High net worth (HNW) individuals usually have a considerable amount of their capital invested in non-financial assets. One particular lucrative investment outlet has always been the real estate market. Another popular mode of investment has long been investing the money in gold.
Real Estate v/s Stocks & Bonds
In India, the real estate market has long been the traditional haven for parking high-value investments into and has been popularly used by HNW individuals.
The initial cash outlay involved in a real estate investment is quite hefty but in the long run, it can prove to be a potential hedge against inflation. Since inflation is highly correlated to rental rates and property values, one can be only assured that with the rising inflation their real estate investment will catch up at the same speed.
However, these high net worth investors do not park their fund into real estate with the only intent to reap long-term capital appreciation. They invest in REITs or Real Estate Investment Trusts, which offer a basket of equities of property holdings. REITs are accessible to both HNW individuals as well as ordinary investors.
Many also milk short-term profits by revamping and ‘flipping’ an outdated residential property. While those having deep pockets invest into buy-and-hold development projects, which in the long run can result in returns as high as 50%.
HNW individuals also juice investment returns through asset-backed lending by funding mortgages or loaning to other developers. Thus they end up receiving returns higher than existing bank rates and earning more than the market.
The equity market as we know it is quite volatile while the yields from bonds are considerably weak, which makes real estate the most suitable option to reap stable returns and in fact beat inflation in the process.
Gold v/s Stock & Bonds
India’s wealthiest have been known to respond to economic worries by buying heaps of gold and moving out cash from the financial markets. Gold is seen as a hedge against crises, geopolitical events, and uncertainty. However, one must be clear; this kind of hedge is possible only when money is put into buying physical gold rather than paper gold.
Following the 2008 economic crisis, even though the markets have picked up, there is always a looming fear of uncertainty which has prompted HNW individuals into parking their money on gold. Even though gold does not offer any ‘coupon payments’ or ‘dividends’ and its real value is always dependant on market value, it always finds its way into asset allocation.
The rich might have a preferential bias on real estate & gold for their investments, but that doesn’t mean that they ignore the financial markets completely. These individuals have top wealth advisories giving them investment advice. They build up an active portfolio of diverse investments which also include stocks and bonds and keep on rebalancing them with the changing market trends.
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