Who is a High Net Worth Investor?
High Net Worth Investor is not a term you will find in any rulebook. It is an informal term that refers to people who have large amounts of investable money, typically $1 million or more.
High net worth investors can be individuals, families, trusts, estates, foundations and any other entity that has at least $1 million in liquid financial assets or has at least $5 million in net worth (assets minus liabilities).
There are three levels of HNWIs:
Mass Affluent Investors: These are people whose investable assets are somewhere between $100,000 and $1 million.
High Net Worth Investors: These are people whose investable assets range from $1 million to $5 million.
Ultra-High Net Worth Investors: These are people with huge investments ranging from $30 million and more.
Other Qualities of High Net Worth Investor
High net worth individuals, also known as HNWIs, are generally defined by financial institutions as people with investible assets.
Takes a proactive role in managing your account.
Has a strong, established reputation in the financial community.
Has knowledge and understanding of the potential risks and rewards of alternative investments.
They have a diversified investment portfolio.
They have a strong financial advisor and utilize asset protection strategies.
Challenges faced by High Net Worth Investors
- Concentration risk. Many HNIs have a significant portion of their assets concentrated in a single stock. This is risky because it exposes them to more than the average amount of market volatility.
- Lack of liquidity. Many high-net-worth investors are locked into illiquid investments like private equity, real estate, and others that can’t be liquidated easily when needed.
- Emotional investing. When you have a lot of money, it can be difficult to separate emotion from investing decisions — especially if you’re still working full time or involved in your business in some way and have earned the bulk of your wealth through it.
- Preference for cash and cash equivalents. The wealthy tend to prefer cash and cash equivalents over traditional investment vehicles because those holdings offer control and flexibility, making them easy to liquidate if needed.