Most high net worth investors want to avoid excessive investment risk, yet they also expect a high return on investment. Learn more.
Most high net worth investors describe themselves as moderate risk takers, yet the ultra wealthy also desire a high return on investment, according to a recent Millionaire Corner study, $25 Million Plus Investor 2012.
Less than one-fourth (22 percent) of $25 Million Plus investors describes their tolerance for investment risk as “aggressive” and 14 percent say they are “most aggressive.” That leaves close to two-thirds of $25 Million Plus investors unwilling to take significant risks with some or any of their investments.
At the same time, $25 Million Plus investors set a high bar for return on investment. Nearly two-thirds (64 percent) say it’s important that their investments beat the stock market. Younger high net worth investors indicate an even higher appetite for risk than their older peers.
What do these high net worth investors consider to be a good annual rate of return on investment? The largest share of $25 Million Plus individuals, 28 percent, cites a 6 percent to 8 percent annual rate of return as acceptable, while 22 percent look for a rate of 9 percent to 10 percent. One-fourth looks for a rate of return on investment between 11 percent and 20 percent, and 15 percent considers greater than 25 percent to be a good rate.
Younger $25 Million Plus investors hold an even higher standard for return on investment. More than 20 percent defines a good rate as 25 percent, while 4 percent look for a rate between 21 percent and 25 percent, and 41 percent, a rate between 11 percent and 20 percent.
Such a high rate of return on investments is associated with riskier products, such as hedge funds, venture capital and private equity. Close to half (47 percent) of $25 Million Plus investors own hedge funds for an average value of $2.8 million. Forty-five percent have invested an average of $4.4 million in venture capital and more than half, 55 percent, have invested an average of roughly $3.4 million in private equity.
Other produces associated with a high level of risk, as well as the potential for above-average return on investment, include private placements, futures, options and limited partnerships.