Adam Murchie

The release last week of the BRW Rich 200 List highlighted a significant demarcation between the asset allocation of HNW investors and the asset allocation prescribed for ordinary Australians.

Traditional retail client financial advice asset allocation would see asset allocations in the following ranges:

• Australian shares (35%) – range 25% to 45%
• International shares (25%) – range 15% to 35%
• Australian property (10%) – range 5% to 20%
• Cash (5%) – range 0% to 10%
• Australian bonds (15%) – range 10% to 25%
• International bonds (10%) – range 5% to 20%
• Overall growth assets (70%) – range 50% to 80%

Compare this with the Capigemi Asia Pacific Wealth Report 2016, which indicates that Australia’s HNW investors have the following asset allocation:

• Equities 27.9%
• Property 25.6%
• Cash 19.0%
• Australian bonds 14.6%
• Alternative investments 12.9%

The above asset allocations for HNW Australian investors is further supported by the recent release of the BRW Rich 200 List. In particular, asset allocation to property featured heavily; of the list, 80 people (40%) either made their wealth in property, or it is a major store of their wealth. On the same basis, property was a primary asset class for 47.55% of the Rich List wealth.

Adam Murchie, a director of Forza Capital said, “For a long time this demarcation between the investment allocation of the wealthy and that applied to retail investors has interested us.”

“We often wonder why retail investment allocation is not more closely aligned to those who have had immense investment success”.

In particular, the heavy slant to property also has the benefit of removing volatility.

Mr Murchie continued, “Research undertaken by Atchison Consultants indicates that the higher a proportion of direct property in a portfolio, the lower propensity for price volatility and capital loss.”

“Furthermore, it has been highlighted that based on traditional portfolio theory, 90% of a retail investors’ portfolio volatility comes from their 60% allocation to equities. It is no wonder then that HNW investors favour more illiquid assets, property in particular, to mitigate portfolio fluctuations and risk.”

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