Does 100% stocks make sense for very high net worth individuals

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masonstone
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Does 100% stocks make sense for very high net worth individuals

Post by masonstone » Tue Nov 27, 2018 9:17 am

Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?

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tainted-meat
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Re: Does 100% stocks make sense for very high net worth individuals

Post by tainted-meat » Tue Nov 27, 2018 9:21 am

Yes, and I also think it makes sense for people who start investing aggressively right out of school and have a long investment horizon (ages 18-30).

Bacchus01
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Re: Does 100% stocks make sense for very high net worth individuals

Post by Bacchus01 » Tue Nov 27, 2018 9:26 am

masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
Always? They always HAVE won, but that doesn't mean they always WILL win.

I don't know what "very higher net worth" really means, but in general, I believe that if one has a long timeframe and the risk tolerance (including desire AND ability) then invest heavily in equities.

We are 95% equities in our mid-40s and don't expect to change that much over time. AND we don't intend to have multi-generational wealth, so our timeline is probably 40-60 years. But, we have the desire AND ability to take risk and therefore will.

Soon2BXProgrammer
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Re: Does 100% stocks make sense for very high net worth individuals

Post by Soon2BXProgrammer » Tue Nov 27, 2018 9:27 am

masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
it depends, if the trust can stomach the volatility and what you expect to distribute each year. Does it distribute some small percent of whatever the current account balance is? or is it some fixed dollar amount indexed to inflation etc?

i would argue that if it needs to create current income for the beneficiaries, then potentially no, not 100% stocks.. not that 100% stocks doesn't work, but those people will probably be heavily dependent on the checks from the trust.

now, if your saying this individual isn't going to start making payment for 40 years (when they die), then yes, potentially 100% stocks might make sense... but once it needs to start making payments. some cash/bond strategy for near year expenses might be a good idea..

and if you have that kind of money, looking for a "multifamily office" with fixed fees per clients, might be a good exercise to do some interviewing of how they would handle trusts/estates of that size.

staythecourse
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Re: Does 100% stocks make sense for very high net worth individuals

Post by staythecourse » Tue Nov 27, 2018 9:28 am

masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
In my opinion... yes. If your goal is multigenerational wealth AND don't need all the money that is projected to grow during your lifetime it is a good idea. I've done some mental exercises on this and think the issue is the wrapper the money is placed as it is going through multiple estates as each generation dies. I would think what they call a "dynasty" trust which sounds just like normal trust domiciled in a state with no laws of perpetuities which means the trust exists forever until the very last descendant is alive. Then it would make sense to fill in that envelope with 100% SP500 (no value) as you want something that does not spin off dividends which would be taxed heavy. Index funds here make a lot of sense as they will exist for GENERATIONS and no chance of default like companies.

Just some thoughts. Hopefully, Bsteiner how estate law expert will drop by and add some wisdom on a rough way of making this happen.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Does 100% stocks make sense for very high net worth individuals

Post by azanon » Tue Nov 27, 2018 9:36 am

Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
Always? They always HAVE won, but that doesn't mean they always WILL win.

I don't know what "very higher net worth" really means, but in general, I believe that if one has a long timeframe and the risk tolerance (including desire AND ability) then invest heavily in equities.

We are 95% equities in our mid-40s and don't expect to change that much over time. AND we don't intend to have multi-generational wealth, so our timeline is probably 40-60 years. But, we have the desire AND ability to take risk and therefore will.
You're only checking 2 of the 3 boxes though. The popular saying (Larry's?) is to have the willingness, ability, and need to take risk prior to doing so (my paraphrase). I'm not seeing where you have the need to take risk, or maybe you just haven't mentioned it yet. I'm assuming there's a need? (e.g. desire for multi-generational wealth)

If you're just doing it to help us little folk out who do need to invest in stocks and need the growth, Thanks for not cashing out! ;)

If I recall correctly, Larry once shared he has a low equity portfolio, largely because he lacks the need (though he has the other 2) to do so.

bb
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Re: Does 100% stocks make sense for very high net worth individuals

Post by bb » Tue Nov 27, 2018 9:48 am

I am sure need could be expanded to need or desire.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by Bacchus01 » Tue Nov 27, 2018 9:58 am

azanon wrote:
Tue Nov 27, 2018 9:36 am
Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
Always? They always HAVE won, but that doesn't mean they always WILL win.

I don't know what "very higher net worth" really means, but in general, I believe that if one has a long timeframe and the risk tolerance (including desire AND ability) then invest heavily in equities.

