How many times have you heard that your risk appetite and investment pattern is unique to you? Young people are advised to take more risks, while someone with dependents is advised to go easy on equities and volatile investments. High net-worth individuals (HNIs) on the other hand, follow a customised approach to the way they handle their wealth. We caught up with Manu Rishi Guptha, founder and CEO of MRG Capital, a portfolio management services provider, to talk about techniques you and I can borrow from the HNI investment playbook.
What are the investing trends you see among millennials currently?
The millennials at this instance in history are far more informed and ambitious as compared to the similar age profile people from 20 or 30 years ago. They are taking independent decisions, becoming emotionally and financially independent, and to a great extent, want to live life king size. But we also notice burgeoning credit card debt, credit card delinquencies, and it seems to us that millennials are now spending more than the two previous generations.
I have also come to realise and observe that lack of financial education, coupled with the availability of easy financing, is also maybe putting an entire generation at risk of not thinking adequately about their future. Another misconception is the misplaced differentiation between investment and gratification. We have come across a lot of people who think that buying a car or a handbag is an investment in a strict sense. Any asset that depreciates in value is not an investment. An investment can only be an appreciating asset.
Let’s look at HNI investment. Has that historically been different?
Warren Buffet has famously quoted “keeping your wealth is sometimes far more difficult than earning the wealth”. A lot of HNIs have their source of income from their primary business or monetisation of intellectual capital, but it could be that HNIs have limited knowledge of planning their wealth, budgeting, and knowledge of financial options.
Einstein famously quoted that compounding is the eighth wonder of the world, and that is also proved from the fact that 99% of Warren Buffet’s wealth was acquired after he turned 55. So, HNIs have primarily invested in real estate because that is easy. They have invested in bank fixed deposits and mutual funds. But, I suspect that not very many people give adequate thought on their succession planning, retirement, cash management, and understanding the true power of right investment decisions, which prevents erosion and permanent loss of capital.
What tricks and tips can a common investor borrow from the HNI investment playbook?
I think there is no simple or common answer to learn or take tips from the book of HNIs. However, diversification of your wealth and understanding the concept of wealth erosion by virtue of inflation, and how the wealth must grow at the minimum rate of annual inflation of a country to be able to maintain the buying power of your wealth at the same level, is pivotal.
There are only limited asset classes such as real estate, gold, equities, and treasuries. The basic knowledge of how one asset class behaves when the interest rates go up or down, how precious metals behave when currencies appreciate or depreciates — these are the things one must learn and find a sweet spot of decision making. There is no one size that fits all, hence I recommend that every individual spend adequate time in understanding the behaviour and co-relation between the top 5 or 7 asset classes to be able to understand their own risk profile and aspiration of growth of their assets and wealth.
The other thing that is very imperative and vital is adequate financial education of children. Schools and colleges do not teach financial education unless you take a specific subject. I think all the HNIs must gamify wealth creation and preservation and destruction with their children, to be able to practically teach them the importance of respecting wealth and respecting money.
Did the initial lockdown and trading constraints mean a change in investment tact?
Well, the lockdown did not catalyse in any particular manner the change in investment tact but what it did specifically was that peoples’ aspirations were reset, needs redefined, ambitions moderated. Moreover, I think many of us understood the importance of gold as a safe haven for investment. It adequately beats inflation which eventually got reflected in the gold prices shooting up in the last 6-8 months.
What are trends you see for HNI and retail investors in 2021?
I think as long as the global interest rates are abysmally low and central banks keep the printing presses working overtime with the expansion of their balance sheets, HNIs and retail investors will continue to rely upon stock markets as the only possible source of generating superior returns. We are also seeing an upward reset in the paradigms of the valuation of the companies through a rather dangerous era of PE (price-earnings) expansion. When this music stops, there might be no place to run and hide.
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