During the Global Financial Crisis (GFC), we experienced an extraordinary event never seen in most lifetimes – since the 1929 Stock Market crash and ensuing Depression. All assets that were market-linked (superannuation & investment funds that derived their market valuation or pricing via tradable/exchangeable markets such as the NYSE, ASX and FTSE stock exchanges [and other markets] were all affected).
If you were the typical investor during the GFC, then you would have lost anywhere between 20% – 40% of the value of your assets during this period. As a side note, the Australian Stock Exchange still has not recovered to its pre-GFC levels, whilst the US Stock Markets have exceeded their pre-GFC levels. Hence, a reason why we need to consider the diversification of your investment portfolio to balance out and hedge returns over time. Diversification of portfolios also reduces your investment risk.
Hidden quietly within the GFC era was a notable exception for High Net Worth (HNW)[1] and Ultra high Net Worth (UHNW)[2] clients as shown in the graph below.
[1] Persons with over USD $1 Million – $30 Million of investable assets (excluding house).
[2] Persons with over USD $30 Million of investable assets (excluding house).
We saw that the truly wealthy clients during 2008 – 2013 actually grew their wealth (represented by the growth in the HNW and UHNW population) whilst the majority of other investors lost money. So the question is, what did the HNW and UHNW clients do that was different during this turbulent period of time?
The answer is in the Asset Allocation and diversification of the portfolio plus clever manoeuvring during the GFC whereby cashed up clients bought or injected funds in exchange for ownership of assets during times of distress which have yielded them extraordinary (and at time exorbitant) returns on their investments. Warren Buffett is a prime example. Via Berkshire Hathaway, Mr Buffett acquired ownership and or extremely favourable investment terms on numerous US companies and bailed out an investment bank or two.
This is a different ball game and a much higher level of investment expertise, confidence and insight than most investors at any level have the capability to act upon; and is the capability of what Elixir Wealth Advisory is able to produce for our clients.
