High-net-worth clients, those who’ve achieved financial success, have distinct investment strategies that differentiate them from others. Let’s unveil some of the secrets behind their success and peek into the investment strategies they use to maintain and increase their wealth.
Investment Strategies Of High-Net-Worth Clients
Here’s a list of the top five investment strategies high-net-worth individuals use:
1. Maximising Tax Benefits Through Negative Gearing
Negative gearing involves owning and maintaining a property where the associated expenses exceed the rental income it generates. Savvy investors and high-net-worth clients favour this strategy for several reasons:
- It yields tax benefits by allowing the losses from negatively geared properties to offset taxable income, thereby reducing the overall tax liability.
- The strategy operates on the premise that rental income will eventually increase in the future, making short-term losses a calculated risk for future income.
- It enables diversification of portfolios by including tangible assets like real estate, known for its historically strong growth.
2. Expanding Investment Exposure With Margin Loans
Margin loans are secured loans that allow borrowers to invest in shares, managed funds, and other securities, with the investments themselves serving as collateral. High-net-worth clients benefit from margin loans in two key ways:
- Increased investment exposure, facilitated by access to additional funds, which aids portfolio diversification.
- Tax-deductible interest payments on margin loans further enhance the attractiveness of this strategy.
3. Minimising Personal Debts
High-net-worth individuals prioritise settling high-interest debts such as credit cards and personal loans, which do not offer tax advantages. Instead, they focus on acquiring debt that contributes to wealth growth or income generation, such as mortgages or loans for purchasing income-generating assets like shares and properties. This approach optimises funds for investment, reduces interest payments, and facilitates a more balanced long-term financial plan.
4. Buying In Trusts
High-net-worth individuals often opt to purchase property through trusts due to the greater control they provide. As trustees, they exercise substantial control over the property and its distribution after their passing. Trusts offer several advantages, including:
- Tax benefits through income and capital gains distribution, determined at the trustee’s discretion and tailored to the terms of the trust deed.
- Asset protection from potential legal actions, creditors and taxes.
- Streamlined wealth distribution, ensuring that assets are managed in the best interest of beneficiaries, shielding properties from creditor claims if beneficiaries face financial difficulties or legal disputes.
5. Using Leverage To Buy Properties
High-net-worth individuals adopt a strategic approach of leveraging their deposit and equity when purchasing properties. Instead of using all their savings as an upfront deposit for a single property, they spread their wealth across multiple properties, generating multiple cashflow streams and expanding their real-estate investment portfolio. The benefits include:
- The use of equity from existing properties as equity for investment loans to purchase additional properties.
- Multiple cashflow streams and portfolio growth.
- Expedited portfolio expansion, as leveraging allows investors to accumulate properties more rapidly than saving for full property purchases, with down payments being the primary requirement. This method helps build equity and facilitates a quicker portfolio growth trajectory.
We’re Here To Help!
Whether you’re a high-net-worth client or an aspiring investor, the lessons drawn from these strategies offer valuable insights for anyone seeking financial success and prosperity. As your mortgage broker, we’re here to help you. Call us on 1300 889 743 or enquire online for free today.