I’m a Financial Advisor Who Works With the Ultra-Rich: Here Are the Top Money Trends I See in 2023
From interest rates, inflation and real estate to stocks, bonds and crypto, 2023 has been a wild financial year that’s proven difficult to navigate — and not just for regular people worried about their 401(k) plans and household budgets.
The last nine months have thrown plenty of curveballs at the ultra-rich, too.
GOBankingRates spoke with three financial advisors whose client lists include some of the wealthiest people in the world, and they’ve seen a few patterns emerge among the 1% and how they handle their mountains of money. This year, the rich are defending their principal, exercising a substantial degree of caution and saving like their wealth depends on it — which it does.
Super-Saving Is Trending Among the 1% in 2023 — But What Else Is New?
On Aug. 21, the Federal Reserve Bank of St. Louis released a report titled “How Do the Rich Become and Stay Wealthy?”
It found that unlike the bottom 90% — who exchange their labor for 80%-90% of their lifetime income — the wealthiest 0.1% depend on capital gains and other equity holdings for 83% of their combined earnings.
But the biggest differentiator between the haves and have-nots isn’t where their money comes from — it’s what they do with that money once they get it.
The report — which studied wealth accumulation among the richest households for decades starting in 1995 — stated, “The wealthiest 0.1% of households had saved 70% of their gross income…”
Cash Is Capital: Every Dollar You Save Today Is One You Can Invest Tomorrow
The report found that initial wealth is the chief source of affluence for “old money” families — they were born rich and kept getting richer. But most of the “new money” elites who began their careers in the bottom quarter saved their way into the top 0.1%.
None of this surprises certified financial advisor Michael Hammelburger, CEO of The Bottom Line Group, a cost segregation firm in Baltimore. He has counted the ultra-wealthy among his clientele for years, and in 2023, he sees outsized saving as the dominant trend among the aristocracy — but it’s always been that way.
“Wealthy people are very keen on saving money,” Hammelburger said.
The ultra-rich don’t zealously save to build gigantic emergency funds or capitalize on the safety of FDIC insurance. The rich stockpile cash because capital is the fuel for wealth generation.
“Saving money is a key component to getting rich,” Hammelburger said. “You need to have money to invest, and the more you have saved, the more you can invest.”
Today’s high savings rates give ordinary people a chance to think like the 0.1% and squirrel away as much cash as possible with an eye on using that money to make money in the future.
“Try to live below your means and save as much money as possible,” Hammelburger said.
The Ultra-Rich Are Playing It Safe and Sitting on the Sidelines
Known as “The Millionaire Mentor,” Hither Mann is a financial trader, real estate and hedge fund investor, international speaker, performance coach to private wealth bankers and founder of the Fortune Academy, which has trained 25,000 students in wealth creation and management since 2016.
She’s seen one trend emerge above all others this year during her time advising the world’s elite on the French Riviera — the ultra-rich are not receptive to advice if it involves taking risks.
“My experience from working with investors and wealthy residents in Monaco is quite simple,” Mann said. “They do not trust financial advisors — banks or otherwise — and will often stay in cash and pay the costs in deflation. They are aware their wealth came from decisions far superior to those offered to them by financial advisors.”
They’re Willing To Trade Purchasing Power for Financial Control
The markets are behaving oddly, interest rates are rising and there’s continued talk of a looming recession. The 1% have responded by staying in a holding pattern until the clouds clear, even if it means losing purchasing power to inflation and missing out on gains from potentially lucrative real estate deals.
“Control is the main criteria in their investment strategy,” Mann said. “They would rather stay in cash or invest in a brick-and-mortar project such as existing real estate, where they have a charge over the property entirely. Property development is frowned upon unless this super-rich clientele has some sort of control over the exit strategy of the development. If they do place their wealth in any venture seen to be more speculative, it is sure to be a very small percentage of their overall wealth. Capital preservation and control is the main approach to the investment strategy of those nine- and 10-figure individuals in Monaco.”
For Both the Rich and the Really Rich, Defense Is the Name of the Game
Aaron Cirksena is the founder and CEO of MDRN Capital, a retirement planning and investment advisory firm focused on investment management, income and tax planning, healthcare and Medicare planning, and legacy and estate planning.
Like Mann, his clients have been cautious in 2023 — they, too, are concerned with defending their principal above all else. The difference is that they’re not comfortable simply hoarding cash.
“Whether from the very wealthy $5-million-to-$10-million-plus crowd, or even our more typical retirees in the $1 million to $3 million range, we have seen an increased desire to protect portfolios,” Cirksena said. “Whether that means using money market funds — or, in many of our clients’ cases, uncapped fixed indexed annuities with no fee — there has been a large desire to protect capital after we’ve had a bit of a recovery from the market downturn last year.”
Even Bonds Are No Longer Safe Enough for the Safety-First Crowd
The other big trend Cirksena has seen is a desire among the monied class to get out of underperforming bond portfolios.
“We’ve coached clients on this for the last 10 years,” he said. “They’ve been paying fees in many cases for half of their portfolios to lose money in bonds. Last year simply ripped the mask off that side of their portfolios as both equities and bonds declined severely. Again, as an alternative, we have used both money market accounts and uncapped fixed indexed annuities with no fee for our high-net-worth clients, as it has provided them with reduced fees, increased upside potential and full principal protection versus bonds.”
So, what does all that mean for garden variety investors who don’t have positions in uncapped fixed indexed annuities?
“The biggest thing regular people can learn from these items is to pay attention to what they own in their portfolio and understand how their investments will react in different environments,” Cirksena said. “Don’t simply go with the status quo because it worked well in the past as the future could look very different — and don’t wait to make adjustments until we are in the midst of another downturn.”
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