2025 Investment Insights: How Affluent Investors Can Optimize Their Portfolios
A recent study found that affluent investors around the world allocate around 32% of their portfolios to cash and cash equivalents.(1) As a reminder, while cash and cash equivalents may not yield notable returns or keep pace with inflation, they do offer investors quick and easy access to liquid funds that can be used to pursue new investment opportunities, make major purchases, and cover unexpected expenses.
Cash plays an important role in a high-net-worth investor’s portfolio. It is important, however, to be mindful of just how much wealth is kept in cash and cash equivalents (since it doesn’t yield notable returns or keep pace with inflation).
Here’s where the recent findings get interesting—out of those who plan to rebalance their portfolios within the next year, 54% plan to invest their cash.(1) This tells us that many investors may be straying away from the basic tenets of investing in an effort to pursue opportunities in today’s market environment.
With that being said, I thought it’d be helpful to review some of the foundational principles of investing, especially as they pertain to affluent investors like you. Here are four reminders I want you to keep in mind as you continue making important decisions about your portfolio in 2024 and beyond.
Reminder #1: Diversification Is Still Critical
Perhaps the most basic and important principle of investing, diversification refers to the strategy of spreading your wealth across multiple asset classes and investments in order to minimize the risk of any single investment bringing down your entire portfolio.
It’s the embodiment of the adage, “Don’t put all your eggs in one basket.”
As part of the Affluent Investor Snapchat study, researchers found that affluent investors are invested in four asset classes on average, though they plan to diversify even further within the next year.(2)
Examples of asset classes defined within the study include:
Cash and cash equivalents
Equities (stocks)
Fixed income and bonds
Real estate
Alternative investments
While diversification is often praised as a strategy for its ability to mitigate the impact of losses in one particular investment or asset class, there’s another important benefit for affluent investors to consider. Diversification increases your opportunity set, meaning it broadens your portfolio to include assets or investments outside of one area of focus (say if you’ve only ever invested in U.S.-based equities).
Reminder #2: Consider Your Own Biases
Money is deeply personal, and it’s nearly impossible for some investors to separate their emotions from their decisions about their wealth and investments. These are called emotional or behavioral biases, and they can impact your ability to maintain a steady long-term investment strategy rooted in data and goal setting.
The Affluent Investor Snapchat study says one common bias, the home bias, is particularly prevalent among affluent investors. Investors have on average 30% to 60% of their equity invested in their home market (meaning their country of origin), even if that home market is relatively small. The study points out: “Familiarity and the desire to limit currency risk may be key drivers of [these findings]. But there is a clear concentration risk here, as a slowdown in your home economy could impact your work, your business, and your investments in a relatively correlated fashion.”(2)
Reminder #3: Focus on Time in the Markets, Not Timing the Markets
As Warren Buffett, one of the world’s most famous investors puts it, “The stock market is a device for transferring money from the impatient to the patient.”
An active management approach requires an ongoing commitment to monitoring market movements and adjusting your portfolio regularly—not to mention, it requires a skill set that may fall out of the realm of your expertise. Most busy, high-net-worth investors simply don’t have the time, desire, or knowledge needed to pursue an approach that is risky and prone to tax inefficiencies.
Rather than try and beat the markets by watching (and stressing over) day-to-day movements, it’s important to remember that the markets have historically trended upward over time—and the longer you allow your money to stay invested, the more time will smooth out the wrinkles caused by short-term volatility and fluctuations.
A long-term investment strategy that’s tailored to your unique tolerance for risk and goals (like retirement) should be built to withstand the ups and downs of the market cycle.
Reminder #4: A Professional Can Help Build an All-Weather Portfolio
The more you accumulate over time, the more complex your financial landscape becomes—and the more impactful each decision about your wealth grows. There often comes a time for high-net-worth investors when their portfolios outgrow their ability to self-manage, and they find it necessary to work with an advisor.
A financial advisor can not only take the responsibility of caring for your portfolio off your shoulders, but address other aspects of your wealth as well—your retirement plan, estate planning goals, protection plan, and more. They can help you gain access to investment opportunities you otherwise may not know about and reallocate assets as necessary to ensure your portfolio stays within your targeted risk tolerance range.
Most of all, they can be an unbiased sounding board to help you answer questions, address your own biases, and make forward-focused decisions with your wealth.
If you’d like to speak to a professional about your portfolio, financial goals, and current challenges, I invite you to schedule a consultation with me today.
Sources:
Rob Edwards is a Managing Director and Senior PIM® Portfolio Manager at Edwards Asset Management. Rob is a nationally recognized advisor who helps millionaire families navigate the complexities of their wealth. The firm has offices in Naples and Fort Lauderdale, Florida.
Wells Fargo Advisors Financial Network does not provide legal or tax advice. Be sure to consult your own tax advisor and investment professional before taking any action that may involve tax consequences.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Edwards Asset Management is a separate entity from WFAFN.
