What factors do wealthy people use to choose investments?

[Jerry K.]

What do you think a person who is worth between $5 million and $25 million dollars would consider the most important to the least important when looking at investment choices?

I just read an article from a Family Office consulting company with results from their survey of wealthy clients ($5 million to $25 million net worth minus principal residence) and it was interesting to see the results.

"Family Office" is a term used for a wealthy family that has considerable wealth and creates an office to manage the family wealth. They hire their own accountants, investment officers, etc. all just to manage and keep track of the investments and cash streams.

Before I show the results, I wanted to survey the BiggerPockets group and see how you think that wealthy group would rank these investment criteria:

Social responsibilty of the investment
Tax implication of investment
Diversity of investments
Reputation of companies where investments are made
Risk level associated with investment
Past track record of investment

These were the top 6 criteria but not in the order I just listed. What order do you think a $5 million to $25 million person would rank these factors?

[Jerry K.]

Here are the results of the survey conducted by Spectrem Group of Lake Forest, IL. They're a consulting and market research group that specializes in the wealth management and retirement industries with a focus on the affluent segment.

This survey was conducted during the first quarter of 2012 among affluent individuals with a net worth of between $5 million and $24.9 Million.

It turns out this survey is actually answered by the welathy individuals themselves - not their employees.

The order of Investment Selection Factors for this segment were:

1. Risk level associated with investment (95% ranked this highest)

2. Diversity of investments (91%)

3. Tax implication of investment (86%)

4. Reputation of companies where investments are made (83%)

5. Past track record of investment (74%)

6. Social responsibility of the investment (27%)

Some of the commentary in the article about the survey;

55% said it is more important for them to protect principal rather than grow investments (up from 44% last year) .

Not surprisingly, as far as risk goes, those over age 65 take the least amount of risk and those under age 45 are willing to take the most risk.

While social responsibility is lowest at 27% it is growing higher each year.

One other interesting tidbit they included in the article was a list of factors that these high net worth people attributed to their obtaining and holding their wealth;

96% say Hard Work - is the main contributor to achieving their wealth

91% Education - is main contributor

87% Smart Investing - is main contributor

61% Risk Taking

In a show of growing confidence, they found 42% of these folks are willing to take "significant investment risk" on a portion of their investments this year. That is up from only 26% in 2011.