How the Wealthy Protect Their Assets in Recessions
It seems that most economists are somewhat pessimistic, with 38% of those surveyed by the National Association for Business Economics in August 2019 expecting a recession in 2020, and 34% in 2021. There are several ways investors can protect their assets from a recession — including diversification, increasing the cash and fixed income portions, and investing more in safer, dividend-paying stocks. Some methods, however, are available only to wealthy investors.
The U.S. Securities and Exchange Commission defines accredited investors as those earning an income that exceeds $200,000 (or $300,000 together with a spouse) or those with a net worth of more than $1 million, alone or with a spouse (excluding the value of the person’s primary residence). Many U.S. senators can easily qualify. Here’s how rich every U.S. senator is.
Such individuals not only typically have professionally managed portfolios, but they also have access to securities offerings that are not available to investors of lesser means. Accredited investors are deemed financially sophisticated and better able to understand the risks and withstand the losses of those offerings than less affluent investors. It is with these investments that the wealthy can better protect their assets during recessions.
24/7 Wall St. relied on our editors’ knowledge and reviewed several financial sources to find the strategies and investments the wealthy safeguard their assets during downturns.
While some of the investments listed here are available to all investors, such as investing in defensive, dividend-paying stocks, the wealthy can certainly afford to buy more of them. Other strategies, on the other hand, are only available to accredited investors because of the larger minimum investments they require and the typically far higher risks.
During recessions, the rich can use their wealth to invest in beaten-down assets to later reap the rewards during the growth period. While lower-means investors tend to safeguard their hard-earned money in hard times, the wealthy have enough to spare and can take advantage of the lower prices to buy real estate, stocks, and commodities. This is how the rich get richer. Since the last recession, net worth is down for all but the top 10% of earners, and the number of billionaires in the United States has more than doubled in the last decade, according to UBS. Find out how much you need to make to be in the 1% in every state.