What Can You Learn from the Investing Strategies of HNWIs (High Net Worth Individuals)?

PHILADELPHIA, PA, Jan. 14, 2006–The same way millions of average income earners plan for retirement, so must individuals with millions of dollars in assets, says a new report from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania. The report features insights by Todd Millay, Executive Director of the Wharton Global Family Alliance who concurs that even those who are considered high net worth individuals (HNWIs)—with assets ranging from $1 million to $30 million and above—need help.

In the special report, which was published in collaboration with State Street Global Advisors (SSgA), Millay provides insights into HNWI investment strategies. Millay notes that the asset allocation of a portfolio must reflect the needs, risk tolerance and time horizon of each individual investor. But he says just about all HNWIs can benefit from adopting three fundamental principles:

• Diversify.
In general, experts advise investors to not bet the future on any one stock, bond, mutual fund, hedge fund or asset class going right. “If you make big bets on any
one thing, you’re very exposed,” Millay says.

• Reduce the overall level of volatility in the portfolio.
While it is true that investors do not achieve superior returns without assuming a certain level of risk, there does come a point where assuming greater risk simply will not produce higher returns—what investment professionals call asymmetrical risk. “You have to optimize your risk-adjusted return and you have to take down your level of risk,” says Millay. “Some people may think that if they have nothing but bonds in their portfolio they’ve eliminated risk. But if all you’ve got is bonds, you’re taking a big interest-rate risk [because bond prices decline as interest rates rise].”

• Reduce the costs of managing the portfolio.
The passive component of a portfolio can be beneficial in this regard, since index funds and their cousins, exchange traded funds (ETFs), carry fees that are typically lower than those of actively managed funds. “It doesn’t make sense in many cases to pay high fees to asset managers who can’t consistently outperform benchmark indices,” says Millay.

To access the complete Knowledge@Wharton-SSgA report, visit the Web site:
http://knowledge.wharton.upenn.edu/index.cfm?fa=SpecialSection&specialId=43&CFID=5204316&CFTOKEN=46778647

For more information on the Wharton Global Family Alliance, visit http://wgfa.wharton.upenn.edu.

About the Wharton Global Family Alliance and the Wharton School
The Wharton Global Family Alliance is a unique institution that allows global families to transcend boundaries to collaborate for their mutual benefit and for the betterment of society as a whole. Wharton GFA research is developed in conjunction with families who are actively engaged in primary economic activity and exert significant influence in their arenas of operation.
Formed in collaboration with CCC Alliance, WGFA is a private forum that is designed to foster productive collaboration, learning, and knowledge creation. WGFA is the first global family consortium of its kind, focused on research into, and the sharing of, best practices of globally influential family enterprises
The Wharton School of the University of Pennsylvania is recognized around the world for its academic strengths across every major discipline and at every level of business education. Founded in 1881 as the first collegiate business school in the United States, Wharton has approximately 4,600 undergraduate, MBA, and doctoral students, more than 8,000 participants in its executive education programs annually, and an alumni network of more than 80,000 worldwide.

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