Fears of the Super Rich

We tend to think of the super rich as fun-loving types lounging on yachts and living in villas. What often surprises people is how much time the wealthy spend thinking about their wealth and how much of their resources go into actually protecting it.

You might be surprised to learn that the super rich actually worry about money much more than average people who earn standard salaries. Surprised?

If you are wondering why, the answer is this: because they have more to lose. It makes sense, doesn’t it? After all, if you only had enough food for your dinner, you would simply eat it and forget it. But, if you had enough food for a week, you would have to think about storing it, refrigerating it and preparing it. It’s much more complicated, isn’t it? Wealth is like that too.

Great wealth can be lost by frittering it away or by making poor investments, but it can also be eroded by not taking the nearly full-time measures needed to preserve it’s value.

Read on to find out more about what scares the super rich about their fortunes:

Inflation

As Richard Cayne of Meyer International likes to say, “a million dollars is not a million dollars anymore.” Simply put, that is due to inflation.

The super rich fear inflation because it can destroy the value of their amassed wealth. Richard Cayne provided this example: Let’s say a wealthy person is making a 2% return on their money but there’s 3% inflation. Essentially, they’re losing 1% of the real value each year – and that’s without spending any of it. Inflation erodes real value.

Wealth Preservation

Essentially, the super rich are most interested in preserving what they have and its value for future generations. They aren’t looking for aggressive investments.

Richard Cayne said, “Banks like UBS and Credit Suisse aren’t trying to blow the lights out for the super rich with performance investments that aim for 10% returns. All they want to do is stave off inflation. That might mean making a profit of just 3 to 5%.”

When you have billions of dollars, that can still be quite a sizeable sum.

Purchasing Power

When people have $10 billion, what they tend to care about most is simply holding on to as much of the purchasing power of that $10 billion as possible. They aren’t necessarily motivated to build on it.

In that case, keeping the money safe from rogue investments is more important than taking chances on hot new stocks or jurisdictions in hopes to making a bit more.

Richard Cayne summed up the attitude of the super rich toward their money in this imagined conversation, based on many he has had with his actual wealthy clients:

Financial Planner: “Do you really need to make 10% returns per year?”

Wealthy Client: “No.”

Financial Planner: “Would you like to?”

Wealthy Client: “Yeah.”

Financial Planner: “You might be able to, but there’s risk involved.”

Wealthy Client: “Ok, then no. Let’s aim to beat inflation plus alpha of 1 or 2% per year”

Well said.

For further information about inflation and other investment topics, Richard Cayne and Meyer International can be reached at (+66) 02 611 2561