We are 95% equities in our mid-40s and don't expect to change that much over time. AND we don't intend to have multi-generational wealth, so our timeline is probably 40-60 years. But, we have the desire AND ability to take risk and therefore will.
You're only checking 2 of the 3 boxes though. The popular saying (Larry's?) is to have the willingness, ability, and need to take risk prior to doing so (my paraphrase). I'm not seeing where you have the need to take risk, or maybe you just haven't mentioned it yet. I'm assuming there's a need? (e.g. desire for multi-generational wealth)

If you're just doing it to help us little folk out who do need to invest in stocks and need the growth, Thanks for not cashing out! ;)

If I recall correctly, Larry once shared he has a low equity portfolio, largely because he lacks the need (though he has the other 2) to do so.
I didn't miss that box. I don't think that box is relevant. "Need" is subjective. Since the OP was talking generational wealth, I think the need is different and warranted.

As for me personally, need is not something I relate to in this context. More is better than less and gives more options versus fewer options. Desire makes more sense.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by chevca » Tue Nov 27, 2018 10:00 am

Sure, that makes sense to be 100% stocks. With that much money, it would also make sense to go 50/50 or even super conservative. If it's lots of money the very high net worth individual never will touch themselves, it's up to their comfort level until they're gone and it's not their money anymore, IMO. Even if it's for many generations down the line, some might not be comfortable having it 100% stocks.

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goingup
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Re: Does 100% stocks make sense for very high net worth individuals

Post by goingup » Tue Nov 27, 2018 10:05 am

bb wrote:
Tue Nov 27, 2018 9:48 am
I am sure need could be expanded to need or desire.
I agree. Actually, I never liked Larry's saying too much. Those who "need" to take risk are likely those who can least afford to lose their wealth. If you have the willingness and ability to take risk---well, that is all you need!

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Re: Does 100% stocks make sense for very high net worth individuals

Post by wolf359 » Tue Nov 27, 2018 10:24 am

azanon wrote:
Tue Nov 27, 2018 9:36 am
Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
Always? They always HAVE won, but that doesn't mean they always WILL win.

I don't know what "very higher net worth" really means, but in general, I believe that if one has a long timeframe and the risk tolerance (including desire AND ability) then invest heavily in equities.

We are 95% equities in our mid-40s and don't expect to change that much over time. AND we don't intend to have multi-generational wealth, so our timeline is probably 40-60 years. But, we have the desire AND ability to take risk and therefore will.
You're only checking 2 of the 3 boxes though. The popular saying (Larry's?) is to have the willingness, ability, and need to take risk prior to doing so (my paraphrase). I'm not seeing where you have the need to take risk, or maybe you just haven't mentioned it yet. I'm assuming there's a need? (e.g. desire for multi-generational wealth)

If you're just doing it to help us little folk out who do need to invest in stocks and need the growth, Thanks for not cashing out! ;)

If I recall correctly, Larry once shared he has a low equity portfolio, largely because he lacks the need (though he has the other 2) to do so.
There's an excellent book by Jason Zweig called "Your Money and Your Brain." He describes multiple behavior and mental traps people fall into relating to their money. One story he relates (I'm doing this from memory, so I might not get it exactly right) is about a couple he met who had previously been worth tens of millions, but now were worth several million. This was because during the late nineties they had invested in tech stocks, which had then tanked. Zweig asked them that if the investments had doubled, how much it would have changed their life? The answer was, "not much," since they were already worth millions. And if the investments tanked, how much that changed their life? They still had enough to live on, but their net worth had been significantly reduced, and they now had many regrets and money stresses.

They didn't really have the NEED to take the risk, even if they could afford it. The upside payoff did not match the downside risk.

I think even a very high net worth individual shouldn't be 100% stocks. 100% stocks in a specified portfolio/account/trust, maybe, but not 100% of their overall investments. Even Warren Buffet was instructing his wife's trustees to have a 10% bond position. 60/40 or even 80/20 may be aggressive without being foolhardy.

JackoC
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Re: Does 100% stocks make sense for very high net worth individuals

Post by JackoC » Tue Nov 27, 2018 10:27 am

There's IMO no objective relationship between 'appropriate' risk tolerance level and wealth level. Either direction, poor or rich. The objective reason younger (presumed, working) people should tolerate more investment risk is that their investments are a smaller proportion of their total capital including their human capital. It isn't just or necessarily at all that they have a longer investment time horizon per se. Some people believe the latter is a definitive reason, but that's based IME on the doubtful assumption that stock returns get less uncertain over long periods. That assumption is debatable IMO, whereas it's not debatable that on average 30yr olds have much more time to earn their way out of an investment losses hole than 60 yr olds (a 30 yr old might be permanently disabled next week, a 60 yr old might work till they are 90, but on average 30 yr olds have a lot longer).

In case of parents who expect most of their wealth to be left to kids, the human capital of the kids then comes into play. But again I don't think there's a universal, personal preference-free answer to whether rich people should accept more or less investment risk. You can make two opposing and equally plausible arguments: risk more because even bad investment outcome will leave a lot of money, risk less because you don't have to risk as much to achieve a given end point.

