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There are many areas in life where a high level of wealth gets you through a secret door. Here, a new realm of possibility opens up to you with better options than you faced before. Think luxury travel packages, chartered planes, private security, home chefs, and private schools.
It is, therefore, not surprising that high-net-worth investors expect a similar expansion of options in investment products. After all, with the basics in place and more money to invest, doesn’t investing in something complex that provides more diversification make sense? Let’s unpack this thinking and consider whether this pursuit of complexity has helped or hindered investors.
Investment marketing departments spend hours and millions dreaming up new ways to package the financial building blocks into products their salesforce can confidently sell. The more exciting and exclusive the opportunity, the more beautiful the brochure. It’s a story you can tell at the party, and everyone likes telling a good story.
Unfortunately, in most cases, the truth does not live up to the story. The returns these products provide are usually lower than a simple diversified portfolio, with higher fees not helping investors either. The more enticing of these products often involves a trendy industry, an exclusive but limited opportunity, and an unhealthy dose of illiquidity. It may work for a while, but eventually, the chickens come home to roost.
The benefits of status, a story to tell, and the feeling of sophistication must be contrasted with the cost of higher fees, lower returns, less liquidity, and an unnecessary hassle factor.
Many investors are attracted to sophisticated opportunities because they have forgotten what a miracle it is that we can invest in the global financial markets at all. Spoilt for choice compared to their ancestors, modern investors have lost their sense of wonder for the ability to own the best companies in the world at near-zero fees.
Given that the only purpose of your investments is to provide you with the life you want to live, we believe it’s in your best interest to reframe the story you’re telling yourself about how your money is invested. Consider the innovation that has gone into becoming a diversified shareholder of the best companies in the world at the click of a button, at a low fee, with very few liquidity constraints.
If this structure was invented tomorrow and only marketed to the wealthy, it would instantly become the only game in town. In our view, it’s the height of sophistication. Framed this way, the traditional fund structure becomes the only sensible destination when new money is available for investment.
While the temptation to participate in a new opportunity is understandable, we encourage investors who have already overcome the initial hurdle of growing wealth to stay focused on what got them there. In the investment world, you can’t have too much of a good thing, and from experience, we know that simplicity is the ultimate sophistication.
In our view, the aim of investing is a life well lived, and investment products are nothing more than plumbing. We’re committed to helping clients achieve this goal most simply and efficiently.
