When birthdays come around, many of us wonder what we should buy for the person that has everything. For most of us, this is a partly rhetorical question. For the super rich, the 1%, those with an ultra high net worth, this is a very real problem. Not only is it a problem at birthdays and anniversary’s, it is also an investment problem.
Where Do High Net Worth Individuals Keep Their Money?
Once a person or family has built their wealth to a certain level – in the multiple millions, they will begin to start asking themselves questions about international investment. One reason for this is that the wealthy will probably have been able to travel significantly and will be more internationally minded. Another reason will simply be that in case everything goes wrong, they will have some sort of extra option abroad.
This means that a significant proportion of the world’s high net worth will eventually find their way to the main financial management hubs: New York, London, Singapore, Frankfurt and Hong Kong. They might also have found their way to the main offshore locations: Switzerland, the Caribbean and the Channel Islands. In which case, they are likely to have an international perspective.When you have access to a private jet these options no longer seem to be so difficult,
It might be worth noting that at the very top, the habits and strategies are different from the rest of us. Though a lottery winner or the recipient of a structured settlement annuity might have significant personal wealth, their investing strategies and life goals are likely to be very different to lifetime entrepreneurs or money managers.
How Do High Net Worth Individuals Invest?
At first, their passive investments will be just like the ones the rest of us have access to. They might buy a second property, use mutual funds and ETFs, bonds and money market funds etc. At a certain point they are likely to invest in more high risk options such as smaller businesses and emerging market funds.
If their income is high enough then sooner or later they will probably venture into riskier waters, such as CFDs, hedge funds and international real estate. As their financial future becomes more and more secured, then higher risks can be taken to juice their annual returns. It is being able to accept these higher risks that is likely to really push their net worth upwards. Risk management can be very different at the top of the pyramid to how the rest of us think.
What Do High Net Worth Individuals Want?
At a certain point, creating multi-generational wealth, thinking dynastically, and securing your family forever becomes a possibility.
Many aspects of our culture are based on the idea of social mobility, that it is possible to work your way up the economic ladder. Part of this is the aspect of mobility.
What happens if there are some sort of political changes in your home country? What happens to your family? Political changes can take months or years to creep up on us, but others such as the Ayatollah returning to Iran, totally changed a country and it’s society overnight.
If you can literally afford to buy anything, then ensuring that you and your family has the means and ability to leave and start again elsewhere is real security. For these ultra high net worth members of the global elite, citizenship by investment and second passports are a very appealing concept.
A great and very public example of this thinking made the news in early 2017 when it became known that Silicon Valley billionaire Peter Thiel had obtained New Zealand citizenship in 2011 in what seems to be expensive disaster insurance.
Another interesting example hit the news in mid-2018. The Russian billionaire owner of Chelsea FC, Roman Abramovic, appeared to be making moves towards Israeli citizenship. He had seen delays from the British government regarding his UK visa and appeared to be taking steps towards moving to Israel. As mentioned in the article linked above, he already owned some real estate in Israel, so has some sort of base to live there. It is these kinds of moves that separate the super wealthy from the rest of us and their passports play an important enabling role in their incredible mobility.
Why Is Dual Citizenship Good For High Net Worth Families?
Not only does a second passport open up options of escape in troubling times, but it also opens up many avenues for immediate family members. For example, how else will wealthy Chinese children be able to study at the Sorbonne, Oxford or Cambridge? If they are not European citizens it is actually very difficult to get in, but many more educational options are open to EU citizens.
If the political situation at home really is troubling, then many families move away, leaving just one member – usually the father – to stay at home and run the business.
It will also be easier for family members to assimilate in other locations. Being a European citizen, for example, makes private banking and asset management much easier to work with. This is actually a diversification strategy!
Being Advised By High Net Worth Advisory Firms
When you can afford anything, you can afford the services of the smartest legal advisers, asset managers, private bankers, tax planners and business managers. When you have access to your own arsenal of educated, smart people like this – whether individuals or advisory firms – it is only a matter of time before the topics of personal freedom and mobility are raised.
It has been argued for some years that the super rich inhabit a world that is above the rest of us. The combination of seemingly limitless wealth, with global assets and mobility means that it becomes very difficult for any government to truly control them. They have cut themselves loose from the ties that bind them to the rest of society. This site is not trying to judge that either way. I am just acknowledging that a second or third passport is an important part of their toolkit.
In conclusion, citizenship by investment can be an excellent option for an ultra high net worth family to explore because it makes all those other things that they might want to do easier. Hundreds of thousands or millions of dollars or euros seems like a lot of money to us, because it is, but it is often money well spent for the ultra high net worth.