One major difference between normal people and people worth millions or even billions of dollars is that normal people trust their cousin for financial advice whereas millionaires and billionaires go to extremely smart people for their advice.
Recently the chairman of Greycourt, the wealth advisory firm, was interviewed by CNBC.com. His name is Greg Curtis and he founded the firm in 1988 in Pittsburgh to help wealthy families find the best places to put their investments. Today his company represents total assets of nearly $10 billion and his typical client has assets ranging from $25 million to over $1 billion. Below are some of the answers to the questions that CNBC.com asked him, and his answers will hopefully help you, our dear readers, to make your own smart financial decisions. Enjoy.
When asked about his outlook on the markets for the coming year, 2014, Mr. Curtis said that they will be much more interesting from the perspective of someone who is a professional investor. He noted that most stocks, whether from “good” or “bad” companies went straight up last year but that in 2014 simply buying index funds will probably not be as useful as strategy as it was in 2013. He cites the fact that the stimulus from the federal government will be easing off and that geopolitical events in countries like China, the Middle East, Iran and Egypt will all play a hand in the market.
CNBC asked if there were any particular sectors that he was advising his clients to invest in, and Curtis said that private equity strategies were his choice, although they are difficult for non-accredited investors. He mentioned that he was recommending closed-end bond funds, distressed assets in Europe, real estate lending and long/short strategies in Japan.
When asked what he believed was overvalued and what his firm is avoiding, Curtis replied that the US small-cap was not only extremely overvalued but that it was significantly under target allocations. Real estate investment trusts and real estate operating companies (long real estate) he also cited as not being “interesting”, as well as most government bonds. He also stated that they were reducing their exposure to credit strategies in the hedge sector avoiding very large buyout funds in private equity.
When asked about what a model portfolio would look like when broken down by asset classes, Curtis replied that the key to a good portfolio is to get the core fixed-income allocation correct. He said that bonds “drag down” long-term returns should be minimized but that they are also essential for meeting spending needs as well as controlling portfolio volatility.
This opinion about what a model portfolio would look like where this; 15% core bonds, 5% other fixed income like high heels, 15% of US large, 5% US small, 10% EAFE ( Europe, Australasia and the far east), 10% emerging and frontier markets, real estate at 10%, hedge funds at 15% and 15% would be for buyouts adventure.
In closing, Curtis noted that there were 2 main differences between middle income investors and wealthy investors; wealthy investors, since they are accredited, have access to products that are more interesting (although he felt that this regulatory problem should be reformed or abolished). He also said that starting with risk instead of return is what most wealthy investors do, while retail investors look at return first and, usually when it’s too late, risk. The difference is that once a wealthy investor is comfortable with their risk profile their financial advisors have much more freedom to build them and interesting portfolio.