afan wrote: ↑
Thu Apr 18, 2019 4:52 pm
For this question I would define "very high net worth" as meaning "would remain very high networth if their assets dropped by 90%". If $30M is "very high" then that would mean $300 M to remain there after a big drop. I would probably not include those with only $300M in this group, but we can go with that figure.
Should a billionaire be 100% in stock? It would be "safe" but stupid.
Someone with that much would be crazy to be 100% in stocks. At that asset level it is possible to effectively diversify into illiquid investments that are not practical for people with only tens of millions of dollars. They can also diversify well outside of the US, real estate, businesses, a place to move to if things go horribly wrong in the US (and life would be better in Switzerland).
I think Warren Buffet was only leaving his wife about a billion, so his 90% stock reflected his attitude toward risk at that level of wealth. He preaches about the value of owning US stocks, so I suppose that is why he is not telling the trustee to invest more broadly.
Note that Buffett's money is in no way all in stock. Much of BRK is invested in businesses, but not in stock. Also a lot of derivatives.
I don't know about continually increasing the threshold for who is 'very high net worth', but I don't think the answer changes that much. In the real world I would guess a tiny % of people over the 'VHNW' threshold, whether it's much less than $30mil*, $30mil or $300mil are 100% in stock BH style like broad MF/ETF. One reason is as you say is that other diversifying risk assets become more practical to own as your scale increases, some of them even well below $300mil. For example investing in property overseas. That's a real diversifier against socio-political problems in the US. It's just hard to do economically at small scale. At larger scale the relative hassle and cost decreases and once it reaches a certain threshold the diversification benefit outweighs the extra cost even if it's still higher cost than a stock MF/ETF.
This is even aside from the more basic issue of risk asset v 'safe' asset. But I think as on every other thread on which this comes up there is simply no consistent function for everyone that says more wealth makes them more/less inclined to take investing risk. It purely depends on the person. Again I think in the practical world very wealthy people who put all their money in their residence(s) plus safe bonds are rare, even if that type of person used to have the nickname 'coupon clipper' for rich people just living off bond coupons. Almost everyone of significant means with interest and access to modern financial knowledge will conclude *some* exposure to risk assets is appropriate and almost always including diversified holdings in publicly traded stock. But very people are really 100% in stocks, usually that's only claimed after making major exclusions (home, pension, SS, 'emergency fund' etc) and where future labor income is a major asset also. It's not to get into the debate what to count in typical discussions here except to say that if a person has and is living off say $30mil, and has a pretty modest home for that wealth (say 1mil) virtually nobody is really going to put $29mil in the stock market. Maybe the interesting meta-question is why people with a lot less than that think they might do that if they reached that position. Virtually gteed they would not do that if they actually reached $30mil. Lots of people of that worth have a lot of risk, often in a business they own, but not nearly 100% unless the business is in trouble maybe.
*AFAIK a somewhat standard definition of 'VHNW' is $5mil, $30mil is 'ultra'.