The extremely wealthy often follow different investment strategies than the average person. Given the sheer size of their capital, they are able to leverage opportunities not accessible to smaller investors. Here are some key aspects of how they invest:
- Diversification: The wealthy diversify across asset classes, geographies, and industries. They typically hold a mix of stocks, bonds, real estate, private equity, hedge funds, and sometimes more exotic assets like art or rare collectibles. They are more international in their approach than the average retail investor.
- Direct Investments and Private Equity: They have the capacity to take significant stakes in private businesses or engage in direct real estate investment deals that can provide substantial returns. In fact, most of their wealth was generated because of their personal equity stakes in their own startups/businesses.
- Alternative Investments: The affluent also invest in alternative assets like private equity funds, venture capital, hedge funds, and even sports teams, which typically require larger investment outlays.
- Long-term perspective: The wealthy generally have a longer investment horizon. They are less likely to be swayed by short-term market fluctuations and can hold onto investments for the long term, which often yields better returns.
- Professional Advice: The wealthy usually have access to top-tier financial advisors, wealth managers, and specialists who guide their investment strategies based on market analysis, risk appetite, and the investors’ personal goals.
- Philanthropy and Impact Investing: Many of the extremely wealthy are also active in philanthropy and impact investing, which aim to generate a social or environmental impact along with financial returns. This is often part of their legacy planning.
- Asset protection and Estate planning: They also pay careful attention to legal structures such as trusts and tax planning to protect their assets and pass them to their heirs in the most efficient manner.
It’s crucial to understand that while these strategies might work for the extremely wealthy, they may not be suitable for all investors. Always consider your own financial situation, risk tolerance, and investment goals when deciding where to invest.
