One of the great things about building a high net worth portfolio is that you can invest in almost anything.
Exotic opportunities, alternatives, private markets, niche strategies. Every strategy is open to you.
But sometimes, in the pursuit of the exciting, the simple gets overlooked.
One strategy I think is often underused by high net worth investors is indexing.
Index investing is simply buying an investment that mirrors the composition and performance of a market index such as the ASX 200 (Australian market), S&P 500 (US market) or NASDAQ (technology).
It does have a bit of an image problem in HNW circles.
It is often seen as boring. Basic. A bit unsophisticated.
Which is exactly why I think it can play a very valuable role in a portfolio.
The appeal of index funds is their simplicity.
With one investment, you gain exposure to all the stocks in a particular index. There is nothing clever to do. You simply receive the return of that market, less a very low management fee. Some index funds now charge as little as 0.04% per annum.
That is hard to ignore. We all know fees have a direct impact on the return you actually receive.
Markets, over time, tend to rise more than they fall. So if your goal is to gain broad market exposure in a cost effective way, indexing is a very straightforward solution.
Another advantage, particularly for high net worth portfolios, is liquidity.
Many wealthy investors already have meaningful exposure to illiquid assets such as private equity, private credit, direct property or alternatives.
That can be perfectly reasonable.
But one of the challenges with those assets is that when you want to sell, you often cannot do so quickly or easily.
That is where index funds and ETFs can be incredibly useful.
They offer:
And in a portfolio already dominated by complexity and the illiquidity of private assets, that can be a genuine strength.
To be clear, I am not suggesting you should index your entire portfolio.
The obvious downside of indexing is that you will never outperform the market.
But that is also why I believe there is room for both.
I am absolutely a fan of active investment managers and alternative asset classes. I believe that when they are well selected, well researched and used appropriately, they can add meaningful value.
I don’t think you need to see yourself in one camp or the other.
When you have significant wealth, the better question is:
A thoughtful portfolio does not need to be built around ideology.
It should be built around what works for you.
And sometimes, the simplest things in life are often the best.If this has prompted you to think differently about how your portfolio is structured, you can learn more about how I work with clients here.
Kind regards,
Shelley Marsh
Outsourced Chief Investment Officer (OCIO) & Founder
Wealth Differently
General Advice Warning: Wealth Differently holds an Australian Financial Services licence to provide services to wholesale clients only. The information on this website is only for persons who are wholesale clients as per s761G of the Corporations Act. The information includes general advice which does not consider your particular circumstances and you should seek advice from Wealth Differently who can consider if the strategies and products are right for you. You should also understand that past performance is often not a reliable indicator of future performance and should not be solely relied upon to make investment decisions.
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