How Much Are the Ultra Wealthy Really Investing in Gold?
Anyone hawking gold would have you believe it’s the favorite investment of the ultra-rich. That goes for everyone selling gold services, gold investing advice, or anything else related to the shiny yellow metal.
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But do the uber-wealthy actually invest much money in gold? And among those who do hold some gold, what do they like about it?
Gold in Rich Investors’ Portfolios
Real estate consultancy Knight Frank surveys wealthy individuals every year, to understand where they’re investing in the current market.
It turns out the average ultra-high net worth individual (UHNWI) with a net worth over $30 million does own a little gold. They just don’t own giant vaults and swim in gold like Scrooge McDuck.
The average UHNWI holds about 2% of their net worth in gold. While that’s more than they keep in cryptocurrencies (1%), it’s less than they keep in any other asset classes.
In fact, wealthy investors even put more money into “investments of passion” such as fine art, wine, and cars than they do in gold. These investments of passion make up 3% of the average wealthy investors’ portfolio (not that you should emulate the rich on this particular point).
Why Investors Buy Gold in the First Place
Most investors largely consider gold a defensive investment. It offers some protection against risks like inflation and a weak U.S. dollar. During times of inflation or currency weakening, investors flock to gold as a reliable store of value.
Gold also protects against geopolitical uncertainty. Shifting winds can rattle currencies or create trade wars (or real wars), spooking investors into the perceived safety of gold.
Many investors believe gold shares have a negative correlation with stock markets — that it tends to rise in value during stock market corrections and crashes. However, some academic studies question that assumption.
In short, investors treat gold like a hedge against risk.
Gold doesn’t produce income however, so its value lies only in investors’ perceptions of that value. That said, new platforms such as Monetary Metals have started entering the market to let investors generate income from gold, but they do so through lending.
What Do the Wealthy Invest in More than Gold?
Well, everything other than cryptocurrencies. But that’s not a very useful answer.
Nearly a third (32%) of the average ultra-wealthy investor’s net worth lies in their home or second homes. The average UHNWI has another 14% of their net worth in directly owned commercial properties. On the passive investing side, they keep 5% of their net worth in commercial real estate funds, another 3% in real estate investment trusts (REITs), and 6% in private equity (which often means group real estate investments).
And, of course, the wealthy invest in stocks. Almost a fifth (18%) of uber-rich investors’ net worth sits in equities. Bonds make up the next 12% of their net worth.
So, the wealthy do own a little gold. But it mostly serves as a defensive hedge against unexpected crises rather than a wealth-building strategy.
Final Thoughts
A little gold can help you sleep at night when you worry that the world is careening toward a crisis. Just don’t assume gold will make you rich.
If you fear an imminent market crash or inflation surge, consider putting a small percentage of your net worth in the yellow metal simply as a defensive play — and to calm your nerves.
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This article originally appeared on GOBankingRates.com: How Much Are the Ultra Wealthy Really Investing in Gold?
