Gyroscopic Investing

I found this article very interesting:

http://finance.yahoo.com/banking-budget ... et=&ccode=

It talks about what type of investments the wealthiest people have.  They don't seem to invest heavily in gold:

All that talk about a big gold bubble? It's a bunch of hooey.

According to the latest survey, the rich are keeping just 5% of their money in "alternative investments" — from gold and commodities to hedge funds. That's down from a peak of 10% in 2006, and lower even than the 6% seen at the end of 2009.

The rest of their portfolio is surprisingly PP-like:

The core of the rich portfolio is surprisingly conservative. The wealthy have, on average, 43% of their holdings in low-risk assets. That's 29% bonds and a thumping 14% in cash. So much for the idea that the more you have, the more risk you can take. (It matters, of course, that the rich are typically much older than the rest of us, and are therefore more likely to be risk-averse for that reason.)

They still only have 33% of their money in equities — a slow climb back from the 25% lows seen at the end of 2008. Ominously, while that 33% figure does not seem very high, it nonetheless equals the levels seen just before the crash. And the rich told surveys that they are planning to ramp up their equity holdings pretty substantially this year.

Rich people know they can stay rich as long as they don't take big risks.  They're happy with low to moderate yield strategies that keep their money safe.

It's middle class people trying to get rich who take big risks with their money (and usually end up losing it). 

Thanks for the article.  It's interesting to speculate how much is cause and how much is effect.  Are these people investing conservatively because they are richer and older?  Or are they rich because they treat their money with so much respect (as demonstrated by their conservative investing strategies)?  My wager is that it's a lot of both.

Adam1226 wrote: Rich people know they can stay rich as long as they don't take big risks.  They're happy with low to moderate yield strategies that keep their money safe.

It's middle class people trying to get rich who take big risks with their money (and usually end up losing it). 

I agree.

One other reason for this difference in behavior is that people are not statically members of one income group their entire lives.  Many people move from low levels of income into the middle class over the course of their careers.  Entrepreneurs and middle class savers move from the middle class into the ranks of the wealthy.

On the whole, younger people have much lower levels of wealth and income than older people.  The conventional advice to these younger people is to invest very aggressively.  That gives middle and lower income groups an overall more aggressive tilt as well.  Conventional investing advice tells them to behave this way.

Browne, of course, saw it differently.  He pointed out that you never get those early earning years back.  That means that the money you make when you're young is every bit as precious to you as that which you make when you're older.

Lone Wolf wrote: One other reason for this difference in behavior is that people are not statically members of one income group their entire lives.  Many people move from low levels of income into the middle class over the course of their careers.  Entrepreneurs and middle class savers move from the middle class into the ranks of the wealthy.

On the whole, younger people have much lower levels of wealth and income than older people.  The conventional advice to these younger people is to invest very aggressively.  That gives middle and lower income groups an overall more aggressive tilt as well.  Conventional investing advice tells them to behave this way.

Browne, of course, saw it differently.  He pointed out that you never get those early earning years back.  That means that the money you make when you're young is every bit as precious to you as that which you make when you're older.

I agree, you would expect to have some trust fund or young rich people in the wealthy group, but the vast majority are probably middle class retirees that just saved wisely and have a $3-5 million retirement.

To your last point about Browne, that is one thing that really drew me to the PP.  I'm sick of certified financial planners telling me that I can invest aggressively in stocks because I'm young and I can afford to take some losses.  It always seemed very hypocritical of the entire financial planning industry to talk about how important it is to contribute the maximum to your 401k to get the benefits of compounding returns, and at the same time advocate stock heavy investments that might lose a significant amount of money.  To me, losing half of my retirement due to a market crash or just not saving for 5 years is probably the same thing, yet one thing is perfectly fine to a financial planner, and the other thing is taboo.