A Look at How the Ultra-Wealthy Invest

Ultra-high-net-worth investors rank smart investing just below hard work and education as the key factors that are responsible for their financial success. Here’s a look at how they are investing in 2015 and how they do (or do not) use financial advisors to do so, according to research conducted by Spectrem Group on households with a net worth between $5 million and $24.9 million. (For related reading, see: The Complete Guide To Calculating Your Net Worth.)

Wealthy investors entered 2015 with a more cautious mindset. They are most likely to invest in mutual funds and stocks (59%) and more than half (51%) will be investing more assets in their checking/savings accounts, Spectrem’s study found. Forty-four percent plan to invest in money market funds, while 39% said they will invest in fixed-income products, including individual bonds or bond mutual funds. (For related reading, see: Achieving Optimal Asset Allocation.)

Here is a breakdown of other investments in which they are likely to invest this year:

• International investments (any type): 35%
• Exchange-traded funds (ETFs): 31%
• Certificates of deposit (CDs): 19%
• Investment real estate: 15%
• Other investments such as hedge funds, private equity and real estate investment trusts (REITs): 14%
• Precious metals such as gold products: 10%
• Treasury inflation-protected securities (TIPs): 8%
• Treasury bills: 8% 

The ultra wealthy are concerned about global political instability as well as heightened terrorism in the wake of the fatal attacks in Paris at the offices of satirical magazine Charlie Hebdo. Ongoing reports of atrocities committed by terrorist organizations such as ISIS and Boko Haram have also diminished interest in investing overseas, Spectrem found. Forty-four percent of wealthy investors surveyed have no interest in investing outside of the United States. (For more, see: The 3 Most Dangerous Terrorist Organizations.)

Of those who do, 26% said they would be most likely to invest in Europe. This has doubled since 2011 when 13% said the same. China is where wealthy investors are next most likely to invest, although enthusiasm has waned since 2011. The Baby Boomer generation is most interested in China (26%). (For related reading, see: ETFs Tracking European Markets (VGK, IEV, FEZ).)

Of the wealthy investors who indicated an interest in investing in Japan, the highest percentage (17%) was the youngest surveyed (ages 42 and younger). (For related reading, see: Japan's Strategy To Fix Its Deflation Problem.) Generation X and late Baby Boomers (ages 43-54) have the most interest in investing in Brazil and India, which clocked in at 17% percent each. Just 3% of ultra-high-net-worth said they plan to invest in Russia this year. (For more, see: Russia's Credit Worthiness & Investment Risks.)

The wealthy continue to favor the technology sector. For the fifth year in a row, the highest percentage (59%) indicated that technology is the sector in which they will most likely invest, up from 50% in 2013, Spectrem found. There is also growing interest among wealthy investors in the healthcare and pharmaceutical sectors. Fifty-three percent are interested in investing in the healthcare sector, up from 51% in 2013. Forty-nine percent expressed an interest in pharmaceuticals, compared to 41% in 2013. (For related reading, see: Top 10 Pharma Stocks for 2015.)

One-third of wealthy investors consider themselves self-directed, meaning they make all financial and investment decisions without consulting a financial advisor. Seven in 10 use a financial advisor in some way. (For related reading, see: The Right Financial Advisor: It's Crucial For Your Portfolio's Health.)

Because wealthy investors are confident in their financial knowledge, they are less likely to use an advisor to manage their equity investments than they are for other investments. In fact fewer than half of households with a net worth of between $1 million and $4.9 million (not including primary residence) use a financial advisor for equity investments. Forty-seven percent use a financial advisor to manage their international ETFs, and 44% said they rely on an advisor to manage their international/foreign mutual funds. (For more, see: Getting Into International Investing.)

A higher percentage of wealthy investors are more likely to give primary responsibility to their advisor to manage their fixed-income investments, such as individual corporate bonds (52%), municipal bond mutual funds (51%), fixed-income ETFs (48%) and individual municipal bonds (47%).

Millionaire investors are most likely to rely on their advisors to manage more complex investments, Spectrem’s research found. Almost two-thirds (65%) report that their financial advisor is predominantly responsible for managing their hedge funds, followed by futures (63%) commodities (60%), venture capital (59%), structured products (54%), private equity (53%), collateralized debt obligations (CDOs) (49%) and private placements (48%).

Wealthy investors are approaching investing with caution in 2015. While a third consider themselves self-directed, those who use financial advisors rely on their expertise in particular for more sophisticated investments such as hedge funds, futures and commodities. (For related reading, see: High-Net-Worth Client Tips For Financial Advisors.)