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Five investment principles the wealthy rely on to stay rich through turbulent times

24 May 2024 Stonehage Fleming
Singa Gungqisa

Singa Gungqisa

Intensifying geopolitical clashes and the prospect of higher-for-longer interest rates have resulted in up-and-down swings in bonds and equities. Creating an ongoing uncertainty about the future—together, a well-known recipe for making bad investment decisions.

One way to navigate these challenges is to look at how the wealthiest families, whose main priority is protecting their wealth, survive times like this.

Stonehage Fleming Investment Management Portfolio Manager Singa Gungqisa has been managing money for 14 years, including through the unnerving 2008 financial crisis and the turbulent COVID years. He sits at the coal face of investing, helping ultra-high-net-worth (UHNW) families preserve their fortunes, and shares five of the wealthy’s core investment principles to achieve financial success.

Staying rich
Wealthy investors have one primary goal – to protect their capital by minimising risks so their wealth is maintained and protected for generations to come. “This risk-conscious approach to investing aligns with Stonehage Fleming’s stay-rich investment philosophy,” says Gungqisa. “We understand that our clients have already taken on risk by starting their businesses in the real economy and that they have come to us to preserve whatever wealth they have been able to accumulate.”

The stay-rich philosophy is anchored on protecting the purchasing power of capital in global terms, thereby investing in inflation-beating assets worldwide.

He adds that by deploying carefully thought-through and robust risk assessments of their investment portfolios and continuing to monitor the risk during different market cycles, UHNW families’ wealth can be protected, even during periods of great upheaval, such as now.

Global perspective
UHNW families are typically global citizens; thus, they also have a global investment perspective. Gungqisa says that over the last decade, the one trend that has remained a priority for clients has been the globalisation of their assets. They have increasingly invested a higher proportion of their wealth into global assets, where they believe there are better and a greater diversity of investment prospects. It is common practice for investors worldwide to diversify their investment portfolios globally. In a South African context, however, offshore diversification is premised on a number of additional factors, including limiting rand weakness due to structural growth impediments, higher inflation rates than the country’s trading partners and a higher political risk premium.

Investing globally offers far greater opportunities than available in the smaller and ultimately highly concentrated South African financial markets. There are also limited opportunities to participate in companies that are at the forefront of innovation in the technology, healthcare, and energy transition sectors. Another important factor when investing offshore is to grow and maintain inflation beating returns to protect the client`s purchasing power in hard currencies.

Stonehage Fleming highly advocates that South African families should externalize all surplus capital. Surplus assets are those not required for local business interests or desired living needs.

Time in the market beats timing the market
Though it may sometimes feel like it is the end of the world as we know it, Gungqisa says that throughout history, there have always been problems and risks, and that’s no different now. “There is never a time when peace and prosperity break out across the world, and no one has anything to worry about.” He points out that the best investment opportunities tend to emerge during times of great adversity, but harvesting them requires great foresight, steel, and time.

“The global markets continue to present unresolved challenges,” he says, “with current trends being higher interest rates and inflation spikes, which are creating an ongoing cost-of-living crisis. Then, at a geopolitical level, there are growing tensions, deglobalisation, and the risk of war.”

Gungqisa says these current issues confirm the fact that there is no perfect time to invest, and investors always have to position their capital based on an appropriate risk mandate to survive tough times and take advantage of future good times. “Our key role is to keep a balanced perspective, reminding our clients that we are not there to see and pontificate on the future but to see the present clearly and act in their best interest. “

A patient and well-balanced temperament
Staying invested during market selloffs is arguably one of the greatest contributors to UHNW families’ ability to maintain their wealth. Gungqisa notes that many of Stonehage Fleming’s clients are fortunate in that they have decades of experience investing in difficult market conditions and crises, so they don’t get as nervous as new investors. He says “Most have been through the dotcom crisis in 2000, the Great Financial Crisis in 2008 and more recently the Covid -19 selloff during their lifetime.”

Thus, Stonehage Fleming clients, who have already accumulated considerable wealth, hold the wealth during the tough times, knowing their portfolios are robustly and appropriately structured and the investment risks are being carefully managed. This contrasts with many investors who tend to become fearful when markets decline and disinvest at what often turns out to be the wrong time.

Against this backdrop, Stonehage Fleming’s single-minded client investment focus is on designing long-term strategies that will enable wealthy families to preserve wealth across generations to come. In so doing, UHNW families have the best opportunity to achieve long-lasting wealth and enduring peace of mind amid a fast-paced, changing world – benefits that are also available to every investor willing to be patient by adopting a long-term outlook.

Diversifying across listed and unlisted asset classes
UHNW families have increasingly increased the asset class diversification of their investment portfolios, shifting almost a quarter of their wealth away from the traditional listed equities and bonds, multi-asset class portfolios and into alternative asset classes, including private capital and hedge funds.

According to Campden Research/UBS Global Family Office Report 2023, wealthy investors have increased the proportion of private assets in their portfolio to about 20%. This is a profound shift away from the traditional 60%/40% split between equities and bonds in a balanced multi-asset class portfolio.

The investment horizon remains as uncertain as it has been for the last few years, with one key difference: geopolitical tensions are broadening, and Russia and Iran are threatening nuclear escalations, making it a difficult environment in which to make even short-term decisions. Wealthy investors remain wealthy by holding their course even through unnerving times like these. Every investor aiming for long-term wealth creation should be doing the same.

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