Investing Like The Wealthy: Smarter Or Riskier?

LONDON – FEBRUARY 27: An elderly man handles in his pension book at the post office February 27, 2003 in London. Although employees’ contributions to pensions have risen by about 25 percent, he UK faces a pension crisis as employers have justified higher investment costs against contributing to pensions. Trade unions have become very concerned following the closures of many plans that would have guaranteed a fixed income upon retirement. (Photo by Graeme Robertson/Getty Images)

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The world’s high-net-worth individuals (HNWIs) began 2025 with portfolios that indicate both caution and conviction. They have increased their exposure to equities, maintained steady levels in real estate, reduced their bond holdings, and allocated a notably large portion to cash. Alternatives like private equity and cryptocurrency are also firmly integrated into their strategies. In summary, the wealthy are managing safety with selective risk-taking as market conditions change.

Why does this matter to you? Because they serve as early indicators of where sophisticated capital perceives risk and opportunity, often informed by top-tier research and advisors. Retail investors can apply the same themes using accessible tools such as ETFs, REITs, and bonds to enhance long-term results.

Wealth preservation is consistently a critical aspect of our approach. Trefis collaborates with Empirical Asset Management – a wealth management firm located in the Boston area – whose asset allocation strategies generated positive returns during the 2008-09 period when the S&P declined by over 40%. Empirical has integrated the Trefis HQ Portfolio into this asset allocation framework to deliver clients improved returns with reduced risk when compared to the benchmark index; it offers a smoother ride, as illustrated in HQ Portfolio performance metrics.

Wealthy individuals’ asset allocation

Here’s a brief summary of asset allocation among HNW individuals, based on insights from Capgemini Research Institute.

Public Equities (22%)

• Why: The emphasis is on growth and allocations have increased by approximately 1% year-over-year. The primary draw has been the long-term growth narrative surrounding AI, which is increasingly considered not merely a technology trend but a potential catalyst for industrial transformation.

Fixed Income (18%)

• Why: Bonds offer safety and income stability. Nonetheless, allocations have decreased by about 200 basis points from the previous year due to interest rate cuts diminishing yields. Investors are reducing their exposure, perceiving less relative value in this area.

Real Estate (19%)

• Why: Considered both an inflation hedge and a long-term diversifier for portfolios. Allocations are slightly above historical averages, reflecting the demand for tangible assets that can maintain value throughout market cycles.

Alternative Assets (15%)

• Why: There is a desire for diversification and non-traditional sources of returns. This encompasses private equity, hedge funds, commodities, and cryptocurrency. Investors are pursuing higher returns and uncorrelated assets beyond mainstream markets.
• Private Equity (16% of Alternatives): HNW investors favor private equity for its access to high-growth and high-value companies outside of public markets, providing diversification and improved long-term return possibilities.
• Cryptocurrencies (15% of Alternatives): Cryptocurrency is perceived as a small but potentially lucrative gamble, with investors viewing it both as a speculative growth opportunity and a safeguard against inflation and currency risks.

Cash & Cash Equivalents (26%)

• Why: The largest allocation, emphasizing a value placed on liquidity and optionality. Maintaining substantial cash reflects caution amidst global uncertainties, while enabling investors to quickly capitalize on new opportunities or price inefficiencies in the markets.

What would have happened if you invested similarly over the last decade?

SPY generated higher raw returns over the previous ten years (13.5% vs 11.8%), but the HNW-style portfolio exhibited significantly less volatility at 10.6% versus 15.5%. This reduction in volatility translated into a considerably higher Sharpe ratio (92.4% vs 77.6%), indicating better returns per unit of risk. In essence, even though you might have sacrificed some annualized return by not fully committing to SPY, you would have greatly minimized portfolio volatility while retaining cash liquidity. This might encapsulate the principle of prudent asset allocation – accepting somewhat lower raw returns in return for a superior risk-adjusted payoff.

Risk vs. Return

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However, there are some important considerations to keep in mind. Smaller investors need to be cautious about allocating too much to illiquid assets or incurring higher fees, as this may constrain flexibility and hinder returns. Without the same scale, access, and safety nets in place, the dangers of over-diversification or concentrated losses become amplified.

Final Thoughts

The investment strategies of the wealthy demonstrate a clear approach: safeguard liquidity, seek growth, and diversify intelligently. But are these allocation proportions optimal? The potential outcomes are limitless – Imagine the long-term performance of your portfolio if you combined 10% commodities, 10% gold, and 2% crypto alongside equities?