Again assuming you believe risk, of long term bad results in stocks, is real. Some people believe that, because we can see in hindsight that stocks eventually did well in the long run from almost any start point, *in one country*, in a period where that country solidified its position as the leading world power, virtually untouched by war and retaining basic social and political cohesion, that that will always be true, and stocks while they oscillate year to year will always end up much higher over any prolonged period. I don't believe there is any such guarantee: IOW stock risk is real.

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masonstone
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Re: Does 100% stocks make sense for very high net worth individuals

Post by masonstone » Tue Nov 27, 2018 10:29 am

Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
I don't know what "very higher net worth" really means
My definition for very high net worth is the Wikipedia/ Investopedia definition. This is someone whose investable assets (outside of primary residence) is greater than $30 million.

bhsince87
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Re: Does 100% stocks make sense for very high net worth individuals

Post by bhsince87 » Tue Nov 27, 2018 10:34 am

The only billionaire I know won't touch stocks.

Mostly just short term treasuries or TIPS (or other sovereigns in foreign countries), with a little bit of land and some angel/venture capital.

The company he owns generates about $200-300 million a year in free cash, and a large portion of that goes back into the company.

He's not checking the "diversification" box very well, but he doesn't really need to. He worries more about keeping his customer base diversified.
Retirement: When you reach a point where you have enough. Or when you've had enough.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by KlangFool » Tue Nov 27, 2018 10:34 am

masonstone wrote:
Tue Nov 27, 2018 10:29 am
Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
I don't know what "very higher net worth" really means
My definition for very high net worth is the Wikipedia/ Investopedia definition. This is someone whose investable assets (outside of primary residence) is greater than $30 million.
masonstone,

If the person is spending 2 million a year, that person is not very net worth as compared to his annual expense. So, you need to qualify your statement as in very high net worth as compared to annual expense -> 100X or more. Or, 1000X

What is the multiple that you would consider as very high net worth? 100X? 1,000X?

Furthermore, at very high net worth level, as per Warren Buffett level, they will own the whole company/industry and so on. It does not make sense for them to be 100% stock.

KlangFool

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masonstone
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Re: Does 100% stocks make sense for very high net worth individuals

Post by masonstone » Tue Nov 27, 2018 10:41 am

KlangFool wrote:
Tue Nov 27, 2018 10:34 am
masonstone wrote:
Tue Nov 27, 2018 10:29 am
Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
I don't know what "very higher net worth" really means
My definition for very high net worth is the Wikipedia/ Investopedia definition. This is someone whose investable assets (outside of primary residence) is greater than $30 million.
masonstone,

If the person is spending 2 million a year, that person is not very net worth as compared to his annual expense. So, you need to qualify your statement as in very high net worth as compared to annual expense -> 100X or more. Or, 1000X

What is the multiple that you would consider as very high net worth? 100X? 1,000X?

Furthermore, at very high net worth level, as per Warren Buffett level, they will own the whole company/industry and so on. It does not make sense for them to be 100% stock.

KlangFool
I disagree that very high net worth could be a multiple of annual expenses. Let's say someone lives an extremely frugal lifestyle spending <500 per month. Even if he's worth 100X his annual spending his net worth will still only be $600,000 which most don't consider very high net worth. This is why I go with the wikipedia/ investopedia definitions of >$30 million.

JackoC
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Re: Does 100% stocks make sense for very high net worth individuals

Post by JackoC » Tue Nov 27, 2018 10:48 am

masonstone wrote:
Tue Nov 27, 2018 10:29 am
Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
I don't know what "very higher net worth" really means
My definition for very high net worth is the Wikipedia/ Investopedia definition. This is someone whose investable assets (outside of primary residence) is greater than $30 million.
I believe that's the definition of 'ultra high net worth', at least per this investopedia page, with 'very' at $5mil
https://www.investopedia.com/terms/d/de ... onaire.asp

I'm not saying this is of any cosmic significance or worth quibbling over. Besides which as I said above I don't think there's any good rationale why people either over 5 or over 30 should be more/less heavily invested in stocks than anyone else. It depends on personal risk preference like anyone else, and as others have mentioned a person in this wealth range (or particularly higher ranges) might have a lot of that wealth in their own business, which they aren't necessarily going to sell just to buy other companies' stocks, and where it's going to exacerbate their already highly risky position to hold onto to their own company plus put spare assets into stocks.
Last edited by JackoC on Tue Nov 27, 2018 10:49 am, edited 1 time in total.

Bacchus01
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Re: Does 100% stocks make sense for very high net worth individuals

Post by Bacchus01 » Tue Nov 27, 2018 10:49 am

wolf359 wrote:
Tue Nov 27, 2018 10:24 am
azanon wrote:
Tue Nov 27, 2018 9:36 am
Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
Always? They always HAVE won, but that doesn't mean they always WILL win.

