How do rich people approach investing in 2022?
All the investors have probably entered 2022 with one primary concern – inflation. With soaring CPI numbers that have reached 40-year highs, no wonder most investors will be mainly looking at possible ways to outperform the rising costs of goods and services due to inflation.
While inflation mainly affects retail investors’ lifestyle and consumer habits, the high-net-worth individuals will be mostly trying to protect their wealth from losing its value. How can they do that, and what investment tools are they planning to use in 2022?
Inflation as a main concern, but more problems prevail
Before we investigate how high-net-worth individuals plan to approach rising inflation, it needs to be pointed out that inflation is not their only concern. The Federal Reserve (Fed) and its monetary response, which aims to fight inflation, is another major factor that can affect the investment behavior of HNW individuals. Following through with tapering and rising interest rates, investors along all the markets are getting increasingly nervous about the possible outcomes this Fed behavior can have on them.
Additionally, the current situation between Russia and Ukraine seems to be getting worse. The geopolitical tensions that are now rising mainly due to the military movements around the eastern border of Ukraine and Russia are starting to feel more like the beginning of a major conflict than just a minor threat. In case of a breakout of a conflict, investors worldwide would need to assess their portfolios due to the impact this destabilized situation can have, with significant countries and organizations such as the US or NATO likely to step in.
And last but not least, investors, especially those with millions in their accounts or investable assets, can not forget about the pandemic. Covid-19 spread has been mostly slowing down after the major scare with the Omikron variant. Vaccination numbers are steadily rising, and the effects of the pandemic seem to be disappearing. Yet, investors need to remain cautious if another more lethal or contagious variant comes about.
With all these problems factored in, which asset classes are the high-net-worth looking at to protect their portfolios and what is the general approach to investing in 2022 going to be?
1. Inflation-resistant portfolios
It comes as no surprise that investors would want to protect against inflation. According to Tiger 21, a peer-to-peer learning network for investors and entrepreneurs with 10 million to 1 billion dollars, investors are looking to solve problems arising from inflation by building portfolios that should be resistant to it.
Assets went up more than inflation this year, more than it was eroding. But next year could be a double whammy, where inflation is growing, and the market is flat, you are seeing an erosion of value.
Michael Sonnenfeldt, founder of Tiger 21
That is the opinion of Michael Sonnenfeldt, founder of Tiger 21, who also believes that investors consider this. According to him, investors are mainly looking to build inflation-resistant portfolios, most of which are concentrated around real estate.
This is not only about investing in houses, massive centers, or hospitals. Even in the case of high-net-worth individuals, an option of investing through real estate funds or trusts is still on the table. These can be represented, for instance, by REIT (Real Estate Investment Trust), which is a type of company that invests in income-producing real estate such as shopping centers or parking garages, thus offering a different approach to investing.
2. Increasing the crypto exposure
While cryptocurrencies are still considered a risky asset class, high-net-worth individuals are looking to double down on their investments in crypto, specifically in Bitcoin, Ethereum, and the likes. According to Sonnenfeldt, the members of Tiger 21 are putting their money mostly to:
- Ethereum (32%),
- Bitcoin (31%),
- crypto funds (21%),
- other cryptocurrencies (13%),
- and Dogecoin (3%).
The sole fact that Dogecoin is amongst cryptocurrency investments like Bitcoin and Ethereum from high-net-worth investors shows that investors are far from being risk-off.
On the contrary, even though many expect this year to be risk-off with tech stocks taking the biggest hit, cryptocurrency investment can come to increase in capital inflows primarily because this asset class is not part of the traditional financial world. Moreover, for cryptocurrencies like Bitcoin, where there is a given maximum supply of 21 million bitcoins, many investors see investment in this cryptocurrency as an inflationary hedge due to its deflationary characteristics.
This aligns with the “Bitcoin is a digital gold” narrative. Thanks to its limited supply and known release schedule through mining, many have described Bitcoin as a digital gold or gold 2.0. And since gold usually plays a significant role in being a hedge against inflation and tends to rise in value mostly in inflationary periods, HNW investors, according to Tiger 21 network, might want to allocate some part of their portfolio to the “digital gold.”
3. Alternative energy still popular
While being aware of inflation, HNW investors also do their due diligence when it comes to alternative energy investments. This is mainly seen through investments into electric vehicle stocks, which Sonnenfeldt believes will continue through the year 2022.
Companies such as Tesla, Rivian, or Lucid might expect increasing capital flow due to the fact that ESG investment is still getting more and more popular. Social responsibility connected to investment is also more popular with younger generations, which is also another reason why it is believed that more investors will allocate increasingly more into the alternative energy sector.
No changes at all?
People are still digesting Covid and the election, and because of that, they are in a kind of wait-and-see mode. People have to see what happens with inflation and taxes, and none are taking a stand one way or another that things are much worse or better.
Tom Wynn, director of research at Spectrem Group
That is an opinion of Tom Wynn, director of research at Spectrem Group, who thus believes that the beginning of 2022 might bring more waiting on a side-line from the HNW individuals. While their attitudes towards some investments might be changing or slowly shifting, Tom Wynn believes that major changes to the portfolios will not happen somehow soon.
The year 2022 is off to one of the worst starts that we have ever seen in the stock markets. Other markets are plummeting as well, with cryptocurrencies taking a major hit. However, this tends to be the best time to buy into a position from the long-term perspective. If you do not know how to do that or want help from our professionals, feel free to contact us at any point, and we will gladly help you with your crypto journey.