Okay, so we might not be millionaires (yet) but if we ever hope to reach those heady heights of wealth it pays to know how the super-rich are spending. What are they investing in? Where are they buying property? And, in these times of uncertainty, what lessons about protecting our assets can we take from those with far more to lose?
One great source of insight is the Knight Frank Wealth Report. This annual treasure trove of research from the prime real estate company offers a wealth of information on where, how and why the ultra-rich are spending and investing and, more importantly, predicts where the future of wealth will be heading in the coming years. Here’s what you need to know…
Safe investments are in hot demand
It doesn’t take a genius to work out that it’s a tense time for big money investors. Between political upheaval, the effects of coronavirus and the boom and bust of big tech firms like WeWork, knowing where to put your money has never been trickier. Accordingly, many wealth managers asked by Knight Frank said their clients were changing their investment strategy to include safer bets such as gold, bonds and property.
According to Knight Frank’s research, factors including greater de-globalisation caused by Brexit and US political policy, the growing importance of Asia, the likelihood of a global economic slowdown and the currently under-invested fintech sector should all be important considerations for investors heading into the new decade.
Impact investing is more important than ever
Currently an informal term, impact investing refers to any investment that seeks to have a measurably positive social or environmental benefit. This is becoming increasingly important as wealth shifts from Baby Boomers to more socially and environmentally conscious Millenials, who apply both financial and ethical filters to their investments.
Environmental, social and governance criteria (ESG) are currently used by around a quarter of the world’s funds – an estimated $31 trillion – to help decipher the sustainability and accountability of companies but it is currently an unregulated, informal ranking system. With 45% of investors, for example, already showing concern over the environmental impact of property investments, Knight Frank’s research has shown a clear need for a centralised way of comparing businesses in terms that are non-financial.
The Big Apple has bounced back
For years it’s been a two horse race between London and New York as the base of choice for the world’s wealthiest residents. After falling behind, New York is back in the top spot this year – but it has competition. While NYC came out on top both in terms of the number of UHNWIs choosing to live there and the level of private investment being made in real estate, it was beaten by London for lifestyle factors, with LA, Tokyo and Paris all vying for position in the top five.
However, as with the growing importance of impact investing, there are a number of new factors influencing where the wealthy choose to lay their hats. Quality of life, encompassing elements such as hours of sunshine, green space and work-life balance, is a key decider – and one dominated by smaller cities. In fact, none of the top five feature at all on Knight Frank’s City Wellbeing Index, which cites Oslo, Zurich and Helsinki as being the happiest places to live.
A second home might not be a savvy investment
So you’ve already got your penthouse apartment in Mayfair or Manhattan and now you fancy yourself a holiday home. How about a ski chalet in the Alps? Or perhaps a beach house in the Hamptons? Hold on just a minute. If you’re buying for pleasure and aren’t concerned about the returns then please, go ahead. However, if you also intend this home to be an investment then you might be better off putting your money elsewhere.
According to the Prime International Residential Index, traditional second home locations including St Jean Cap Ferrat, the Hamptons, Mallorca and Cape Town, saw some of the biggest property price falls last year. Instead consider investing in a ‘second city’ – non-capitals such as Lisbon, Taipei and Athens saw big price jumps, with Frankfurt leading the pack with a 10% average increase in prime property prices. Knight Frank’s experts also point to Sydney, Singapore and Houston as safe places to invest your money in real estate in 2020.
It might be time to buy a handbag
What is money for if not to spend on things you love? While 70% of fund managers told Knight Frank their clients were looking to spend more on straight forward philanthropy, there is also a clear desire to spend more on luxury items that can be enjoyed while they appreciate in value.
When deciding what to buy it helps to know if you’re making a short- or long-term investment. The price of classic cars, for example, fell 7% in 2019 but has gown by 194% over the last decade while wine grew just 1% in 2019 but has appreciated by 120% over the last ten years. 2019’s biggest growers were whisky and stamps, at 5% and 6% respectively. The most consistent earner, however, may come as a surprise. The value of fine and rare handbags has grown by 108% since 2009 and outpaced all other investments with a growth of 13% in 2019. Auction results point to Hermes as being the most lucrative investment, with the Birkin, Constance and Kelly styles all fetching handsome returns.
There’s a new millionaire created every 11 seconds
The pace of wealth creation has taken off over the last few years – and is only expected to pick up pace. However, while the US is currently the global centre of wealth, playing host to more UHNWIs than Europe and Asia combined, the next five years will see Asia lead the pack. The continent’s number of multi-millionaires is expected to grow by around 44% over the next five years, with India, China and Indonesia at the forefront, while growth in North America is expected to lag at around 22%. By 2024 it is estimated the world will be home to nearly 64m millionaires (up from 50m in 2019) and 2,616 billionaires.
Know you know where to buy, here are some penthouses to consider…
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