I don't know what "very higher net worth" really means, but in general, I believe that if one has a long timeframe and the risk tolerance (including desire AND ability) then invest heavily in equities.

We are 95% equities in our mid-40s and don't expect to change that much over time. AND we don't intend to have multi-generational wealth, so our timeline is probably 40-60 years. But, we have the desire AND ability to take risk and therefore will.
You're only checking 2 of the 3 boxes though. The popular saying (Larry's?) is to have the willingness, ability, and need to take risk prior to doing so (my paraphrase). I'm not seeing where you have the need to take risk, or maybe you just haven't mentioned it yet. I'm assuming there's a need? (e.g. desire for multi-generational wealth)

If you're just doing it to help us little folk out who do need to invest in stocks and need the growth, Thanks for not cashing out! ;)

If I recall correctly, Larry once shared he has a low equity portfolio, largely because he lacks the need (though he has the other 2) to do so.
There's an excellent book by Jason Zweig called "Your Money and Your Brain." He describes multiple behavior and mental traps people fall into relating to their money. One story he relates (I'm doing this from memory, so I might not get it exactly right) is about a couple he met who had previously been worth tens of millions, but now were worth several million. This was because during the late nineties they had invested in tech stocks, which had then tanked. Zweig asked them that if the investments had doubled, how much it would have changed their life? The answer was, "not much," since they were already worth millions. And if the investments tanked, how much that changed their life? They still had enough to live on, but their net worth had been significantly reduced, and they now had many regrets and money stresses.

They didn't really have the NEED to take the risk, even if they could afford it. The upside payoff did not match the downside risk.

I think even a very high net worth individual shouldn't be 100% stocks. 100% stocks in a specified portfolio/account/trust, maybe, but not 100% of their overall investments. Even Warren Buffet was instructing his wife's trustees to have a 10% bond position. 60/40 or even 80/20 may be aggressive without being foolhardy.
That story is great, and true, for individual stocks. Individual stocks or sectors (like Tech) are a whole 'nother level of risk. I have high risk tolerance, but it's not that high. Broad-based low-cost index funds would have been a "100% equity" position, but the results would have been entirely different.

Bacchus01
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Re: Does 100% stocks make sense for very high net worth individuals

Post by Bacchus01 » Tue Nov 27, 2018 10:51 am

masonstone wrote:
Tue Nov 27, 2018 10:29 am
Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
I don't know what "very higher net worth" really means
My definition for very high net worth is the Wikipedia/ Investopedia definition. This is someone whose investable assets (outside of primary residence) is greater than $30 million.
That definition is for ultra high net worth, not "very" high net worth. Thank you for the clarification. My response is unchanged.

Bacchus01
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Re: Does 100% stocks make sense for very high net worth individuals

Post by Bacchus01 » Tue Nov 27, 2018 10:52 am

bhsince87 wrote:
Tue Nov 27, 2018 10:34 am
The only billionaire I know won't touch stocks.

Mostly just short term treasuries or TIPS (or other sovereigns in foreign countries), with a little bit of land and some angel/venture capital.

The company he owns generates about $200-300 million a year in free cash, and a large portion of that goes back into the company.

He's not checking the "diversification" box very well, but he doesn't really need to. He worries more about keeping his customer base diversified.
Actually, what you are suggesting is that MOST of his investment is in "stock" in the form of the company he owns.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by KlangFool » Tue Nov 27, 2018 10:54 am

masonstone wrote:
Tue Nov 27, 2018 10:41 am
KlangFool wrote:
Tue Nov 27, 2018 10:34 am
masonstone wrote:
Tue Nov 27, 2018 10:29 am
Bacchus01 wrote:
Tue Nov 27, 2018 9:26 am
masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
I don't know what "very higher net worth" really means
My definition for very high net worth is the Wikipedia/ Investopedia definition. This is someone whose investable assets (outside of primary residence) is greater than $30 million.
masonstone,

If the person is spending 2 million a year, that person is not very net worth as compared to his annual expense. So, you need to qualify your statement as in very high net worth as compared to annual expense -> 100X or more. Or, 1000X

What is the multiple that you would consider as very high net worth? 100X? 1,000X?

Furthermore, at very high net worth level, as per Warren Buffett level, they will own the whole company/industry and so on. It does not make sense for them to be 100% stock.

KlangFool
I disagree that very high net worth could be a multiple of annual expenses. Let's say someone lives an extremely frugal lifestyle spending <500 per month. Even if he's worth 100X his annual spending his net worth will still only be $600,000 which most don't consider very high net worth. This is why I go with the wikipedia/ investopedia definitions of >$30 million.
masonstone,

You missed my point. 30 million is not very high net worth if the person is spending 2 million per year. So, in addition to 30 million, you need to quantify your statement/assumption that this person's net worth as compared to annual expense is at least X times his annual expense. What is X?

