Private jet in the air
Where do millionaires keep their money? High net worth individuals invest money in various categories of financial and tangible assets, including stocks, mutual funds, retirement accounts, and real estate. Most of the US’s 20.27 million millionaires have not inherited their money; only about 20% inherited their money. More than two thirds of all millionaires are entrepreneurs. Here are some of the places where the really rich keep their money.
Whether you are a millionaire or not, a financial advisor can help you take important steps towards achieving your goals.
Cash and cash equivalents
Many, and perhaps most, millionaires are thrifty. If they were to spend their money, they wouldn’t have any to grow their wealth. They spend on the essentials and some luxuries, but they save and expect their whole family to do the same. Many millionaires keep much of their money in cash or highly liquid cash equivalents. You set up an emergency account before you start investing. Millionaire banking unlike the rest of us. All of the bank accounts they have are managed by a private banker who is likely to also manage their assets. There is no queuing at the checkout window.
Studies show that millionaires, on average, have up to 25% of their money in cash. This is to compensate for market downturns and to have cash available as insurance for your portfolio. Cash equivalents, financial instruments that are almost as liquid as cash. are popular investments for millionaires. Examples of cash equivalents are money market funds, certificates of deposit, commercial paper, and treasury bills.
Some millionaires keep their money in treasury bills that they turn over and reinvest over and over again. You liquidate them when they need the money. Treasury bills are short-term debt securities issued by the US government to raise money. Treasury bills are usually bought at a discount. If you sell them, the difference between face value and selling price is your profit. Warren Buffett, CEO of Berkshire Hathaway, has a portfolio full of money market accounts and Treasury bills.
The story goes on
Millionaires also have zero balance accounts with private banks. They keep their money in cash and cash equivalents and write checks on their zero accounts. At the end of the business day, the private bank, as the custodian of its various accounts, sells enough cash to settle that day. Millionaires don’t worry about FDIC insurance. Your money is held in your name and not in the name of the private custodian bank.
Other millionaires have lockers full of cash in many different currencies. These lockers are located all over the world and each currency is kept in a country where transactions are made in that currency.
Property
Luxurious home
For more than 200 years, investing in real estate has been the most popular investment for millionaires to keep their money. Throughout these years, real estate investing has been the number one way for millionaires to build and maintain their fortunes. The trend started with the purchase of a primary residence and then other apartments, usually for renters. After buying some personal real estate, they started buying commercial real estate like office buildings, hotels, stadiums, bridges, and more.
Millionaires often have large real estate portfolios. Once they have established themselves as buyers in the real estate market, real estate agents start brokering deals and find it easy to obtain financing. Large investors have tied up many millions in real estate. Real estate is not an investment that can be relied on, but is a lucrative investment in the long run and a proven investment for millionaires because they like passive income and find that real estate offers it.
Stocks and equity funds
Some millionaires are all about simplicity. You invest in index funds and dividend stocks. They like the passive income from equity securities as much as the passive rental income that real estate provides. They just don’t want to spend their time managing investments.
Ultra-wealthy investors can hold a controlling interest in one or more large companies. But many millionaires hold a portfolio of just a few stocks. Many may hold index funds because they make decent returns and you don’t have to spend time managing them. They also have low management fees and excellent diversification. Millionaires also like dividend stocks for the passive income they offer. Of course, they are also interested in capital appreciation, but for some this is less important than generating current income.
Private equity and hedge funds
Unless you are a multimillionaire, you are not allowed to participate in a hedge fund or buy into a private equity fund. Public equity has been known since trading stocks on the stock exchange. One of its advantages is its liquidity. You can easily liquidate your public equity or stocks. Private equity funds, on the other hand, usually get their investments from large organizations such as universities or pension funds. Private equity fund investors must be accredited investors with a specified net worth, typically at least $ 250,000. Accredited investors can be both individuals and organizations, but they are defined by regulations. In other areas, private equity funds do not have to comply with as many regulations as public equity funds. Some of the ultra-rich, provided they are accredited investors, invest in private equity.
Not all hedge funds are created equal. Hedge funds use pooled funds and pursue multiple strategies to generate above-average returns for their investors. Hedge funds invest in what fund managers believe they will generate the highest possible short-term returns.
raw materials
Commodities such as gold, silver, natural resources or livestock, to name just a few, are also stores of value for millionaires. But they require storage and have a complexity that many millionaires just don’t want to deal with.
Alternative investments
Wheel and binnacle on a beautiful wooden sailing yacht
Some millionaires, along with the ultra-rich, keep part of their money in other alternative investments such as real assets such as art, expensive musical instruments, or rare books. There are also millionaires and the ultra-rich who have invested in intellectual property rights like the rights to songs or films. These can be very lucrative investments.
Cryptocurrency
It is estimated that there are around 100,000 cryptocurrency millionaires, the majority of whom hold Bitcoin. To get your fortune with cryptocurrencies, you have to be willing to take some risk, and many millionaires are not willing to take risks. You can take a small portion of a millionaire’s fortune and invest it in one of the various cryptocurrencies. Many people became millionaires this way. Some have lost their money. Cryptocurrency is becoming more and more accepted as a legitimate investment that deserves a look when trying to amass wealth.
The bottom line
Millionaires have many different investment philosophies, so it’s hard to generalize about where they keep their money. However, all of these are legitimate investments for millionaires. They have a desire to reduce their risk, so many prefer a diversified investment portfolio. More than one of these investments can be combined in an attempt to increase wealth.
Investing Tips
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The contribution Where do millionaires keep their money? first appeared on the SmartAsset blog.
