High-net-worth (HNW) individuals: Covid

Anecdotally I have been hearing about how HNW individuals are being impacted by Covid.

Lots of share portfolios and high cost lifestyles - lots of pain.

Any stories to share?

 

I never quite understand these terms - HNW. It is only good if you have sufficient cash to live through the rest of this year including keeping up your mortgage payments, etc. Most importantly now is you have a salary or whatever income streams, unaffected by Covid19. I know of someone who works in the Govt as a senior civil servant and his salary comes in like clockwork.

All the rest including property will take a nose-dive under Covid19. If it is shares, good luck... I heard that HSBC in UK is not issuing dividend.

 

"Most importantly now is you have a salary or whatever income streams, unaffected by Covid19"

Reminds me of an economics professor at Uni talking about the Great Depression, too long ago to mention. He said that if you had a job through the depression, you were well off. Things got cheaper, purchasing power increased. So yes, the value of that secure job.

Funny what you remember from uni lectures.

 

I know a guy who works for a trading hedge fund and apparently, they just had one of their best months in ages. I guess it depends on how HNW and how nimble they are.

 

Not sure what HNW is but my wife and I are around $9m net. I think we may have taken a $1m haircut from our peak, but probably less. Right now we have no intention to unload our home and acreage has its own demand cycle, our strata office could be off 10% if we need to move it and our shares are down 12.50% from Febs peak but up 24% from Nov 2019 and 44% from June 2019. Everyone working from home and gaming like mad has certainly not hurt our main stock. The worst thing is everywhere we planned to go to enjoy it has shut down. We had a small Aust portfolio which we moved to cash back in very late Feb and our US stocks have done OK and then there is the A$ moving our way. Helping our second son buy a home next year so are expecting that to be easier than it was looking.

We never changed our lifestyle, on the way up, so no real change now. Only change was premium economy and business class when we flew, and of course that is only a memory.

Probably the biggest change has been a lack of good sleep back in the last three weeks of March. One day we went down around $450K and today back up around $440K. Like being on a roller coaster. Still I can get off if I really have to so it is by default I guess. Right now I think the US has bottomed, I have doubts on Australia until we clear winter. So sleeping better.

I am also an accountant and although I am semi retired my practice is still running. A couple of clients that had good super balances of over $1m applied for part pensions back in early March.

Just got off the phone from a lawyer and court matters have gone from half a day for a 15 minute matter, mostly spent waiting to be called, and charging $3K to, "send me a email with your defense". Not sure society will let them go back to the gouging that has been the entitlement of lawyers for generations.

 

My heart bleeds for them

 

one of my sources was a major "wealth" manager

gearing, high end private school fees, prestige car leases, large home mortgages

people really struggling to face whatever the new world is

 

This is not High net worth yet

 

That is a HLE (High Living Expense) individual.

Net Worth = Assets - Liabilities

High Net Worth = Lots of Assets - Lot Less Liabilities

 

Everyone will be affected by this thing including HNWs.

While a HNW will be affected financially it depends on their portfolio and exposure to what degree... but for most true HNW it won't be material enough to matter and they will likely come out of this better than most with opportunities on the other side.

Where a HNW will be affected more so is by the restrictions on freedom during this time. Not being able to spend time doing what they want, when they want, how they want....

 

maybe, maybe not

the individual i was talking to, was shocked at the impact on people, that had previously been considered very well off

to the extent that they wondered, whether the sector they were working in, would have good demand in the future

i think there is a lot of people that sail close to the wind

whether in low income households with savings that can't last more than a week or two

or previously high income households, that have very similar cashflow equations

 

Was thinking the same thing, it's called "living beyond your means" "keeping up with the Joneses" etc.
True wealth is owning the car, the house etc. with no debt - I have no sympathy for supposed "HNW" individuals who live on credit way beyond their means.

I think HNW individuals would be looking at the opportunity in all of this more so than say the middle income earners.

 

I remember my old man drew me an illustration. Hedge funds are like a little bird pecking away food remains between the teeth of a salt water croc. The bird is enjoying all the good bits of food until the croc decides to close its jaws. The rest is history. Of course the bird thought the croc didn't close its jaws on me last time, it won't this time... Plus I have wings and I can fly...

 

I think the definition is like $5m invested right. So would mean $5m net + paid off home, no other debts. Debt exposure could lead to an unraveling here many wouldn't foresee. Lots of the high lifestyle expense individuals earnings are procyclical and that will have an impact to their personal earnings as well as investments. (eg. talking to a $500/hr self employed lawyer friend the other day, was working on 3 M&A transactions all have gone to custard...no income, 3 kids, private schools, lower north shore mortgage!) Cash will be king here. First thing I did when I hit pay dirt was pay off the mortgage and all debt, put aside 6 figures in cash as reserve for a rainy day and THEN start investing. I have a LOC available but not sure if I'll ever use it again...for me the goal is robustness..i dont intend to shoot the lights out but i do intend to make it to the finish line!

 

Lots of good, or at least steady, incoming generating assets, may I slightly amend?

 

Hedge funds are about fees though....not performance. Just stories and marketing. In this case the bird would be charging the Croc hefty fees to clean his teeth then asking for a bonus when he did the bare minimum.

 

A dip in income from $9m to $8m is pretty small.
You have done well !

 

High income households is TOTALLY different to high net worth households.

 

"High income households is TOTALLY different to high net worth households."

yes but interchangeable for many of the "wealth management" organisations. Either or.

both may be experiencing pain. even ultra HNW - lots of pain to come down to simply HNW - humans experience the difference/comparison

maybe lots of distressed asset sales - they might have something to sell, for now

 

Absolute BS.

They are NOT interchangeable. No way!!!

Take two households, both earning $1M per year (after tax) in income. I would call both households high income.

Household A spends the whole $1M every year, on expensive holidays, going out to fancy restaurant multiple times a week, buying expensive quickly depreciating toys, expensive clothes, top shelf alcohol, ...

Household B is a lot more frugal - they spend $100,000 per year on living expenses and invest the remaining $900,000 on growth assets such as shares, investment property (residential and/or commerical), etc and wisely use debt to increase their capital growth.

Household A will NEVER become a high net worth household.

Whereas household B will have every opportunity to become a high net worth household.

NEVER CONFUSE HIGH INCOME WITH HIGH NET WORTH.