KlangFool

bhsince87
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Re: Does 100% stocks make sense for very high net worth individuals

Post by bhsince87 » Tue Nov 27, 2018 10:57 am

Bacchus01 wrote:
Tue Nov 27, 2018 10:52 am
bhsince87 wrote:
Tue Nov 27, 2018 10:34 am
The only billionaire I know won't touch stocks.

Mostly just short term treasuries or TIPS (or other sovereigns in foreign countries), with a little bit of land and some angel/venture capital.

The company he owns generates about $200-300 million a year in free cash, and a large portion of that goes back into the company.

He's not checking the "diversification" box very well, but he doesn't really need to. He worries more about keeping his customer base diversified.
Actually, what you are suggesting is that MOST of his investment is in "stock" in the form of the company he owns.

True in some ways. But it's also very different than trying to rely on the generic returns of "the market" as a whole, which is what I think the OP had in mind.
Retirement: When you reach a point where you have enough. Or when you've had enough.

Bacchus01
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Re: Does 100% stocks make sense for very high net worth individuals

Post by Bacchus01 » Tue Nov 27, 2018 11:00 am

bhsince87 wrote:
Tue Nov 27, 2018 10:57 am
Bacchus01 wrote:
Tue Nov 27, 2018 10:52 am
bhsince87 wrote:
Tue Nov 27, 2018 10:34 am
The only billionaire I know won't touch stocks.

Mostly just short term treasuries or TIPS (or other sovereigns in foreign countries), with a little bit of land and some angel/venture capital.

The company he owns generates about $200-300 million a year in free cash, and a large portion of that goes back into the company.

He's not checking the "diversification" box very well, but he doesn't really need to. He worries more about keeping his customer base diversified.
Actually, what you are suggesting is that MOST of his investment is in "stock" in the form of the company he owns.


True in some ways. But it's also very different than trying to rely on the generic returns of "the market" as a whole, which is what I think the OP had in mind.
Agreed. But I interpreted your comment that this Billionaire you know is in low-risk investments (TIPS, treasuries, etc.) when in fact he/she likely has the largest bulk of their investments in one of the RISKIEST classes of investing.
Last edited by Bacchus01 on Tue Nov 27, 2018 11:01 am, edited 1 time in total.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by nisiprius » Tue Nov 27, 2018 11:01 am

As wealth increases, the range of choices that "make sense" widen. Eventually it includes the entire range 0% to 100%. It becomes a completely personal matter. It depends on whether you, personally, have "increasing relative risk aversion" or "decreasing relative risk aversion."

Individuals who have increasing relative risk aversion say "I've already won the game, why keep playing?" They move to a very conservative portfolio because they don't need more.

Individuals who have decreasing relative risk aversion say "Why not grab for the brass ring? I can afford to take chances now."

Fools say "There is an objectively correct allocation. Your degree of risk aversion should be the same as mine. You should also like the same kind of coffee and the same kind of car that I like." Just because 96% bonds make sense for Suze Orman doesn't mean it makes sense for you. Just because 90% stocks makes sense for Warren Buffett's wife doesn't mean it makes sense for you.

With regard to "generational wealth," I wouldn't consider that unless I've actually discussed it with the next generation and have verified that they like the plan.

I would be very, very cautious about statements like "since in the long run (>40 year duration) 100% stocks almost always wins." And I would always take the time to make the statement strictly accurate, beginning by putting it in the past tense and making it hypothetical: would have won. Phrasing it in the present as if it were a guaranteed characteristic is not only lazy, it means we are constantly telling ourselves lies and some part of us might start to believe them. I would also specify the country, stating the time period. For example, "In the United States, since 1802, a hypothetical investment in 100% stocks would have beaten bonds most of the time, except of course for 41 years in 1968-2009 and the 68-year period 1803-1872."
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Re: Does 100% stocks make sense for very high net worth individuals

Post by stimulacra » Tue Nov 27, 2018 11:08 am

Seems like from the limited research I've done that's not really the case. There's usually a sharp divide, within families that become wealthy, between the generation that made it, and the generation that wants to manage it.

I guess the main issues is the stomach for risk and volatility as one gets older and passing on the allocation to the next generation (will your children have the same investment views as you? Will they all be on the same page if there are multiple children? What are the odds that among 2 or 3 siblings there are some that are more risk averse than others? How many threads are on this forum about siblings disagreeing about allocation of their deceased parents portfolio?

Warren Buffet recommends 90/10 and he articulates in very plain English why.

Kevin O'Leary indicated his family foundation is allocated 50/35/10% cast/5% gold and he articulates it was designed that way to avoid style drift as it passes from his kids to their kids. Also he states very plainly that the sole goal of the family foundation is to pay for all of the education of his descendants (as much schooling as they could ever want or need) but nothing more than that.

