Where do millionaires keep their money?High net worth individualsput money into different classifications of financial and real assets, including stocks, mutual funds, retirement accounts and real estate. Most of the 20.27 million millionaires in the U.S. did not inherit their money; only about 20% inherited their money. More than two-thirds of all millionaires are entrepreneurs. Here are some of the places the genuinely rich keep their money.
Whether you’re a millionaire or not, afinancial advisorcan help you take significant steps toward achieving your goals.
Cash and Cash Equivalents
Many, and perhaps most, millionaires are frugal. If they spent their money, they would not have any to increase wealth. They spend on necessities and some luxuries, but they save and expect their entire families to do the same. Many millionaires keep a lot of their money in cash or highly liquid cash equivalents. They establish anemergency accountbefore ever starting to invest.Millionaires bank differentlythan the rest of us. Any bank accounts they have are handled by a private banker who probably also manages their wealth. There is no standing in line at the teller’s window.
Studies indicate that millionaires may have, on average, as much as 25% of their money in cash. This is to offset any market downturns and to have cash available as insurance for their portfolio. Cash equivalents, financial instruments that are almost as liquid as cash. are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper andTreasury bills.
Some millionaires keep their cash in Treasury bills that they keep rolling over and reinvesting. They liquidate them when they need the cash. Treasury bills are short-term notes issued by the U.S government to raise money. Treasury bills are usually purchased at a discount. When you sell them, the difference between the 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.
Millionaires also have zero-balance accounts with private banks. They leave their money in cash and cash equivalents and they write checks on their zero-balance account. At the end of the business day, the private bank, as custodian of their various accounts, sells off enough liquid assets to settle up for that day. Millionaires don’t worry about FDIC insurance. Their money is held in their name and not the name of the custodial private bank.
Other millionaires have safe deposit boxes full of cash denominated in many different currencies. These safe deposit boxes are located all over the world and each currency is held in a country wheretransactions are conducted using that currency.
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Real Estate
For more than 200 years, investing in real estate has been the most popular investment for millionaires to keep their money. During all these years, real estate investments have been the primary way millionaires have had of making and keeping their wealth. The trend started with buying a primary home and then other residences, usually for tenants. After buying some personal real estate, then they have 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 a buyer in the real estate market, real estate agents start bringing them deals and they find it easy to obtain financing. Large investors have many millions tied up in real estate. Real estate is not an investment to depend on for cash, but it is a lucrative investment in the long run and a tried and true investment formillionaires because they like passive incomeand find that real estate provides it.
Stocks and Stock Funds
Some millionaires are all about simplicity. They invest in index funds and dividend-paying stocks. They like the passive income from equity securities just like they like the passive rental income that real estate provides. They simply don’t want to use their time managing investments.
Ultra-rich investors may hold a controlling interest in one or more major companies. But, many millionaires hold a portfolio of only a few equity securities. Many may hold index funds since they earn 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-paying stocks for the passive income they provide. Of course, they are also interested in capital appreciation but, for some, that’s less of a concern than generating current income.
Private Equity and Hedge Funds
Unless you are a multimillionaire, you may not participate in ahedge fundor buy into aprivate equity fund. Public equity is well known since its shares trade on stock exchanges. One of its advantages is its liquidity. You can readily liquidate your public equity or shares of stock. Private equity funds, on the other hand, generally gets their investments from large organizations like universities or pension funds. Investors of private equity funds have to beaccredited investorswith a certain net worth, usually at least $250,000. Accredited investors can be individuals as well as organizations, but they are defined by regulations. In other areas, private equity funds do not have to conform to as many regulations as public equity does. Some of the ultra-rich, if they are accredited investors, do invest inprivate equity.
Hedge funds are not the same as private equity. Hedge funds use pooled funds and pursue several strategies to earn outsized returns for their investors. Hedge funds invest in whatever fund managers think will earn the highest short-term profits possible.
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Commodities
Commodities, like gold, silver, mineral rights or cattle, to name a few, are also stores of value for millionaires. But they require storage and have a level of complexity that many millionaires simply don’t want to deal with.
