Brief Summary
This video explores the mindset and financial habits of High Net Worth Individuals (HNIs). It contrasts their approach to wealth with that of the average person, highlighting their focus on wealth preservation, value creation, and long-term planning. The video also examines how HNIs make investment decisions, react to market volatility, and plan for their legacy, offering valuable insights for retail investors.
- HNIs prioritise wealth preservation and value creation over simply growing money.
- They take calculated risks, understand market cycles, and maintain high liquidity.
- Legacy planning and philanthropy are integral parts of their financial strategy.
Inside the HNI Mindset
The video introduces the distinct thought processes of wealthy clients (HNIs) compared to the average person. Wealth building is a long-term process, and HNIs prioritise wealth preservation over wealth creation. Deepak Vazarani, a senior advisor to family offices, shares his insights on how HNIs think about money and what retail investors can learn from them. He touches on core assets that HNIs invest in, including startups, and unconventional financial planning habits.
HNI vs Common Man: Money Thinking
HNIs and average individuals have different approaches to wealth. Average people focus on financial stability and returns on investments to create wealth and increase savings. In contrast, HNIs concentrate on creating value from their money, viewing it as a tool rather than a goal. They prioritise leveraging their wealth for growth and preserving it to pass on a legacy to future generations through strategic diversification and tax-efficient planning.
How HNIs Plan for Their Kids
HNIs exhibit similar behavioural patterns, including identifying opportunities early and possessing an entrepreneurial mindset. They understand and take calculated risks in their investments. HNIs involve their children early in understanding portfolio structures to ensure a smooth wealth transfer to the second or third generation. They also optimise real estate assets and maintain high liquidity to capitalise on opportunities.
How HNIs Make Money Decisions
Breaking into a family office client base requires time and trust. HNIs typically work with a limited number of wealth management partners. They prioritise wealth building through trust rather than chasing high returns. While they may not have specific financial expertise, they understand market cycles and diversify their investments. Portfolios are tailored to meet individual client needs and objectives, such as retirement planning or philanthropy.
Who Controls the Money in HNI Families?
HNIs understand the importance of financial advice and actively participate in portfolio reviews, which occur quarterly, semi-annually, or annually. Clients are typically present at meetings, but if they are unavailable, an investment committee manages the portfolio. The client makes the final decisions, ensuring they are involved in all financial matters. They also involve their children in these decisions to instil financial literacy early on.
How HNIs React in Market Crashes
HNIs have evolved in their reaction to market uncertainty. They are informed investors who have seen market cycles and understand that downturns are opportunities. Unlike the average person who may panic and exit the market, HNIs use their liquid cash to invest when prices are low, taking a long-term perspective. They recognise that markets operate on fear and greed, and they capitalise on this by buying when others are selling.
Where Do HNIs Invest?
HNIs invest in traditional asset classes such as equities, mutual funds, PMSs, private equity, venture capital, and debt. Debt is a crucial part of their portfolio, providing security and a cushion. Real estate also forms a significant portion. Alternative investments like private equity funds, venture capital funds, and startups are gaining popularity. The composition of HNI portfolios has shifted over the years, with real estate decreasing in prominence due to its illiquidity.
The Secret Power of HNI Networks
HNIs surround themselves with financial experts and domain specialists to stay informed and ahead of market trends. They participate in platforms and meetings where they can learn about new investment opportunities, such as startups. They are always willing to learn and stay abreast of current market changes, including those related to AI and edtech. For the average person, networking, continuous learning, and upgrading financial knowledge are essential for wealth growth.
Building an HNI Portfolio
Portfolio planning for HNIs is client-centric, tailored to their specific goals, financial needs, and liquidity. The approach varies based on the client's age, risk appetite, and objectives, such as retirement, children's education, or philanthropy. Some clients also want to create estate planning and family trusts. Portfolios are periodically reviewed to adapt to dynamic market conditions and emerging sectors.
Legacy Planning Like the Rich
HNIs prioritise legacy planning to ensure their wealth is preserved and passed on to future generations. This becomes a priority during business exits, windfall profits, or when the client reaches mid-life. Legacy planning involves trusts, succession plans, and wills to prevent disputes and ensure a smooth transition of wealth. Legal experts are involved to create airtight plans that anticipate potential conflicts.
Should the Rich Pay More Tax?
HNIs understand and accept the need for taxation. While they aim to minimise their tax burden through smart investment planning, they do not evade taxes. They recognise that paying taxes contributes to the economy's growth. Long-term investments are structured to minimise the impact of taxation, and they are willing to pay taxes as per their income slabs.
Why HNIs Are Leaving India
Some HNIs are pursuing dual citizenship by investing in countries that offer citizenship in exchange for investment. This trend is driven by the desire to diversify asset classes and optimise investments. While dual citizenship is a factor, the primary motivation is to have assets in multiple countries and take advantage of investment opportunities abroad.
Do HNIs Think in Scarcity?
HNIs invest in both core investments and luxury assets. In addition to standard investments, they diversify into exotic vintage cars, art, rare wines, and luxury real estate. These luxury investments are seen as potential multi-baggers and are growing in popularity.
Weird Money Habits of the Rich
A surprising financial habit among HNIs is their belief in keeping a substantial portion of their wealth in liquid form. Despite being well-diversified, they maintain high liquidity to capitalise on opportunities that arise during market downturns or disruptions. They also optimise their assets by leveraging real estate to invest in higher-yield opportunities.
Why the 3rd Gen Loses It All
The saying that the first generation builds wealth, the second generation builds on it, and the third generation destroys it often holds true. The first generation is passionate and frugal, understanding the value of money. The second generation maintains the standard set by their parents. However, the third generation, born into wealth, may destroy it if they are not properly groomed and taught the importance of wealth.
Top Lesson from an HNI
Key learnings from HNIs include being patient, focusing on long-term planning, and maintaining a diversified portfolio. It's also crucial to stay liquid to capitalise on future opportunities and grow wealth exponentially.
Final Takeaways
The key takeaways from the video are that HNI investors focus on creating value from their money and preserving wealth. They have an entrepreneurial mindset, take calculated risks, and are open to new ideas. They build wealth through trust, understand market cycles, and invest at the right time. They also have long-term objectives, diversify their investments, and believe that cash is king.