There are other similar allocations I've come across, Brown, Dalio, Taleb, and they've got a similar balance to them that would strike many as highly conservative.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by MichCPA » Tue Nov 27, 2018 11:08 am

100%? No. A higher percentage than a 'normal' yes.

If you could cover your baseline annual spend in bonds, I would see a substantially reduced need to add any bonds beyond that point. (ie if 10% of your net worth can generate all needed income in bonds, why go beyond that)

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Re: Does 100% stocks make sense for very high net worth individuals

Post by UpperNwGuy » Tue Nov 27, 2018 11:10 am

masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
Yes, most definitely.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by deltaneutral83 » Tue Nov 27, 2018 11:13 am

If you have 100x times expenses I don't necessarily see an issue if you are in a US or Intl TSM index or combo of both. But, having 20% in bonds when you're close to being done accumulating is a small enough portion to not hinder growth while also moving up the efficient frontier. Gives you a decent chunk of insurance in a 50% collapse like 2008/2009 while lowering growth prospects only ever so slightly.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by hotpancakes » Tue Nov 27, 2018 11:21 am

bhsince87 wrote:
Tue Nov 27, 2018 10:34 am
The only billionaire I know won't touch stocks.

Mostly just short term treasuries or TIPS (or other sovereigns in foreign countries), with a little bit of land and some angel/venture capital.

The company he owns generates about $200-300 million a year in free cash, and a large portion of that goes back into the company.

He's not checking the "diversification" box very well, but he doesn't really need to. He worries more about keeping his customer base diversified.
Of course he touches stock...his own! Best case scenario, his company continues to grow and throw off large amounts of cash. Worst case scenario, it goes bankrupt and he has a mountain of treasuries and TIPS to fall back on. Seems like a good plan to me.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by WhiteMaxima » Tue Nov 27, 2018 12:15 pm

not really. W Buffet has billions and he still has piles of cash on the side. Actually many companies has a lot of cash, like apple, msft. On the other hand, many companies has piles of debt, like GE. So hold 100% of stock might have a lot of cash or debt in hand.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by pdavi21 » Tue Nov 27, 2018 12:29 pm

100% stocks makes sense for anyone with guaranteed income that greatly exceed expenses. (stable job + young age) (social security and pensions). It is impossible to achieve, because you own things like houses, land, pensions, valuables, etc.
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Re: Does 100% stocks make sense for very high net worth individuals

Post by willthrill81 » Tue Nov 27, 2018 12:33 pm

goingup wrote:
Tue Nov 27, 2018 10:05 am
bb wrote:
Tue Nov 27, 2018 9:48 am
I am sure need could be expanded to need or desire.
I agree. Actually, I never liked Larry's saying too much. Those who "need" to take risk are likely those who can least afford to lose their wealth. If you have the willingness and ability to take risk---well, that is all you need!
I agree as well. Based on the need/willingness/ability spectrum, people like Warren Buffet shouldn't own stocks at all. For very high net worth folks, even a Great Depression 2.0 event wouldn't be a real problem.
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Re: Does 100% stocks make sense for very high net worth individuals

Post by goodenyou » Tue Nov 27, 2018 12:42 pm

If SS and/or a pension met 100% of your needs, would you be 100% stocks? I have a family member who has money left over every moth after SS and a very small pension. He is extremely frugal. He is not very high or even high net worth. He can afford to be 100% stocks, but it doesn't make sense to him to be 100% equities.
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Re: Does 100% stocks make sense for very high net worth individuals

Post by WhiteMaxima » Tue Nov 27, 2018 12:45 pm

Cash is another asset class. People just don't realize. On the opposite, people borrow on margins to invest. When financial crisis hits, those invest on borrowed money will find they are swimming naked. Don't know people with 100% in stock when 2008 event hits. personlly, I prefer to have 10-20% asset in cash in an FDIC secured saving account.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by Stormbringer » Tue Nov 27, 2018 12:48 pm

masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
I don't think you can properly answer that question without analyzing the spending habits. A buddy of mine sold his software company for an obscene amount of money and blew through it all in about 12 years. When you fly your private jet to Pinehurst every week, bet $1000 a hand at blackjack, drink $1200 bottles of wine for dinner, and it costs $6,000 to fill up your boat, you'd be surprised how fast it goes. As far as I know, he never owned a bond in his life. He was 100% stocks the entire time.

I would say if a person can live off their dividends, even in a down market, then 100% stocks would be just fine if have a stomach for the volatility. Otherwise, secure your spending requirements with something less volatile and more sustainable and put the rest in the market.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: Does 100% stocks make sense for very high net worth individuals

Post by willthrill81 » Tue Nov 27, 2018 12:52 pm

goodenyou wrote:
Tue Nov 27, 2018 12:42 pm
If SS and/or a pension met 100% of your needs, would you be 100% stocks? I have a family member who has money left over every moth after SS and a very small pension. He is extremely frugal. He is not very high or even high net worth. He can afford to be 100% stocks, but it doesn't make sense to him to be 100% equities.
I would. If all of your needs are satisfied by guaranteed income sources, then the risk to you is minimal. If stocks went to 0%, you'd still be okay.

