How the rich invest: how traditional assets boosted wealthy investor portfolios in 2023

The rich are getting richer but rather than focusing on fine wine and classic cars, many benefited from growth in the mainstream stock markets and traditional property to boost their wealth.

Most investors may have worried about rising interest rates and high inflation hitting their portfolios last year but the latest edition of The Wealth Report from Knight Frank has recorded a rise in the number of ultra-high-net-worth individuals (UHNWIs).

The consultancy and property brand said the number of UHNWIs globally rose 4.2% in 2023 to 626,619 from 601,300 a year earlier. 

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

This increase more than reverses the decline witnessed in 2022 when rising rates and energy, economic and geopolitical shocks pushed the total wealth held by UHNWIs down by 10%.

But it isn’t a love of fine wine and fast cars that is driving returns.

In fact, valuations in much of the luxury market fell last year, according to Knight Frank and it is traditional equities and property that have given the rich a boost.

Here is how the rich are investing and making their money.

Have rising equites helped the rich? 

Wealthy investors have been helped by rising equity markets.

Knight Frank highlights that the S&P Global 100 delivered a 25.4% annual increase in 2023, albeit this was “hugely flattered” by the performance of the “magnificent seven” US technology stocks and enthusiasm around artificial intelligence.

“The improving interest rate outlook, the robust performance of the US economy and a sharp uptick in equity markets helped wealth creation globally,” says Liam Bailey, global head of research at Knight Frank said.

Additionally, the gold price rose 15% last year and even Bitcoin was up 155%.

Investing in the property market

UK and global house prices may have slowed for much of last year but this wasn’t felt as keenly in the high-end ultra prime markets.

Of the 100 markets tracked in Knight Frank’s Prime International Residential Index (PIRI), which is included in The Wealth Report, 80 recorded flat or positive annual price growth. 

Luxury prices rose 3.1% on average in 2023m with markets in Manila up 26% and Dubai and The Bahamas rising 16% and 15% respectively.

“At the start of 2023, economists were expecting a much weaker outcome across global residential property markets,” says Kate Everett-Allen, head of international residential and country research at Knight Frank.

“Stock markets were heading for more pain, inflation was veering out of control and the pandemic-fuelled property boom was set to end in tears as borrowing costs hit 15-year highs in some markets. However, that never happened – we’ve seen a much softer landing in terms of price performance around the world.”

Residential returns were also boosted by prime global rents rising, Knight Frank said.

Private investors also remained the most active buyers in global commercial real estate in 2023, ahead of institutions and the public sector, for the third consecutive year. Private capital invested $338 billion globally, equating to a 49% share of total investment, slightly up on 48% in 2022 and the highest share on record.

The luxury market

A surge in financial market returns contributed to a shift in allocations which hit luxury asset values last year, the Knight Frank Luxury Investment Index (KFLII) suggests.

The research tracks the performance of 10 popular passion investments such as art, classic cars and fine wine.

While sales hit new highs thanks to record auctions for a Scottish whisky, a Ferrari 250 GTO and a blue diamond, the KFLII was negative for only the second time, with prices down 1% on average.

Art was the best performing luxury asset class with prices rising 11% in 2023 - the only product with double digit growth.

Jewellery values were up 8% and watches rose 5% while collectible coins and diamonds were up 4% and 2% respectively.

Meanwhile, the worst performing assets were whisky and cars, down 6% and 9% respectively.

Knight Frank suggests some of the declines are due to “froth coming off markets” and returns over a decade are in triple digits in some cases.

But the brand suggests this reveals a need for an “ever more discerning approach from investors.”