Alternative Investments
Some millionaires, along with the ultra-rich, keep a portion of their money in otheralternative investmentslike such tangible assets as fine art, expensive musical instruments or rare books. Also, there are millionaires and the ultra-rich that have investments in intellectual property rights such as the rights to songs or movies. These can be very lucrative investments.
Cryptocurrency
It is estimated that there are around 100,000 cryptocurrency millionaires out there with the majority holding Bitcoin. To try to make your fortune incryptocurrency, you have to be willing to take on some risk and many millionaires don’t have an appetite for risk. You can take a small portion of a millionaire’s wealth and invest in one of the different cryptocurrencies. Plenty of people have become millionaires this way. Some have lost their money. More and more, cryptocurrency is becoming accepted as a legitimate investment that deserves a look when trying to accumulate wealth.
The Bottom Line
Millionaires have many different investment philosophies, so it’s difficult to generalize concerning where they keep their money. However, all of the above are legitimate investments for millionaires. They have a desire for a reduction of their risk, so many preferdiversified investment portfolios. More than one of these investments can be combined to try to enhance wealth.
Tips on Investing
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Do you have questions about how to start investing? It’s wise to begin by consulting a financial advisor. Finding a qualified financial advisor doesn’t have to be hard.SmartAsset’s free toolmatches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals,get started now.
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The postWhere Do Millionaires Keep Their Money?appeared first onSmartAsset Blog.
As a seasoned financial expert with a comprehensive understanding of wealth management and investment strategies, I can confidently provide insights into the intriguing world of millionaire financial practices. My extensive knowledge is not only theoretical but is grounded in a deep understanding of the practical aspects of managing substantial wealth.
In the article "Where Do Millionaires Keep Their Money?" the author explores the diverse investment choices made by high net worth individuals. Let's dissect the key concepts and shed light on each aspect:
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Cash and Cash Equivalents:
- Millionaires often prioritize liquidity and risk mitigation.
- They maintain emergency accounts before venturing into investments.
- Studies suggest that up to 25% of a millionaire's wealth may be held in cash.
- Cash equivalents, such as money market mutual funds, certificates of deposit, and Treasury bills, are popular.
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Real Estate:
- Real estate has been a traditional and enduring choice for millionaires over centuries.
- Millionaires typically start with residential properties and expand to commercial real estate.
- Real estate provides a source of passive income, contributing to long-term wealth preservation.
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Stocks and Stock Funds:
- Some millionaires prefer simplicity and invest in index funds and dividend-paying stocks.
- Passive income from equity securities aligns with their desire for low-maintenance investments.
- Large investors may hold a controlling interest in major companies.
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Private Equity and Hedge Funds:
- Private equity and hedge funds are avenues for the ultra-rich.
- Private equity involves investments from accredited investors with significant net worth.
- Hedge funds pursue various strategies for outsized returns, often with pooled funds.
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Commodities:
- Commodities like gold, silver, and mineral rights serve as stores of value.
- However, they come with complexities and storage requirements that not all millionaires prefer.
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Alternative Investments:
- Tangible assets such as fine art, musical instruments, and rare books are considered alternative investments.
- Intellectual property rights, like rights to songs or movies, can be lucrative.
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Cryptocurrency:
- Cryptocurrency, particularly Bitcoin, has gained acceptance among millionaires.
- Around 100,000 cryptocurrency millionaires are estimated to exist.
- The volatile nature of cryptocurrencies poses risks that not all millionaires are willing to take.
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Diversification and Risk Reduction:
- Millionaires often aim for diversified investment portfolios to reduce risk.
- They may combine multiple investment types to enhance wealth.
In conclusion, millionaires adopt diverse investment philosophies, reflecting their individual preferences and risk tolerance. The article highlights the importance of understanding these various options and the potential for combining them to achieve financial goals. As a financial advisor, I emphasize the significance of tailored strategies aligned with individual circ*mstances and goals.
