Most investors are unaware that there is a huge difference between the way the wealthy invest compared to the average individual investor. The super-rich (billionaires, institutional and family companies) allocate a significant portion of their investment portfolios to investments outside of the stock market and alternatives such as real estate, private equity and hedge funds. Meanwhile, the average high net worth investor primarily invests in stocks and bonds. Listen to see why these gaps exist and where these alternative investments fit into the alternative investment continuum.
There is a big difference between what 1% invest and 0.001% invest. For beginners, the gap between the two measures hundreds of millions of dollars. But the value system that drives 0.001% is more than anything financial or economic.
If you look at 0.001% of the rich, what are they actually buying? They are already well established financially, what are they actually buying at this point? legitimacy. That’s what they live for. They invest in increasing their status, sophistication, and social status. This is expressed in the continuing legacy and evolution of society and wealth into the upper strata. This is how they exercise their status and identity. This is a function of your personal brand. It is an expression of who they are and how they want to be displayed forever.
Things the Very Wealthy Do Differently
The very wealthy are a different breed altogether. They think, act, and live differently than the rest of us. Here are a few things that they do differently:
They Value Equity
As the global economy continues to rebound from the pandemic, wealthy investors are increasingly turning to value equity as a way to protect and grow their wealth. Value equity is a type of investment that focuses on stocks that are undervalued by the market. These stocks often have strong fundamentals, but are out of favor with investors.
While value stocks may not be the sexiest investment, they can offer investors a chance to buy into companies at a discount and earn above-average returns over the long term. For wealthy investors who are looking to preserve and grow their wealth, value equity is an increasingly attractive option.
Own Real Estate
Wealthy investors are often attracted to real estate as an investment option. Real estate can provide a number of advantages as an investment, including the potential for appreciation, income through rent, and the ability to hedge against inflation. For wealthy investors, real estate can be an attractive option to help diversify their investment portfolios and protect their wealth.
There are many reasons why wealthy investors own real estate. Real estate is a tangible asset that can be used as collateral for loans and other investments. It can also be a source of rental income and can appreciate in value over time. Owning real estate gives investors a sense of security and can be a hedge against inflation. Real estate can also be passed down through generations and can be a source of family wealth.
Hardly Sell Investment
It’s no secret that wealthy investors tend to be a lot more savvy and disciplined when it comes to their investments. They know when to buy and when to sell, and they rarely sell investments unless they’re absolutely certain it’s the right thing to do.
This is one of the reasons why it’s so important for regular investors to have a good investment advisor – someone who can help them make the right decisions and steer them away from potential pitfalls.
Of course, even the best advisor can’t always prevent investors from making mistakes, but having someone to help guide you through the process can certainly make a big difference.
Prefer Investment Over Savings
Wealthy investors have long understood that investing their money is a wiser decision than simply saving it. With investing, there is the potential to earn a higher return on their investment than they would earn from interest on savings. In addition, investing allows them to diversify their portfolio and spread their risk, which can lead to a more stable financial future.
For the average person, investing may seem like a riskier proposition than simply saving their money. However, for the wealthy investor, taking on a bit more risk can be worth it in the long run. After all, their goal is to grow their wealth, and investing is one of the best ways to do that.
Prefer Long Term Wealth
There are many reasons to prefer long-term wealth over short-term wealth. First, long-term wealth is more stable. It is less likely to fluctuate in value, and even if it does, the fluctuations will be smaller.
Second, long-term wealth is more likely to grow. Over time, compound interest will cause it to grow at an ever-increasing rate. Third, long-term wealth is more flexible. You can use it to buy things, invest in businesses, or even give it away. Finally, long-term wealth is more secure. It is less likely to be stolen or lost, and even if it is, you will have time to replace it.
Professional Financial Advice
When it comes to financial planning and investing, it pays to get professional help. A good financial advisor can provide valuable insights and guidance that can save you money and help you grow your wealth.
A financial advisor can help you develop a financial plan that takes into account your unique circumstances and goals. They can also provide guidance on investing, estate planning, retirement planning, and more. And, if you have any questions along the way, a financial advisor can help you find answers.
Getting professional financial advice is a smart move for anyone who wants to make the most of their money. With the help of a financial advisor, you can take control of your finances and secure your financial future.
Networking is Key to Success
The wealthy investor knows that networking is key to success. By building a strong network of contacts, the investor can gain access to exclusive deals and opportunities. The investor also knows that by networking with the right people, they can gain invaluable insights and knowledge.
The wealthy investor understands that it is not just about networking with the right people, but also about networking effectively. They know how to build relationships and how to maintain them. They also know how to use their network to their advantage, and how to get the most out of their contacts.
The wealthy investor knows that networking is a vital part of success. By networking effectively, they can gain access to exclusive deals, invaluable insights, and valuable contacts.
Take Risk of Loan
Wealthy people are more likely to take out loans than those who are less well-off. This is because they have more to lose if they default on the loan. wealthy people also tend to be more confident in their ability to repay the loan. This confidence comes from their financial stability and from their knowledge that they can always earn more money.
There are some commonalities among the investment strategies of the wealthy. For example, the wealthy are more likely to invest in alternative assets such as hedge funds, private equity, and venture capital. They are also more likely to use leverage and to take on more risk than the average investor.
The strategies used by the very wealthy to invest may seem out of reach for the average investor. However, by understanding how the wealthy invest, you can learn from their example and make your own investment decisions that are more likely to lead to success.
How do the Very Wealthy Differently Invest?
- They are more patient with challenging investments.
- They chase performance more than the average investor.
- Look for “value traps”, i.e. investing in something that is bad but the market doesn’t know.
- Not just with stocks and bonds, but in other things like private equity and real estate.
Are you saving for retirement?
- No, I spend every dollar I make
- No, I am too busy having fun to save for retirement
How do the very wealthy invest differently than everyone else?
- Care less about the risks, and more about the returns.
- Focus on the long term, not short term
- They’re willing to pay a high premium for a great investment
Related Article: Top 8 Reasons Why You Need a Real Estate Plan