Why the Rich Get Richer!?

                                    Why the Rich Get Richer !?

Most people want to strike it rich. This is probably why National Lotteries worldwide
are doing such a roaring business with long queues hoping to win at Bingo or Lucky Numbers.
 Financial self-help gurus, like Robert Kiyosaki, author of Rich Dad, Poor Dad, are also incredibly
successful at attracting millionaire-wannabes to their seminars and to purchase their
publications.

One of Robert Kiyosaki’s key success factors to making it rich is that people have to
build up their portfolio and passive income – i.e. making their money work for them
rather than having to depend on earned income (salary & wages). More and more
people are starting to believe in this important principle and are looking to channel
their funds to higher return-bearing instruments.

Donald Trump, wildly known billionaire, also publishes and sells  printed and audio books with tips and tricks
on how to become a successful and rich trough investing in real estates.
 
As the man-in-the-street struggles to generate a decent return on their investments,
they look over their shoulders’ enviously at the rich who effortlessly seems able to
achieve superior investment returns. How then are these guys able to get even richer
through investing?

 There are a couple of reasons why the rich are able to outperform the mass market
when it comes to investing. These include the following:

     1) They Have Access to Better Investment Products: One of the major
advantages of being wealthy is that these investors have a wider range of
products to invest in. In fact, these rich investors are officially classified as
being “Sophisticated Investors”.

Sophisticated investors must have at the time of investment:

(i) Total net personal assets exceeding S$2 million (or its equivalent in
foreign currencies); or
(ii) Income in the preceding 12 months not less than S$300,000 (or its
equivalent in foreign currencies); or
(iii) Acquires securities in a transaction of not less than S$200,000.


 The rationale behind this classification is that sophisticated investors are
generally more savvy with investment matters, and hence can be allowed to
invest their monies in more complex instruments. There are a number of
investment products that can only be sold to sophisticated investors.
These include offshore hedge funds and complex derivative products.

Having access to this wider range of alternatives is a big advantage, as these
instruments are generally able to improve the return and risk characteristics of
investment portfolios. For instance, the performance of hedge funds has been
particularly outstanding during the recession years – some of the better funds
even managing to generate double-digit returns. The presence of these
instruments in their portfolios means that most sophisticated investors would
probably have come out of the difficult recession years in a better position
than most retail investors.

 While the product offerings available to the retail market is gradually
expanding to include these complex instruments, these products generally pale
in comparison to their more sophisticated brethren. Investors would be well
advised to stay away from such offerings till better products come onto the
market.

     2) They Have Access to Other Investment Opportunities: Besides traditional
investment products, the rich also have access to private equity opportunities.
New start-up ventures usually target rich “angel” investors for equity
financing. While these investments are relatively riskier, they do generally
provide the potential for excellent returns if the venture succeeds.
Unfortunately for the masses, such opportunities only present themselves to
the rich.

    3) They Have Professionals Monitoring Their Investments: Another major
factor why the rich make better returns from their investment is that these guys
have professionals constantly monitoring their portfolios. The private banking
industry is extremely competitive, with all the major banks fighting over the
same group of wealthy individuals. As such, these private bankers have to
provide personalized service in order to retain their clients. This service would
include advising their wealthy clients on what actions to take regarding their
various investments.

This level of service is generally not available to the mass market. A major
shortcoming in the retail market is the lack of after-sales servicing.
Oftentimes, the man-in-the-street that has been sold an investment product
will probably never hear from their investment sales representative after the
sale. If a follow up call is made, it is usually to sell yet another product.

 The current global economy is an extremely volatile one, with the economic
cycle much shorter than yesteryear. What this means is that investors can no
longer simply park their money in one instrument and leave it alone. There is a
real need to regularly check on the portfolio to ensure that the instruments
remain relevant in the current environment.

 
    4) Economies of Scale - Lower Costs: Individuals investing larger lump sums
are able to enjoy lower costs – through a reduction of sales charges or
transaction costs. These lower investment costs obviously would translate to
comparatively higher returns.

For the above reasons, it is no surprise that the rich continue to get richer. Is there any
way out for the masses then?
 



While not completely equalizing the situation, all these developments will go
someway towards improving investing for the man-in-the-street. This would give
these guys a better chance of achieving their financial goals and possibly joining the
ranks of the Sophisticated Investors.