As we enter the new year, unsurprisingly what's on a lot of people's minds is a topic that consumed the latter half of 2021: soaring inflation.
For the ultra-wealthy, rising inflation is in fact playing a big part in how they're choosing to invest going into the new year.
"As all investors should be, the ultra-wealthy are concerned about inflation and looking to preserve assets in 2022," says Michael Sonnenfeldt, chairman and founder of TIGER 21, a peer-to-peer learning network for investors and entrepreneurs with $10 million to $1 billion of personal net worth.
Though the everyday investor certainly doesn't have millions to their name, there may be ways to copy how the wealthy allocate their money, especially amid ongoing inflation fears that impact us all. Here's how the ultra-wealthy members of TIGER 21 are investing going into 2022.
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1) Building inflation-resistant portfolios
TIGER 21 members are convinced that inflationary pressures will be permanent, not transitory. In fact, 65% of members expect inflation to accelerate in the next year.
They are therefore allocating money to some of their favorite investments to protect against inflation, such as:
- Real estate, like industrial properties and apartment buildings
- Public equities, or stock, in platform companies with pricing power (platform companies are those like Amazon, Apple and Airbnb), consumer staples and streaming services
- Cryptocurrencies (more on this in No. 2 below)
When you think of real estate as an example of an investment to hedge against inflation, this isn't just an asset reserved for the rich. Beyond home ownership, real estate investments can be made through REITs (also known as Real Estate Investment Trusts). A REIT is a company that invests in different kinds of income-producing real estate (shopping centers, condominiums, housing developments, hospitals, parking garages, etc). You can buy shares of the REIT in order to get exposure to its real estate investments and have that real estate be part of your investment portfolio without actually managing property yourself.
You can invest in publicly traded REITs through any brokerage account, likeFidelity,TD Ameritrade and Robinhood, while companies likeFundrise,YieldstreetandElevate Moneyallow you to buy shares in non-publicly traded REITs on your own through their platforms.
2) Doubling their crypto investments
As an alternative to investing in gold to combat inflation, TIGER members have doubled their investment in cryptocurrencies.
TIGER 21 members are putting their money specifically in ethereum (34%), bitcoin (33%), a crypto fund (23%), other coins (15%) and dogecoin (2%).
These wealthy investors certainly aren't wrong. Bitcoin is often described as "digital gold" and theoretically should protect against inflation because of limited supply, but it's not yet known if it will be a good inflation hedge over the long term.
Of course, everyday investors are also able to invest in crypto thanks to finance apps that make it easy. Cash App, a peer-to-peer payment service owned by Square Inc., allows users to buy bitcoin only.PayPalallows users to purchase four different cryptocurrencies: bitcoin, ethereum, bitcoin cash and litecoin. Users holding crypto on PayPal can then use it to checkout on the app as well.
Robinhood, themobile app for stock investing, supports seven cryptocurrencies for purchase by users, including the popular dogecoin meme cryptocurrency. And personal finance provider,SoFi, allows for crypto purchases of 21 different coins and crypto tokens through its app. If you want more control over your crypto and to own it directly, Coinbase offers a platform to buy, sell, swap, store and send over 50 types of cryptocurrency.
3) Increasing investments in alternative energy
Electric vehicle stocks remain hot investments still, and the ultra-wealthy are shelling out more cash into companies like Tesla, Rivian and Lucid.
Tesla stock isn't cheap, but you can still get exposure to the EV market by putting your money in ETFs that invest in a variety of companies tied to EVs, such as Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV) or iShares Self-Driving EV and Tech ETF(NYSEMKT:IDRV). This is a broader investing approach, and less risky, than buying individual stocks.
Bottom line
It's interesting to see how the ultra-wealthy are investing going into a new year with rising inflation top of mind. Because this is a concern for every investor, it's helpful to take notes on what they are doing to hedge against inflation.
The lesson here is you don't have to be rolling in extra millions to protect your money in the market.
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