That sounds like a question of willingness, not ability.
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Re: Does 100% stocks make sense for very high net worth individuals

Post by TheDDC » Tue Nov 27, 2018 1:36 pm

Are you referring to very high net worth, ultra high net worth, or ultra super high net worth individuals? My answer (and I suspect others) would vary based on this.

-TheDDC

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Re: Does 100% stocks make sense for very high net worth individuals

Post by staythecourse » Tue Nov 27, 2018 1:38 pm

nisiprius wrote:
Tue Nov 27, 2018 11:01 am
I would be very, very cautious about statements like "since in the long run (>40 year duration) 100% stocks almost always wins." And I would always take the time to make the statement strictly accurate, beginning by putting it in the past tense and making it hypothetical: would have won. Phrasing it in the present as if it were a guaranteed characteristic is not only lazy, it means we are constantly telling ourselves lies and some part of us might start to believe them. I would also specify the country, stating the time period. For example, "In the United States, since 1802, a hypothetical investment in 100% stocks would have beaten bonds most of the time, except of course for 41 years in 1968-2009 and the 68-year period 1803-1872."
Couple of points.

1. I remember looking back at a presentation linked on this website using Dimson and Marsh data from last 101 years of world data. It showed the worst 5-6 equity droughts through HISTORY and showed when they happened bonds and cash did worse and took longer to recover. So yes if the worst did happen stocks it is more likely to recover quicker then fixed income ESPECIALLY now that the world is in a fiat currency. If markets plunged for extended period of time short term interest rates controlled by the government would be dropped to zero or near zero which makes those returns likely LESS then inflation.
2. If we are playing this mental exercises said money is likely to be in a trust where all income is taxed at the trust level (someone correct me if I am mistaken). In this case the returns of bonds and cash would be SIGNIFICANTLY less due to taxation of that income so it would have to significantly outperform stocks to make it worthwhile. I think muni bonds are an exception, but may be completely wrong due to my recollection.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Does 100% stocks make sense for very high net worth individuals

Post by staythecourse » Tue Nov 27, 2018 1:42 pm

willthrill81 wrote:
Tue Nov 27, 2018 12:52 pm
goodenyou wrote:
Tue Nov 27, 2018 12:42 pm
If SS and/or a pension met 100% of your needs, would you be 100% stocks? I have a family member who has money left over every moth after SS and a very small pension. He is extremely frugal. He is not very high or even high net worth. He can afford to be 100% stocks, but it doesn't make sense to him to be 100% equities.
I would. If all of your needs are satisfied by guaranteed income sources, then the risk to you is minimal. If stocks went to 0%, you'd still be okay.

That sounds like a question of willingness, not ability.
Agreed. I think this mental exercises has to do more what is the best approach if you have money you don't need in your lifetime. In that case, I think being 100% equities is great approach for that money.

Myself, I don't think my wife and I will end up spending all the money we will eventually accumulate at the rate we are going (we are both docs). That is not including inheritances from the folks (both set of parents are docs). This is one of the reasons I went 100% equity as my time horizon is now my kids time horizon (the eldest is 6).

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Does 100% stocks make sense for very high net worth individuals

Post by willthrill81 » Tue Nov 27, 2018 2:14 pm

TheDDC wrote:
Tue Nov 27, 2018 1:36 pm
Are you referring to very high net worth, ultra high net worth, or ultra super high net worth individuals? My answer (and I suspect others) would vary based on this.

-TheDDC
He clarified that "very high net worth" meant at least $30 million.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Does 100% stocks make sense for very high net worth individuals

Post by nullbytes » Tue Nov 27, 2018 6:40 pm

there are some crazy replies in here... No. No sane person with 30 million+ would be in 100% stocks. You'd want to be in as many non-correlated assets as possible. At those levels it's more about wealth preservation than accumulation. It would take a special person to stomach seeing $30 mil drop to $10 or less in a big downturn.

Stocks
Heavy bonds (intermediate/long/munis for tax reasons)
REITs and most likely physical real estate
Private equity
Charitable trust for tax redux
Cash

Potentially:
Fine art & collectibles
Gold

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Re: Does 100% stocks make sense for very high net worth individuals

Post by J G Bankerton » Tue Nov 27, 2018 6:56 pm

wolf359 wrote:
Tue Nov 27, 2018 10:24 am
Even Warren Buffet was instructing his wife's trustees to have a 10% bond position. 60/40 or even 80/20 may be aggressive without being foolhardy.
Buffett: When choosing between stocks and bonds 'I would choose equities in a minute

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Re: Does 100% stocks make sense for very high net worth individuals

Post by AlphaLess » Tue Nov 27, 2018 7:20 pm

I guess it is not so much the very high net worth, but rather the spending / net worth ratio.

