Don’t place all your eggs in one basket is probably one of the most heavily cited adages in the world of investing, and it’s all the more appropriate in today’s world!

Portfolio diversification is a key consideration for HNW individuals, and it’s not just about asset allocation.

There’s no “one size fits all” when it comes to investment strategies. Each strategy must be tailored to an individual’s risk profile, risk appetite and short and long-term objectives, including wealth and succession planning.

Historically, traditional equities and bonds have been the main drivers of portfolio performance. However, as market dynamics have become more challenging over the past decades, so has asset allocation.

In fact, while Central Banks significantly raised interest rates last year, HNW families are still adapting from the time when capital was more easily accessible, to a period where it’s no longer the case.

For this particular client segment, preserving their lifestyle and passing on wealth to the next generation is important. Yet, growing geopolitical tensions, inflationary pressures and shifting regulatory frameworks are constantly challenging their asset allocation strategies.

What does it take to build diversified and sustainable portfolios?

In addition to traditional liquid equities, diversification could include non-correlated and more illiquid assets, such as bonds, commodities or alternatives like private equity. In theory, these react differently to market movements, smooth volatility and avoid risk concentrations.

According to a recent family office survey from Goldman Sachs, some 41% of respondents say they expect to increase allocations to private equity.

Crucially, though, diversification is not just limited to asset classes alone. Commentators suggest HNW investors should ensure their portfolios have an international perspective. And with 2024 set to be an unprecedented electoral year involving more than half of the world’s population, geographical diversification of assets is all the more topical.  

Why consider the insurance lens for portfolio diversification?

Financial securities are increasingly held within unit-linked life insurance policies. For example, a survey from Kantar found that the proportion of French individuals investing through a unit-linked life insurance policy has increased from 8% in 2009 to almost 14% in March 2022.

Unit-linked life insurance in Luxembourg allows investment in a broad range of asset classes, thanks to a distinct investment regime. Plus, it offers tax deferral, portability, asset protection and the option to appoint beneficiaries of choice. And last but not least, it facilitates investment administration and reporting.

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