Current political and economic uncertainty is affecting how families across the world choose to manage their wealth. The benefits of diversification are becoming increasingly apparent as families look for ways to future-proof their assets.
The need to protect a family’s wealth in the current unpredictable environment is a priority. Trade tensions, slowing economic growth and unrest in places like the Middle East continue to expose wealth to risk. To achieve a secure and confident financial future, families need to look for ways to bring stability to their assets.
One answer is to diversify, and it is a strategy that high net worth families around the world are embracing.
Political and economic uncertainty
Trade tensions and political unrest continue to rumble across the globe. The US and China are still discussing their trade agreements while the UK has recently extended its Brexit deadline to allow for more deal negotiations. At the same time, Saudi Arabia and Iran continue to contest each other for dominance in the Middle East, with disputes becoming increasingly bitter.
There may also be signs that a market downturn is on the horizon. According to the Wealth-X Report 2019, “heightened volatility in financial markets, persistent global trade tensions and softer demand across emerging markets” are at all play and could indicate impending decline.
For high net worth families, this volatility is posing a real challenge to wealth planning.
The effects of instability on asset allocation
The Wealth-X report also highlights a clear correlation between instability and increased diversification in the market.
“Diversification is a key theme. The ever-changing geopolitical environment has certainly affected how clients allocate their assets and investments. Meanwhile, the changing regulatory and tax environment has also added another layer of complexity when it comes to managing family wealth.”
For those wanting stability for theirs and their family’s future, flexibility in allocating assets is essential to allow for diversification and choice.
Growing real estate footprints
One way we are seeing families diversify their assets is by widening their real estate footprints. Ten years ago, there was a clear trend for families to invest in locations where children would be educated. Today we are seeing UHNWI choose locations particularly for their stability.
According to the Knight Frank Wealth Report, the top five cities that show the most promise for economic growth are Bengaluru, Hangzhou, Stockholm, Cambridge and Boston, in part because of their connections to the technology industry. So, we may see more families choosing to invest in property in these locations as a stable investment for their future wealth.
The Knight Frank Wealth Report also highlights the increasing importance of currency analysis as high net worth families look for new ways to gain financial stability through diversification. Some may take advantage of exchange rate fluctuations to secure higher returns in the long term. Globalisation is another important factor, making it easier for people to choose where they live and invest their capital.
Investment types are diversifying
The types of investments families are choosing are also diversifying. For many, taking a long-term view means looking for alternative investments to hedge against volatility.
In particular, sustainable investing is on the rise, with more than a third of family offices now choosing to invest in ethically responsible ventures. This trend is likely to continue with 45% of offices looking to increase these kinds of investments within the year, according to the UBS PwC Billionaires Report.
Sustainability is particularly important to younger generations. Thanks to globalisation, they may have studied and worked in more than one country, and they’re often more informed of matters affecting communities and the environment.
As these younger generations start to take control of their family’s wealth, they may want more choice over where to invest the money. Flexibility in sustainable investment options will answer this demand.
Engaging different generations
Families looking to future-proof their wealth should take the opportunity to open the conversation with younger generations. How and where their wealth is invested will affect their children’s futures, and many individuals will be empowered by more choice in the planning process.
Protecting wealth in times of uncertainty remains the chief aim, but how families choose to do this is becoming increasingly diversified and globalised. That is why flexibility and choice over wealth strategies and investments is vitally important.