that they don’t always get better returns.

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