If your annual spending can be financed by, say, a 0.5% withdrawal, then it really does not matter if you have 100% stocks, IMO.

Now, of course, stocks can ALWAYS go to zero, so perhaps having 5% bonds might be a good idea.

But if you need to withdraw 3% to finance your financial independence, then it does not matter if you have $1mm, $10mm, or $100mm in assets: you should not be 100% in stocks.
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Re: Does 100% stocks make sense for very high net worth individuals

Post by KyleAAA » Tue Nov 27, 2018 7:23 pm

It can, sure, but I suspect most UHNWI are more concerned with wealth preservation than maximizing return. If you have $100 million to invest it can also make sense to dabble in direct real estate and other less liquid alternatives, too.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by blinx77 » Tue Nov 27, 2018 8:34 pm

hotpancakes wrote:
Tue Nov 27, 2018 11:21 am
bhsince87 wrote:
Tue Nov 27, 2018 10:34 am
The only billionaire I know won't touch stocks.

Mostly just short term treasuries or TIPS (or other sovereigns in foreign countries), with a little bit of land and some angel/venture capital.

The company he owns generates about $200-300 million a year in free cash, and a large portion of that goes back into the company.

He's not checking the "diversification" box very well, but he doesn't really need to. He worries more about keeping his customer base diversified.
Of course he touches stock...his own! Best case scenario, his company continues to grow and throw off large amounts of cash. Worst case scenario, it goes bankrupt and he has a mountain of treasuries and TIPS to fall back on. Seems like a good plan to me.
Yes. He has most of his assets tied up in a single company. Very risky. It is only logical he chooses safe investments with his spare cash that is not tied up with the company. This is not applicable to someone who, say, has $10 million and is retired.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by blinx77 » Tue Nov 27, 2018 8:36 pm

For what it is worth, if I had more than $5 million I would begin to diversify out of simply stocks and bonds. I would probably buy a small piece of commercial real estate.

At about the $25 million zone, you may want some funds in private equity, farmland, etc. At that rate, I would be MORE willing to move out of 100% stocks, not less, simply because you can easily allocate a smaller percentage of wealth to private investments without undue risk or transaction costs.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by Stormbringer » Tue Nov 27, 2018 8:56 pm

KyleAAA wrote:
Tue Nov 27, 2018 7:23 pm
It can, sure, but I suspect most UHNWI are more concerned with wealth preservation than maximizing return. If you have $100 million to invest it can also make sense to dabble in direct real estate and other less liquid alternatives, too.
I'm not sure. In my experience, the guy with $100M is often driven nuts by the fact that someone else he knows has $250M. For many of these people, it's all about keeping score.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: Does 100% stocks make sense for very high net worth individuals

Post by randomguy » Tue Nov 27, 2018 9:04 pm

KyleAAA wrote:
Tue Nov 27, 2018 7:23 pm
It can, sure, but I suspect most UHNWI are more concerned with wealth preservation than maximizing return. If you have $100 million to invest it can also make sense to dabble in direct real estate and other less liquid alternatives, too.
I doubt it. The person with 100 million doesnt want to leave 100 million to their kids in 30 years. They want to leave 500. Yes there are exceptions as there are people across the risk specturm at any networth.

Alternatives depend a lot on your desire to spend time or pay someone to spent time. My limited experience is that also varies from wanting to spend zero time to having a second job as a landlord/VC.

At a high level 100% stocks isnt the right answer. Something 95% might be.😃

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Re: Does 100% stocks make sense for very high net worth individuals

Post by Watty » Tue Nov 27, 2018 9:17 pm

A couple of observations;

1) If your goal is generational wealth then one thing to remember is that future generations will actually spend some of the money. Your timeframe may be shorter than you think.

2) A lot of the arguments for 100% stocks would be the same for using margin so why not use margin to get 125% stocks?


It would be good to remember that even though it has dipped a bit the stock markets are still near an all time high and people tend to get reckless when that happens.

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Re: Does 100% stocks make sense for very high net worth individuals

Post by dknightd » Tue Nov 27, 2018 9:24 pm

masonstone wrote:
Tue Nov 27, 2018 9:17 am
Considering very higher net worth individuals will want to create generational wealth to be passed on to several generations down the line, does it make sense for these individuals to go 100% stocks, since in the long run (>40 year duration) 100% stocks almost always wins?
Split your high net worth with me, Then I'll figure out how to best invest it!

edit: I would not do 100% stocks if I was concerned about several generations
Last edited by dknightd on Tue Nov 27, 2018 9:42 pm, edited 1 time in total.

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