Our Investments Should Serve As A Tool To Reduce Risk, Not Create More

7 Feb 2025 · 1 min

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In this monologue, the speaker reflects on his experience interpreting the Tiger 21 2023 ultra‑high‑net‑worth (UHNW) asset‑allocation report. He initially assumed that the largest percentage allocations (≈30% to private equity and venture capital) indicated the most important asset class, prompting him to pour capital into angel deals, startups, and private‑equity investments. He later realized that the relatively small allocations to fixed income (7%) and cash equivalents (11%) are not insignificant; they represent a deliberately filled “safety bucket” that eliminates baseline risk. By first securing this low‑risk foundation, UHNW investors free up capacity to allocate 25‑30% to higher‑risk assets like real estate and private equity. The speaker uses his own misstep to illustrate the broader lesson that percentage size in an allocation chart reflects order of risk mitigation, not intrinsic importance.

Chapters

I say I was doing what I thought rich people did. We have a lot of information that's put out about ultra-high net worth and how they're investing. Okay, ultra-high net worth is $30 million plus. So here's a slide from the Tiger 21 asset allocation report from 2023. When I look at this slide 5 or 10 years ago, to me, I go, well, they're investing 30%, the biggest percentage in private equity and venture capital. That must mean it's the most important asset class that they're investing in. So that's exactly what I did. I was deploying capital into angel investments, startups, private equity deals, writing all of these checks. The thing that I failed to realize— this part over here, this, this fixed income, 7%, cash and cash equivalent, 11%— those aren't the smallest percentages because they're the least important. It's that when we look at overall total size, they have filled up their safety bucket first. They've completely eliminated risk, and that is what allows them to invest 25% and 30% in real estate and private equity.