According to a 2015 study conducted by management consultant, Capgemini, rich Aussies — those who are worth more than $US1 million excluding their residence — have 30.8% of their wealth tied up in real estate.
That compares to just 26.5% in equities (shares), 21.6% in cash, 9.5% in fixed income and 11.6% in alternative investments.
Australia's 'high net worth individuals' invest more in real estate than any other Asia-Pacific nation. Moreover, almost 70% of their wealth is tied up in the Asia-Pacific region alone.
While the report found just 30.7% of all wealth was invested outside the region, up from 30.4% last year; the report highlights one alarming characteristic among Australian investors: We're overexposed to property.
In fact, the global average of wealth invested in property is just 18.2% or 21.4% for Asian investors.
In the 20th century, Australia's sharemarket performed better than property and any other sharemarket globally, so it's surprising investors don't recognise the potential of the ASX.
Here's how $US1 million would be invested
| Total Hypothetical Portfolio (excluding residence) | $1,000,000 |
| Property | $308,800 |
| Shares | $265,000 |
| Fixed income | $216,000 |
| Invested in Asia Pacific | $693,000 |
| Invested globally | $307,000 |
The risk for rich investors is that they may be overexposed to Australia's hot property market.
For example, if an investor simply bought an index fund which tracks the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), there's a chance the investor's exposure to property could be meaningfully higher than 30.8%.
Since 30% of the ASX 200 is made up of Australia's big banks, and many other large stocks which have exposure to property, investors could unknowingly be overexposed to a property market downturn.
Foolish Takeaway
It's impossible to rid your portfolio of risk entirely, but you can mitigate it by remaining diversified across asset classes and geographies.
That means, if you already have significant investments in property, it would be wise to consider the level of exposure you're willing to handle before buying shares in the likes of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
